Moody's Revises British Columbia's Outlook to Negative from Stable on Aaa rating

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 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 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, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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 the rating.

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
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635