Panama Canal Rating Downgrade

Due to the deterioration of fiscal indicators resulting from the severe economic impact of the pandemic, Moody's downgraded the Panama Canal Authority's senior unsecured debt rating from A1 to A2.

Monday, March 22, 2021

Given that the A2 rating is three notches above Panama's Baa2 sovereign rating, a rating upgrade is unlikely in the near term. An upgrade would require the ACP to continue to strengthen independently and Panama's sovereign rating to be upgraded, the rating agency said.
Check out the "System for monitoring markets and the economic situation in Central American countries", prepared by CentralAmericaData.

From Moody's report:

New York, March 18, 2021 -- Moody's Investors Service, ("Moody's") downgraded to A2 from A1 the senior unsecured debt rating assigned to Panama Canal Authority ("ACP"). Moody's also changed the rating outlook to stable from negative and lowered the Baseline Credit Assessment, a measure of ACP's standalone creditworthiness, to a2 from a1.

The ACP credit quality is underpinned by the robust institutional framework, corporate governance and international treaties that ensure its operation without interference. The A2 rating is three notches above the Government of Panama's (GOP) sovereign rating (Baa2 stable). The rating reflects a long history of operations free of political interference; its solid corporate governance; and rules that ensure the maintenance of prudent business management. Notwithstanding, Moody's rating action reflects that ACP's creditworthiness cannot be completely de-linked from the current stresses facing the government, economy and population of Panama.

The credit quality of the ACP reflects the distinctive position of the Panama Canal as an infrastructure asset with a unique geographic advantage and business model. Despite the coronavirus pandemic and US-China trade tensions, the ACP's operational and financial performance has been strong, supported by the recent expansion and a new tariff scheme.

For fiscal year 2020 (October 2019 -- September 2020), the Panama Canal registered slight growth relative to the previous fiscal year of 2.6% in transits, 1.1% in PC/UMS (Panama Canal/Universal Measurement System) tonnage and 0.7% in cargo tonnage. For fiscal year 2021, we expect continued growth, but operating performance will still be lower than 2019 levels. Nonetheless, Moody's projects that financial performance will remain very strong, with ACP recording Funds from Operations (FFO) to Debt ratio above 60% and Cash Interest Coverage above 14x for 2021.

Given that the A2 rating is three notches above the Baa2 sovereign rating of Panama, an upgrade of the rating is unlikely in the near term. An upgrade would require that the ACP continues to strengthen on a standalone basis and that the sovereign rating for Panama is upgraded.

The rating could be downgraded as a result of a similar action on the sovereign rating. The rating could also face downward pressure if weaker operational performance leads to a deterioration of key financials, such that the ACP reports cash interest coverage below 8.0x or funds from operations/debt below 30%. Any changes to the ACP's legal status that affect its autonomy or any weakening of its corporate governance practices could also strain the ratings.

¿Busca soluciones de inteligencia comercial para su empresa?

More on this topic

Negative Outlook for Panama's Debt

October 2020

Based on the argument that there is no significant fiscal consolidation and sustained economic recovery, the rating agency decided to downgrade the government's long-term issuer rating perspective from stable to negative.

Although the outlook was modified, Moody's decided to maintain the long-term issuer and senior unsecured debt ratings at Baa1.

Costa Rica: Moody's Downgrades Debt Outlook

June 2020

The rating agency decided to keep the long-term issuer's note at B2, but changed the risk outlook from stable to negative, arguing that there are greater risks to the country's financing due to increased borrowing requirements.

The affirmation of Costa Rica's B2 rating takes into account the sovereign's levels of wealth above its peers and its dynamic economy.

Investment Grade for State-owned Electric Plant

April 2019

Moody's assigned to Empresa de Transmisión Eléctrica de Panamá a Baa1 issuer rating, arguing that it reflects key credit strengths and is the only electricity transmission company in the country.

Gilberto Ferrari, general manager of Empresa de Transmisión Eléctrica (Etesa) explained to that "...

Panama's Risk Rating Improves

March 2019

Arguing that the outlook remains more positive in the medium term, Moody's upgraded its foreign currency long-term issuer rating from Baa2 to Baa1.

For the rating agency, Panama will continue to grow quickly, surpassing the growth achieved by the majority of qualified pairs in Baa.