Fitch Assigns 'BBB' IDR to Municipio de Zapopan, Mexico; Outlook Stable

MEXICO CITY--()--Fitch Ratings has assigned a Long-Term Local Currency Issuer Default Rating (IDR) of 'BBB' to the Municipio de Zapopan Jalisco, Mexico (Zapopan). The Rating Outlook is Stable.

KEY RATING DRIVERS

Zapopan's rating is based on low leverage and robust sustainability ratios, strong liquidity position, as well as solid and stable operating margins. In addition, the rating factors in a good economic base that allows a higher fiscal autonomy in comparison to other municipalities in Mexico, minimal contingencies and an efficient administration.

In contrast, the rating is constrained by operating balances and capex ratios lower than the other local governments at 'BBB'. Additionally, a higher demand for public services and infrastructure caused by population growth could affect Zapopan's fiscal flexibility.

As of June 30, 2016, Zapopan's direct debt (DD) amounted MXN1,073.4 million, corresponding to a 15-year bank loan due 2029. Fitch estimates that DD will continue to decrease to 20% of current revenue and debt service would result in a level less than 20% of operating balance by 2016. The payback (direct debt/current balance) would be lower than two years.

Zapopan has demonstrated high levels of liquidity. From 2011 to 2015 cash and liquid deposits have represented at least 12% of total revenue. This latter, in conjunction with low account payables, determine a sound liquidity position.

In the period of analysis, Zapopan has controlled operating expenditure, which has grown at a similar pace than the current revenue. As a result, operating margins have been stable and averaged 10% of operating revenue. In 2015 this ratio reached 11% and was lower than the other local governments' at 'BBB'.

The 'capital expenditure to total expenditure' ratio averaged 14% over the last three years, financed mainly with its current balance. The ratio was also below the municipality's 'BBB' rated peers.

RATING SENSITIVITIES

An improvement in operating margins to levels higher than 15% coupled with an improvement in its capex ratios within the following two years, could lead to an upgrade in Zapopan's rating.

A negative rating action could occur if operating expenditure increases considerably and deteriorates Zapopan's operating performance and results in substantial deficits after capex that lead to higher levels of indebtedness or current liabilities.

Additional information is available on www.fitchratings.com.

Applicable Criteria

International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016)

https://www.fitchratings.com/site/re/878660

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012899

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Contacts

Fitch Ratings
Primary Analyst
Alejandro Guerrero
Associate Director
+52 55 5955 1600
Fitch Mexico, S.A. de C.V.
Manuel Avila Camacho Blvd. 88
Mexico, DF
or
Secondary Analyst
Gerardo Carrillo
Senior Director
+52 55 5955 1600
or
Committee Chairperson
Humberto Panti
Senior Director
+52 81 8399 9100
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Alejandro Guerrero
Associate Director
+52 55 5955 1600
Fitch Mexico, S.A. de C.V.
Manuel Avila Camacho Blvd. 88
Mexico, DF
or
Secondary Analyst
Gerardo Carrillo
Senior Director
+52 55 5955 1600
or
Committee Chairperson
Humberto Panti
Senior Director
+52 81 8399 9100
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com