Monterrey.- Fitch Ratings tomó las siguientes acciones sobre Barranquilla, Distrito de Colombia:
– Calificación de incumplimiento de emisor (IDR) de largo plazo en moneda extranjera rebajada a ‘BB +’ de ‘BBB-‘, Outlook revisado a Estable desde Negativo;
– IDR en moneda local a largo plazo rebajado a ‘BB +’ desde ‘BBB-‘, outlook revisado a estable desde Negativo;
– Calificación Nacional de Largo Plazo rebajada a ‘AA (col)’ de ‘AAA (col)’, Perspectiva Estable;
– Calificación Nacional de Corto Plazo afirmada en ‘F1 + (col)’;
– Obligaciones locales de hasta $ 650.000 millones, de los cuales se colocaron realmente $ 394.366, rebajados a ‘AA (col)’ de ‘AAA (col)’;
– Perfil crediticio independiente (SCP) reducido a ‘bb +’ de ‘bbb’.
El deterioro del SCP (perfil crediticio independiente) se debe a un deterioro del Perfil de riesgo (RP) del distrito, lo que refleja una combinación de cinco factores evaluados como ‘Rango medio’ y uno reevaluado a ‘Más débil’ desde ‘Rango medio’.
Barranquilla presenta deterioro en su posición de liquidez al cierre del año y acceso a líneas de crédito comprometidas y una disposición inesperada de deuda de corto plazo por $211.000 millones. Esto último se refleja en la reevaluación de Fitch del factor de riesgo clave de pasivo y flexibilidad de liquidez.
Un SCP ‘bb +’ también considera un puntaje de sostenibilidad de la deuda de ‘a’, que resultó de índices de recuperación estresados que oscilan entre 5x-9x y métricas secundarias bajas de índices de cobertura del servicio de la deuda por debajo de 1x y carga de la deuda fiscal que varía entre 100% -150%.
Fitch Downgrades Barranquilla, District of Colombia’s Ratings
Monterrey – 15 Jun 2021: Fitch Ratings has taken the following actions on Barranquilla, District of Colombia (the district):
–Long-Term Foreign Currency Issuer Default Rating (IDR) downgraded to ‘BB+’ from ‘BBB-‘, Outlook revised to Stable from Negative;
–Long-Term Local Currency IDR downgraded to ‘BB+’ from ‘BBB-‘, Outlook revised to Stable from Negative;
–National Long-Term Rating downgraded to ‘AA(col)’ from ‘AAA(col)’, Outlook Stable;
–National Short-Term Rating affirmed at ‘F1+(col)’;
–Local bond notes of up to COP650.000 million, of which COP394.366 were actually placed, downgraded to ‘AA(col)’ from ‘AAA(col)’;
–Stand-alone credit profile (SCP) lowered to ‘bb+’ from ‘bbb’.
The deterioration of the SCP is due to a deterioration of the district’s Risk Profile (RP), reflecting a mix of five factors assessed as ‘Midrange’ and one reassessed to ‘Weaker’ from ‘Midrange’. Barranquilla presents a deterioration in its year-end liquidity position and access to committed credit lines and an unexpected disposal of short-term debt of COP211,000 million. The latter is reflected in Fitch’s reassessment of the key risk factor of liability and liquidity flexibility. A ‘bb+’ SCP also considers a debt sustainability score of ‘a’, which resulted from stressed payback ratios ranging between 5x-9x and low secondary metrics of debt service coverage ratios below 1x and fiscal debt burden ranging from 100%-150%.
KEY RATING DRIVERS
Risk Profile: ‘Low Midrange’
Fitch has reassessed Barranquilla’s RP to ‘Low Midrange’ from ‘Midrange’, reflecting a mix of five factors assessed as ‘Midrange’ and one ‘Weaker’. This reflects a moderately higher risk relative to international peers that the issuer’s ability to cover debt servicing with its operating balance may weaken unexpectedly over the rating horizon. This may be due to lower than expected revenue, expenditures overshooting our forecasts, or from an unanticipated rise in liabilities or debt-service requirements.
Revenue (Robustness) Assessed as Midrange
Barranquilla’s operating revenue is mostly made up of predictable and growing tax items and stable transfers from the national government. The district’s operating revenue structure presents a low dependence on transfers (50.6% of transfers to operating revenue on average in 2016-2020), so Fitch believes that exposure to this risk is lower for Barranquilla than for municipalities with lower fiscal autonomy. Fitch considers the institutional framework of national transfers and its evolution as stable and predictable. However, Fitch will monitor the district’s future performance as it could be affected by the current drop in economic activity and fiscal pressures faced by the national government.
Revenue (Adjustability) Assessed as Midrange
Barranquilla holds legal discretion to adjust its tax rates under the limits established by the national government. Nonetheless, the affordability of taxpayers is modest, which could restrain rate adjustments. The district’s tax collection presents a positive trend and represents 40.1% of operating revenue at YE 2020. Management’s efforts to keep cadastral values updated support revenue generation performance, and the actual capital investments made in the city enhance tax-payers reliability.
Expenditure (Sustainability) Assessed as Midrange
Barranquilla’s main responsibilities are the provision of basic services such as education, healthcare, water supply, sanitation and transportation. These responsibilities, are mainly funded with SGP transfers. Fitch views them as moderately countercyclical and expects stable growth in the midterm.
During 2016-2020, operating expenditure growth has been in line with operating revenue (CAGR 3.0% and 3.6%, respectively) and operating margins have been 16.5% on average during the same period. According to the district’s administration, efforts to maintain a stable tax collection were applied, allowing a less pronounced fall in revenue collection. Moreover, expenditure was reoriented to prioritize responsibilities, and capex was the main variable of adjustment.
Expenditure (Adjustability) Assessed as Midrange
Barranquilla’s level of capex has been increasing constantly as a result of its economic dynamism and revenue generation, representing 27.8% of total expenditure on average during 2016-2020. As per the district’s plans, levels in 2021 could revamp after a fall in 2020, as a result of additional long-term debt disposals, in order to continue with its development plan and promote economic activity. In Fitch’s view, the high capex ratio denotes a moderate margin to cut expenditure considering capex is partly financed through operating balance.
Liabilities and Liquidity (Robustness) Assessed as Midrange
The district operates under a moderate regulatory framework. At YE 2020, Barranquilla held COP1.58 billion of long-term direct debt, most of it with variable interest rate and in local currency. There is currently no foreign exchange risk in debt portfolio. During the last quarter of 2020, Barranquilla went to the local capital markets and made an initial offering of COP650.000 million, but, based on market appetite and demand, COP394.366 million were ultimately placed. Proceeds were used to repay the district’s long-term debt and improve interest rates.
The district maintains additional long-term debt plans of COP2.1 billion expected for 2020-2023, which are already assessed in Fitch’s scenarios. The agency will follow up on the financing and the final conditions assessed, considering any increase or exposure to exchange risk could impact the risk factor assessment. Fitch will monitor the district’s compliance with local regulation indicators, considering the actual national decree 678, which aimed to support LRGs’ liquidity and economic activity midst the coronavirus pandemic and allow flexibility in the compliance of these indicators.
Apart from Fitch’s expectations for 2020, the district disposed COP211,000 million of short-term debt expected to be fulfilled in December 2021. As of February 2021, the entity hired an additional of COP2,950 million. The current administration does not expect to continue the use of this financial instrument, as it anticipates a recovery in revenues and the use of proceeds of long-term debt for capex projects.
Fitch considers in its payback ratios the long-term debt acquired through its Government Related Entities (GREs), Agencia Distrital de Infraestructura (ADI), Empresa de Desarrollo Urbano de Barranquilla y la Region Caribe (Edubar) and Transmetro. At YE 2020, these entities held COP1.3 billion of long-term debt, being ADI and Edubar the most representative.
Liabilities and Liquidity (Flexibility) Assessed as Weaker
Fitch has reassessed this key risk factor to Weaker from Midrange considering the weakening in the district’s YE cash position and the availability in committed credit lines. The latter resulted from an increase in the district’s long-term debt in recent years. Most available cash presented in its financial statements at YE 2020 are earmarked resources. The limited liquidity resulted in the disposal of new short-term debt (COP211,000 million), different from Fitch scenarios.
Colombian institutional framework does not establish a direct liquidity support in the case of need to LRGs from higher government entities. Barranquilla does not have immediate access to institutional lenders nor commercial or capital markets for committed credit lines that may support them under a stressful scenario.
Debt Sustainability: ‘a’ Rating Category
Barranquilla’s ‘a’ assessment is derived from a combination of a payback ratio (net adjusted debt/operating balance), which under Fitch’s rating case would range between 5.0x-9.0x during 2021-2025, in line with a ‘aa’ assessment. Secondary metrics of actual debt service coverage ratio (ADSCR: operating balance-to-debt service, including short-term debt maturities) at 1.0x in 2025, ‘b’ category, and a fiscal debt burden of 132.5% in the same reference year.
Barranquilla’s SCP of ‘bb+’ reflects a combination of a ‘Low Midrange’ risk profile assessment with payback ratios that score at an ‘aa’ and secondary metrics, such as a DSCR with a score of ‘bb’. Fiscal debt burden in 2025 is at 132.5%. The SCP also factors Barranquilla’s relative position with peers. The district’s IDR is not affected by asymmetric risks nor government support. Pension liabilities will be closely monitored by Fitch, considering its coverage and relative position with national peers. Fitch classifies Colombian local and regional governments as Type B, as they cover debt service through their own cash flow.
Fitch’s rating case scenario is a «through-the-cycle» scenario, which incorporates a combination of revenue, cost and financial risk stresses. It is based on the 2016-2020 figures and 2021-2025 projected ratios. The key assumptions for the scenario include:
– Taxes and other operating revenues (fees, fines and others) partly recover during 2021 and reach pre-pandemic levels until 2023, growing in line with inflation or national GDP growth, depending on its nature;
– Nominal growth of transfers is in line with the moving average of GDP’s four-year growth;
– Operating expenditure growth is in line with revenue growth, with a minimum of inflation;
– Capex growth in line with historical average;
– Debt level considers Barranquilla´s projections and additional potential long-term debt as per regulatory limits;
– Apparent cost of debt is equivalent to a short-term rate estimated by Fitch plus a credit differential of 2% (spread).