The risk rating agency Fitch Ratings, through a statement, announced that it placed the long-term national rating of ‘AAA(col)’ of the Municipality of Bucaramanga under negative observation.
Likewise, it confirmed the national short-term rating at ‘F1+(col)’.
The rating agency explained that said negative observation is based on the imminent liquidation of Metrolínea SA, which is the managing entity of the transportation system of the Bucaramanga metropolitan area.
“According to management, the company has liabilities that may exceed $500 billion, but the exact amount is not known with certainty. Although it cannot be affirmed that the Municipality of Bucaramanga will be responsible for Metrolínea’s liabilities, Fitch is of the opinion that there is a risk that is not yet quantifiable for Bucaramanga due to the imminent liquidation of the company, given its status as the main shareholder”, detailed the Fitch report. ratings.
The average debt life indicator, calculated at the end of 2022, is 4.5 years. The Bucaramanga Mayor’s Office expects a gross increase in debt of close to $132,000 million as of 2023, corresponding to disbursements of approximately $52,000 million and a loan to be contracted for up to $80,000 million.
Therefore, the agency determined that it could take a negative action on Bucaramanga’s rating if it observes a high probability that this risk materializes and impacts the sustainability metrics, so that they compare unfavorably with those of its rating peers.
“Given the uncertainty associated with this situation, the resolution of the Negative Observation may take more than six months,” the statement said.
Thus, the long-term national rating of ‘AAA(col)’ is based on the positive fiscal performance that the Municipality of Bucaramanga continues to present, which is reflected in strong debt sustainability metrics in Fitch’s rating scenario. , compatible with your current rating.
In turn, Fitch classifies Bucaramanga as a ‘type B’ government, characterized by covering debt service with its annual cash flow.
AAA (col) indicates the highest rating assigned by Fitch on that country’s national rating scale. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country.
Fitch rates the risk profile as ‘weaker’. Thus, the evaluation of Bucaramanga results from a mixture of three key risk factors evaluated in ‘weakest’ and three in ‘medium range’.
The risk profile assessed as ‘weaker’, according to the agency, reflects a high risk that the Municipality’s ability to cover debt service with its operating balance will deteriorate beyond expectations in the rating horizon (2023- 2027).
“This is due to lower revenues, higher expenses or an unexpected increase in liabilities or debt service requirements,” Fitch said.
Regarding the solidity of the Municipality, the rating agency explained that the evaluation of this factor considers that close to 52% of Bucaramanga’s operating revenues during the analysis period correspond to transfers from the Central Government from a counterparty rated at ‘BB+’.
Regarding expenses, Fitch believes that the evaluation is in the “medium range” because Bucaramanga’s spending is not strongly influenced by variables correlated with the economic cycle and, therefore, it expects its growth to be relatively predictable in the medium term.
At the end of 2022, Bucaramanga’s direct debt was close to $263,000 million corresponding to loans granted by local banks. The maturities of these credits are distributed between 2025 and 2032.
“The main items of operating expense of the Municipality correspond to the payment of health insurance contracts for the population of the subsidized regime and personnel expenses of the educational sector. Operating margins have been relatively stable over the past few years at around 18%,” the statement said.
Regarding liabilities and liquidity, the assessment of the flexibility of liabilities and liquidity is ‘weaker’ and is based on Fitch’s opinion that the Bucaramanga mayor’s office has unrestricted liquidity levels that are not structurally robust.
In addition, that the possible sources of external liquidity correspond mainly to banks with international ratings of ‘BB+’ or lower, limited by the sovereign context.
“Although the Municipality’s liquidity has improved substantially in recent years, after having reorganized its finances during the period between 2016 and 2019, Fitch considers that the excess liquidity of the Colombian territorial entities is susceptible to the level of investment execution” , the agency concluded.
It would cost close to $600,000 million to save Metrolínea
Before the Bucaramanga Council, Yolima Espinel Blanco, manager of Metrolínea, explained and specified in depth the plan that was designed to save Metrolínea from possible liquidation. He detailed the figures and key data on the evaluation carried out with entities such as the Ministry of Transport.
During her presentation, the official specified that more than $600,000 million is required to pay debts, lawsuits and pay for the investments that the Integrated Mass Transportation System, Sitm, needs to improve the service and recover passengers.
In addition to the debts for more than $300,000 million accumulated by Metrolínea, resources are also required to cover lawsuits against the company that total close to $100,000. An extraordinary shareholders’ meeting was called to decide whether Metrolínea should be capitalized or liquidated.
In other words, to save Metrolínea, the company must be capitalized, which implies that its partners have to contribute said amount of resources.
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