Fitch Affirms Medellín’s Credit Ratings Amid Stable Outlook

Fitch Ratings has reaffirmed Medellín’s credit ratings, reflecting stability in its fiscal performance and reliance on revenues from city owned multinational utility Empresas Públicas de Medellín (EPM).

Fitch maintained Medellín’s Long-Term Local and Foreign Currency Issuer Default Ratings (IDR) at ‘BB+’ with a Stable outlook, while the National Long-Term Rating (NLTR) is affirmed at ‘AAA(col)’. Additionally, the National Short-Term Rating (NSTR) remains at ‘F1+(col)’ and senior unsecured notes issued in 2014 continue at ‘AAA(col)’.

Fiscal Overview and Risk Profile

Medellín reported a robust 2023 fiscal performance, with tax revenue growth and an operating margin around 21.5%. EPM dividends remain essential to funding the city’s capital expenditures, yielding a positive fiscal surplus before net financing. Fitch assessed the city’s risk profile as ‘Low Midrange,’ indicating a moderate capacity to manage potential fiscal challenges.

Revenue growth from Medellín’s diversified economy—especially the service and tourism sectors—underpins a stable outlook. Property tax contributions, however, are limited by geographic constraints.

Key Rating Factors

Revenue Robustness and Adjustability: Fitch rated Medellín’s revenue as ‘Midrange,’ supported by its moderately diverse tax base. Despite political reluctance for tax hikes, property tax adjustments may aid in covering potential revenue gaps.

Expenditure Sustainability and Adjustability: Health and education spending, primarily financed by EPM dividends and national transfers, are countercyclical. Fitch anticipates Medellín’s operating margins to align with historical levels, although inflationary pressures could impact healthcare and education costs.

Liabilities and Liquidity: Medellín has access to diversified funding, but 72% of debt is linked to floating rates, increasing exposure to interest rate risks. Liabilities linked to Medellín’s metro infrastructure add to its obligations, with most short-term liquidity stemming from EPM dividends.

Debt and Financial Structure

Medellín’s debt plan includes long-term borrowing projected at COP1.97 trillion by 2027. Fitch’s forecast incorporates Medellín’s adjusted debt, which includes COP1.9 trillion in long-term debt and approximately COP2.5 trillion for the metro system infrastructure. Medellín’s debt management includes measures to alleviate cash flow pressures.

Potential Rating Actions

A downgrade could result if Medellín’s enhanced payback ratio nears 9.0x or if Colombia’s sovereign rating declines. Conversely, an upgrade would be contingent on improvements in Colombia’s sovereign rating.

For more information, visit Fitch Ratings and Medellín’s financial updates.