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26 Apr 2016
Toronto, April 26, 2016 -- Moody's Investors Service today affirmed the Aa2 issuer and long-term
debt ratings assigned to the Province of Ontario, and revised the
outlook on the ratings to stable from negative. The province's
P-1 short-term rating was also affirmed.
The stable outlook reflects Moody's view that the province's debt
burden will continue to modestly improve as the province moves towards
balanced budgets and therefore reduces its annual financing requirements.
After rising substantially following the financial crisis and recession
of 2008-09, the province's net direct and indirect debt measured
relative to revenues has stabilized. With the return to balanced
budgets on the horizon, aided by continued expenditure control and
increasing revenues, the debt burden is expected to show slight
improvements over the medium-term as annual financing requirements
Despite a planned increase in total debt over the medium-term as
the province finances an ambitious infrastructure spending program,
debt accumulation should be such that the debt relative to revenues improves
over the medium-term. Although the province forecasts only
thin surpluses in the years immediately following the planned return to
balance in 2017/18, Ontario has included some contingencies to help
ensure it achieves its fiscal targets and therefore reduce the likelihood
of incurring further deficits.
"The stable outlook on the Province of Ontario's ratings reflects our
opinion that the province has presented a budget plan with little risk
that the debt burden will exceed recent levels," said Michael Yake,
Moody's Vice President and lead analyst for the Province of Ontario.
"While we remain highly attentive to the province's elevated debt burden,
our current forecasts are for it to fall marginally across the medium-term
and, as importantly, for interest expense to remain manageable
Moody's forecasts that the province's net direct and indirect debt will
reach 237% of revenues in 2016/17, which is expected to be
slightly lower than the estimated 240% for 2015/16. While
Moody's notes that the debt burden is high compared to other Aa2-rated
peers, and remains an important credit weakness for the rating,
this debt burden is offset by a manageable level of adjusted interest
expense relative to revenues.
The Aa2 rating reflects the high degree of fiscal flexibility inherent
in the institutional framework governing the way Canadian provinces operate,
which allows Ontario to sustain a relatively high debt burden compared
to peers. The current low interest rate environment has enabled
the province to extend the maturity of its debt profile and issue long-term
debt bearing historically low coupons which has also kept debt service
low and manageable. While the proportion of revenues consumed by
interest payments is expected to increase as interest rates rise,
current forecasts indicate that it should remain below 10% of revenue,
a manageable level given the province's fiscal flexibility. Moreover,
the province's large and diversified economy and growing population provides
access to a broad and productive tax base and, as such, remains
a source of credit strength.
WHAT COULD CHANGE THE RATING UP/DOWN
If a reversal in the downward trend of the province's debt burden
were to occur, or similarly, if interest expense relative
to revenue were to rise faster than currently forecasted, the rating
would face downward pressure. Conversely, a significant reduction
in the province's debt burden and interest expense would exert upward
pressure on the rating.
The principal methodology used in this rating was Regional and Local Governments
published in January 2013. Please see the Ratings Methodologies
page on www.moodys.com for a copy of this methodology.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
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rating in a manner that would have affected the rating. For further
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respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
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the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
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or Other Permissible Service(s) to the rated entity, its related
third parties and/or the party that requested the rating within the past
two years (including during the most recently ended fiscal year).
Please see the special report "Ancillary or other permissible services
provided to entities rated by MIS's credit rating agency in Canada" on
the ratings disclosure page www.moodys.com/disclosures on
our website for further information.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
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for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Moody's Canada Inc.
70 York Street
Toronto, ON M5J 1S9
MD - Sub-Sovereigns
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Canada Inc.
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Toronto, ON M5J 1S9
No Related Data.
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