Moody's rates Nuevo Leon bonds Baa1

Moody's Investors Service said it assigned an Aaa.mx Mexico national scale rating and Baa1 global scale local-currency rating to the Ps. 2.4 billion of bonds to be issued by the Mexican State of Nuevo Leon. The bonds have an 18-year maturity and will pay interest monthly, with a four-year grace period for principal payment. Principal payments will increase every two years through the end of the amortization period. In addition, the state is purchasing a 15% interest rate cap for two years to guard against notable fluctuations in the interest rate. The cap must be renewed upon expiration and be in place for the life of the bonds.

Bond proceeds will be used to refinance a portion of the state's bank debt, including the extension of the debt's maturity by around 5 years.

Moody's said that because the loans are direct obligations of the state, payment of which is also governed by the trust agreement and the issuing documents, the ratings rely on both the state's credit position and the enhancement to that credit provided by the governing documents. Positive rating factors include the state's record of strong operating results, manageable debt service costs, the valid and binding nature of the legal approval for the transaction, the presence of a debt service reserve fund which must hold an amount equal to the next three months of principal and interest payments and the designation of certain events that might adversely affect debt service payments as "Events of Non-Compliance," which could trigger an early amortization of the bonds.

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