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News Article

Moody’s Changes CFE’s Outlook to Stable

By Emilio Aristegui | Wed, 07/13/2022 - 13:40

Moody’s changed the rating of Mexico’s Federal Electricity Commission’s (CFE) to stable after an all-around analysis of the company’s baseline credits and dependance on the federal government’s financial support.

Moody's downgraded CFE’s senior unsecured ratings from Baa1 to Baa2 and the baseline credit assessment (BCA) from ba2 to ba3, reports media. The firm also changed CFE’s outlook from negative to stable.

The rating downgrade by Moody’s is attributed to the Mexican government’s recent downgrade to Baa2. Mexico is the support provider of the company, which allows a rating uplift under Moody’s analytical framework for Government Related Issuers (GRIs). CFE’s standalone intrinsic strength remains stable, even in case of absence from the Mexican government’s support. The BCA adjustment from ba2 to ba3 can be attributed to the expectation of weaker intrinsic credit strength following Mexico’s energy policies and the rise in natural gas prices.

The war in Ukraine caused a major rise in natural gas prices due to uncertainty about global energy securities, causing an increase in CFE’s operating costs. However, Moody’s expects global gas prices to deflate by 2023, easing up the pressure on the company’s spending. Meanwhile, CFE will remain dependent on the Mexican federal government for funding.

The agency also considered the MX$582.3 billion (US$27.94 billion) included in Mexico’s capital investment plan for 2022-2026, which is incorporated in the CFE’s business plan. The investment is expected to create additional pressures in terms of leverage and capital investment recovery. Moody’s also explained that CFE could face a negative cash flow from operations that could lead to greater financing requirements by the end of the year.

The data used in this article was sourced from:  
Emilio Aristegui Emilio Aristegui Junior Journalist and Industry Analyst