In recent months, several Mexican state and municipal governments have considered the possibility of funding themselves by issuing debt in the Mexican local capital markets. Such debt issuances would be secured by tax revenues, collected by the Mexican federal government, and redistributed to the states and municipalities through the federal revenue-sharing system. Funds from this revenue-sharing system are known as tax participations and are made up of the flows coming from the General Participation Sharing Fund (GPSF) of the "Rubro 28," a section of the Federation budget.
The idea is to use these incoming flows from the federal government to isolate the transaction from the risks associated with the general creditworthiness of the state or municipality. Standard & Poor's considers that the rating of state or municipal debt backed by tax participations, if structured correctly, could be rated higher than the issuer's credit rating. However, Standard & Poor's also believes that, in most cases, the issuance rating will still be related, to a certain extent, to the issuer's credit rating.