Fitch Cuts Pemex to Junk, on Track for Largest “Fallen Angel” in History. Cuts Mexico to Near Junk

President of Mexico not amused: “In three years there was no investment in exploration, no investment in drilling wells, and they rated Pemex very highly. Now that there is investment, they downgrade Pemex.”

After months of firing warning shots, one of the big three ratings agencies, Fitch Ratings, has downgraded to “junk” (BB+) about $80 billion of Pemex debt — much of it denominated in US dollars and held externally — and maintained its ‘negative’ rating outlook, meaning another downgrade is likely. The company is owned by Mexico.

The day before, Fitch downgraded Mexico’s sovereign debt to ‘BBB’  — only a couple of notches above junk.

Fitch’s downgrade of Pemex’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) from to lowest level of “investment grade” to “junk” (here’s our cheat sheet for corporate credit rating scales by S&P, Moody’s, and Fitch in plain English) forces some institutional investors to shed these bonds. It will raise Pemex’s costs of borrowing. And it could hurt Mexico’s already beleaguered economy. And also this week, Moody’s lowered its outlook for Pemex to negative from stable.

Fitch cited a host of reasons for its decision to downgrade Mexico’s sovereign debt, including “the increased risk to the sovereign’s public finances from Pemex’s deteriorating credit profile”, “ongoing weakness” in Mexico’s macroeconomic outlook, which is exacerbated by “external threats from trade tensions,” “some domestic policy uncertainty and ongoing fiscal constraints”

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