S&P Shifts PEMEX, CFE Outlooks to Negative

S&P Global Ratings revised the outlooks on PEMEX and CFE from stable to negative, the first such move in nearly four years. The decision came just one day after the agency made an adjustment to Mexico's sovereign credit outlook. Rating agencies had continuously warned of how intertwined the state companies’ credit ratings were with the nation's broader fiscal health. Nonetheless, both companies maintain investment-grade ratings.

Both PEMEX and CFE retain their investment-grade ratings at BBB, placing them on par with sovereign bonds, but the negative outlook signals that downgrades could materialize within the next 12 to 24 months if Mexico's sovereign rating deteriorates further. S&P was explicit about the causal link: the persistent, large-scale financial support that the federal government extends to both companies is now itself a driver of the sovereign's weakening credit profile.

"The continued substantial fiscal support for PEMEX and CFE will likely aggravate Mexico's fiscal rigidities," S&P said in its sovereign action statement. The agency also extended the negative outlook to several PEMEX subsidiaries, including PMI Trading DAC, PMI Norteamérica, Mex Gas Supply, and Deer Park Refining, given their strategic integration within PEMEX’s consolidated operations.

PEMEX: A Capital Structure Under Strain

S&P's report points to PEMEX’s dependence on public funds. The agency noted that between 2019 and 2025, the NOC received approximately US$69.8 billion in government transfers, a figure that spans both the López Obrador and Sheinbaum administrations. Despite this extraordinary level of support, PEMEX’s standalone credit profile (SACP) remains at CCC+, deep in speculative territory, a reflection of what S&P characterizes as an "unsustainable capital structure."

PEMEX reported a debt-to-EBITDA ratio of 5.8 times and recorded negative free operating cash flow during the first quarter of 2026. The company's losses in the same quarter ballooned to nearly MX$46 billion. S&P acknowledged that the Sheinbaum administration continues to implement various support mechanisms, but concluded that all of PEMEX’s upcoming debt amortizations will likely continue to depend entirely on public funds, a dynamic that risks widening the national fiscal deficit with each passing quarter.

Notably, S&P remains the most favorable of the three major rating agencies toward PEMEX. Moody's and Fitch have assigned lower ratings, but S&P's latest action narrows that gap and raises the prospect that PEMEX could lose its investment-grade status entirely if sovereign conditions worsen.

CFE: Strategic Importance, Similar Concerns

S&P acknowledged that CFE plays a critical role in public policy, it is the sole supplier of electricity to low-consumption residential users and the dominant provider for high-consumption customers, and that this strategic importance makes government support highly probable in any stress scenario. However, S&P flagged that the persistent need for fiscal backing creates the same type of rigid spending obligations that are pressuring the sovereign's balance sheet.

The agency expects CFE to remain the dominant force in Mexico's electricity generation sector, but cautioned that its financial profile offers limited buffer against a deteriorating national fiscal environment.

The Sovereign Backdrop: Slow Growth, Rising Debt

S&P maintained Mexico's long-term foreign-currency rating at BBB and local-currency rating at BBB+, but the negative outlook reflects the risk of very slow fiscal consolidation. 

Mexico's GDP growth slowed to just 0.8% in 2025, down from 1.1% in 2024 and 3.3% in 2023. For 2026, S&P projects growth of only 1%, citing the challenging external environment, including surging energy prices and mounting uncertainty around the renegotiation of the USMCA. In 1Q26 alone, annual GDP growth came in at a near-stagnant 0.2%.

The fiscal picture is equally concerning. Mexico's general government deficit stood at 4.9% of GDP in 2025, down slightly from 5.2% in 2024, but well above the 2.7% average between 2019 and 2023. S&P projects the deficit will hold at approximately 4.8% of GDP in 2026, with net government debt forecasted to climb from 49% of GDP in 2025 to 54% by 2029 if no meaningful consolidation occurs.

Financial analysts at Banco Base have warned that if two of the three major rating agencies ultimately downgrade Mexico to junk, institutional fund managers, bound by investment mandates, could be forced to sell Mexican bonds, triggering capital outflows and sharply higher borrowing costs across both the public and private sectors.

Investment Grade, Nearshoring, and Mexico's Investment Outlook

The S&P action lands at a delicate moment for Mexico's broader investment narrative. The agency could restore a stable outlook if effective policy implementation results in meaningful fiscal consolidation and a significant rebound in private-sector investment. That rebound, however, faces structural headwinds.

Persistent security vulnerabilities, escalating fiscal pressures, and ongoing deficiencies in energy, water, and transport infrastructure continue to pose challenges. The Sheinbaum administration's judicial reform has also introduced further policy uncertainty, while the federal government's expanding deficit could constrain its capacity to manage future crises, heightening operational and financial risks for companies evaluating long-term commitments in Mexico.

The concern is particularly acute for nearshoring, one of the country's most closely watched growth levers over the past couple of years. Proposed reforms and shifts in government policy, particularly the prioritization of state-owned enterprises like CFE, have raised questions among international investors, resulting in some projects being stalled or abandoned. A loss of investment-grade status would amplify those concerns considerably, raising the cost of capital for both sovereign and corporate borrowers and potentially accelerating capital outflows at a time when Mexico is competing for global manufacturing investment.

With the USMCA review underway, there is a market expectation that a satisfactory outcome would lift the cloud of uncertainty and pave the way toward a stronger trade relationship with the United States, further strengthening Mexico's position as a gateway for North American trade. S&P itself identified the USMCA renegotiation as a two-way risk: a constructive resolution could support a return to stable outlook, while an adverse outcome on trade ties would likely accelerate a downgrade.