PEMEX 2Q26: Better Metrics, Support Still Matters
Earnings strengthen and near-term debt falls sharply, but cash generation remains dependent on the sovereign
We remain Overweight on PEMEX, but with lower conviction and a narrower set of preferred positions supporting the call. The 2Q26 case for owning the credit now rests on carry, a refinancing profile that has improved more than any other part of the credit, and the specific points on the curve where compensation remains adequate. It no longer rests on further PEMEX-specific compression versus the sovereign, which we think has largely played out.
The fundamental improvement is what keeps us at Overweight rather than Neutral. Gross leverage declined to 4.0x from 5.2x in 1Q26 and 6.8x a year earlier, net leverage fell to 3.6x from 4.7x, and interest coverage improved to 2.6x from 2.1x. Short-term debt declined 55.9% YoY to $12.70 billion, materially reducing the maturity wall that framed the credit through most of 2025. LTM FFO returned to positive territory at $589 million from a deficit of approximately $4.0 billion in 1Q26, reflecting both the stronger quarter and the roll-off of a materially negative 2Q25, but remained weak relative to PEMEX’s approximately $79.6 billion debt burden.
We would nonetheless resist reading the improvement as standalone deleveraging. Supplier obligations increased sequentially to $21.41 billion, while only 37.2% of the 2026 investment plan had been exercised by June, leaving a heavier spending burden in 2H26. Pre-contribution net free cash flow also remained negative at $635 million despite the sharp improvement in EBITDA. Management indicated that federal support for the remainder of 2026 is already established in the budget, with no additional amounts anticipated this year. We think that is the most relevant forward statement of the quarter for bondholders because it confirms the support while limiting expectations for incremental assistance during the remainder of the year.
Liquidity is where bondholder risk has changed most, even though we continue to characterize it as weak. Cash and short-term investments of $8.27 billion, together with roughly $4.44 billion of available committed facilities, cover short-term debt at approximately 1.0x, which remains thin against a $21.41 billion supplier balance and continued reliance on external funding. In our view, the renewal of the revolving facilities matters more than the coverage ratio itself because it removes near-term bank refinancing as another source of uncertainty and extends committed funding visibility through 2029.
