Advanced Theory & Practice of Bonds

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1-2 December 2021

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Fitch Ratings downgraded Credito Real’s long-term foreign and local currency issuer default ratings (IDR) and its global senior unsecured debt rating to BB from BB+. The ratings agency also downgraded its perpetual bonds’ ratings to B+ from BB- and affirmed its short-term local and foreign currency IDRs at B. The Rating Outlook is Negative. Fitch cited heightened pressures on capitalization, lower earnings generation and deteriorated asset quality metrics as reasons for the downgrade. Credito Real’s current and expected weakened financial profile is believed to reflect changes in its business model from recent changes in the Mexican Social Security Institute commercial conditions and from increased exposures to less profitable segments. Credito Real also saw a weakened profitability due to increased impairment charges and lower net interest income. The company reported a pre-tax income to average assets of 0.6% and 0.7% as of 1Q21 and 2020-end, respectively, significantly below the 5.2% average of 2017-2019. Credito Real’s tangible leverage ratio increased to 5.7x from the four-year average of 4.3x (2017-2020) as of March 2021. Fitch forecasts that it will maintain levels above 5.5x given the expected subdued earnings for 2021 and the prediction that loan growth will be sustained.

Credito Real´s USD bonds were slightly down with its 7.25% 2023s down .32 to 96.782, yielding 8.98%

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