In the evolving Mexican capital markets, traded certificates or
Certificados Bursátiles (“CBs”) have become the
most versatile security existing in the catalog provided under
Mexican law.¹ CBs may be issued by Mexican or foreign
companies, whether private or public. Understood in their pure
expression and in their original purpose,² CBs are debt
instruments that represent the individual participation of their
holders in a collective credit held by a legal entity or in a trust
(fideicomiso).

In this Legal Update, we analyze the main characteristics of CBs
used as direct debt instruments (i.e., debt instruments issued by a
legal entity and reflected on its balance sheet).

CBs, as debt instruments, may be rated by Securities Rating
Institutions (i.e., credit rating agencies) in order to provide
potential investors with an independent evaluation of the
issuer’s creditworthiness and of the risk level of the
investment. The terms of the CBs vary according to the issuer, so
they may have different payment terms, be subject to fixed or
variable interest rates, have a specific guarantee or be unsecured.
Once acquired by investors, CBs may be traded in the secondary debt
market.

Some of the advantages provided by CBs are:

• They allow the issuer to obtain financing on considerably more
  favorable and flexible terms than those that a banking institution
  would be willing to grant (due to the fact that interest rates
  available in securities markets are generally lower than those
  accepted by banking institutions in traditional lending).
• They are relatively safe financial instruments for investors
  since they are debt instruments and do not represent a
  participation in the issuer’s equity.
• They allow investors to obtain an additional source of cash
  flow, to the extent that the issuer makes the corresponding
  interest coupon payments.
• They can be denominated in Mexican pesos or in investment units
  or indexed to the exchange rate.

Footnotes

1. Currently, CBs are used to document rights different
from the collection of principal plus interest. For example,
development or real estate trust certificates (typically issued by
CKDs and/or FIBRAs, respectively) are a type of trust certificate
that document the equity participation of their holders in the
returns generated by the assets underlying the respective issuing
trust.

2. Initially, CBs were designed and introduced in Mexican
law to meet the financing needs of legal entities to be met through
the placement of debt on a collective basis. In other words,
initially, CBs were created to document the individual
participation of their holders in a collective credit in charge of
the respective issuing company.

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