Toronto, December 12, 2012 -- Moody's Investors Service has revised the outlook on the Province
of British Columbia's Aaa issuer and debt ratings to negative from
stable, affecting approximately CAD39.8 billion in debt securities.
RATINGS RATIONALE
"The negative outlook reflects Moody's assessment of the risks
to the province's ability to reverse the recent accumulation in
debt with the softened economic outlook, weaker commodity prices
and continued expense pressures," said Moody's Assistant
Vice President Jennifer Wong, lead analyst for the province.
In the province's second quarter report, released in November
2012, the Economic Forecast Council (group of private economic forecasters)
revised its forecasts down for provincial growth in 2012 and 2013 to 2.1%
and 2.2% from 2.2% and 2.5%,
respectively. The slowing in the provincial economy, continued
weak natural gas prices and delay in the expected sale of the province's
Little Mountain property have translated into a wider deficit for the
2012-13 fiscal year. The deficit is now projected to be
C$1.5 billion (3.5% of revenues), compared
to C$1.0 billion forecast at budget time. With the
posting of operating deficits in recent fiscal years along with significant
capital expenditures, the province increased its net debt to an
estimated C$33.6 billion, or 82% of revenues,
at March 31, 2012, from roughly 65% of revenues at
March 31, 2008.
In its 2012-13 budget, the province reaffirmed its plan to
reach a balanced operating budget in 2013-14. Should the
province's fiscal plan come to fruition, the province's
debt burden is expected to increase moderately to approximately 94%
of revenues in 2014-15, a relatively high level compared
to other Aaa sub-sovereign peers. Moreover, a more
subdued economic outlook, compounded with lower-than-anticipated
natural gas resource revenues, along with continued expense pressures
presents risks to achieving the fiscal plan and to stabilizing and ultimately
reversing the recent accumulation in debt.
British Columbia, however, has instituted a number of contingencies
and reserves to help ensure it achieves its fiscal targets, including
a forecast allowance and contingencies of C$400 million in 2012-13
(1% of revenues) and C$450 million and C$550 million
in 2013-14 and 2014-15 respectively.
"Should the province achieve its fiscal targets and stabilize and
then reverse the recent accumulation in debt, the outlook could
revert back to stable," says Ms Wong.
The Aaa rating, nevertheless, continues to reflect British
Columbia's high debt affordability, strong fiscal management and
the high degree of fiscal flexibility inherent in the institutional framework
governing the way Canadian provinces operate. The current low interest
rate environment has enabled the province to issue long-term debt
bearing historically low coupons, aiding fiscal flexibility.
Furthermore, the province benefits from a track record of prudent
fiscal management and meeting fiscal targets over the last decade.
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.
Moody's P-1 rating on British Columbia's commercial
paper program remains unchanged.
The Province of British Columbia is Canada's western-most province,
representing approximately 12% of national GDP. The province's
population measured roughly 4.6 million in 2011.
WHAT COULD CHANGE THE RATING UP/DOWN
A return to a stable outlook on the Aaa rating would require an achievement
of the province's fiscal targets that stabilizes and ultimately
reverses the recent accumulation in debt over the medium term.
Should the government's resolve to achieve fiscal redress diminish
and/or if the province is unable to stabilize and then reverse the accumulation
in debt, then downward rating pressure could emerge. Furthermore,
if debt affordability were to deteriorate due to higher than expected
increases in debt levels or a significant rise in interest rates,
the province's fiscal flexibility would be reduced, exerting downward
pressure on the rating.
The methodologies used in this rating were "Regional and Local Governments
Outside the US", published in May 2008, and "The
Application of Joint-Default Analysis for Regional and Local Governments",
published in December 2008.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
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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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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,
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Jennifer A. Wong
Asst Vice President - Analyst
Sub-Sovereign Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635
David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
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Moody's Revises British Columbia's Outlook to Negative from Stable on Aaa rating
