Fitch: Mexico City's Clean Air Rules May Mean Toll Road Declines

NEW YORK--(BUSINESS WIRE)-- Mexico City's temporary broadening of air pollution regulations to include more cars is not expected to change Fitch's toll road ratings. However, making those changes permanent could have a negative rating impact, Fitch Ratings says.

Hoy No Circula (HNC) began in 1989 and its regulations have varied over time. Until mid-2015, driving vehicles over eight years old was not permitted in the city during daylight hours on particular days. Starting in July 2015, the prohibition applied to vehicles with relatively dirty emissions. This year, from April 5 to June 30, those restrictions were applied to the majority of vehicles to address a rise in pollution. The previous narrower band of restrictions, which covered fewer cars, is likely to be reinstated on July 1.

Some concessionaires estimated that traffic will decline by 10% during this term of tougher regulations. Assuming this decline is accurate and there is no growth in the other three quarters, Fitch estimates that annual traffic volume would decline by just 2% to 3%. Drivers who make long, infrequent and incidental trips may simply choose to travel while their vehicles are permitted, limiting the impact of the stricter rules on toll road traffic volume. Fitch believes declines will be primarily observed on roads with high commuter traffic, but that such a decline will not be enough to have an immediate impact on rated toll roads.

Should the tougher measures become permanent after July 1, concessionaires will likely seek compensation for lost revenues from the granting authorities. Toll roads' cash flow available for debt service would likely become constrained, which might affect their credit profile, depending on the magnitude of the loss of cash flow, credit specific attributes and compensation mechanisms.

Fitch rates four highway projects inside HNC's boundaries: Mexico City North Bypass, Mexico City Beltway, Penon-Texcoco and Tenango-Ixtapan de la Sal. Our outlook for the sector is Stable. Further analysis of traffic pattern changes can be found at www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Source: Fitch Ratings

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