Moody's downgrades Mendoza

Moody's Latin America said it downgraded the Province of Mendoza's issuer ratings to B2 from B1 on the global scale and to A1.ar from Aa3.ar on the national scale and the national scale rating on its foreign-currency unsecured bonds to A1.ar from Aa3.ar. The global rating on these bonds remains B2.

The outlook is stable.

The agency said the downgrade reflects the province's increasing reliance on debt financing from the federal government as the province's operating margins, albeit positive, have been declining since 2006.

Mendoza's credit metrics remain relatively sound and empirical evidence on recovery rates demonstrates that the province's bondholders suffered lower haircuts than the sovereign bondholders following the 2001-2002 debt crisis, Moody's said, but Mendoza's increasing financial dependence on federal funding reduces its financial flexibility and draws its credit profile closer to the sovereign.

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