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Rating Action:

Moody's affirms British Columbia's Aaa rating with stable outlook

06 May 2019

Toronto, May 06, 2019 -- Moody's Investors Service ("Moody's") today affirmed the Province of British Columbia's Aaa issuer and long-term debt ratings. The outlook is stable. The baseline credit assessment (BCA) of British Columbia was also affirmed at aaa. At the same time, Moody's affirmed the province's short-term P-1 ratings.

Outlook Actions:

..Issuer: British Columbia, Province of

....Outlook, Remains Stable

Affirmations:

..Issuer: British Columbia, Province of

.... Commercial Paper, Affirmed P-1

.... Issuer Rating, Affirmed Aaa

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Aaa

....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed Aaa

....Senior Unsecured Shelf, Affirmed (P)Aaa

RATINGS RATIONALE

The affirmation of the aaa BCA and Aaa issuer and long-term debt ratings reflects expectations of continued fiscal surpluses, strong economic growth that will exceed the national average, and a diversified trade and export profile which protects the province from specific-sector based shocks.

The province has consistently posted balanced results since 2013/14 and is currently projecting surpluses across its three-year budget horizon, including a surplus of CAD274 million for 2019/20 (0.5% of revenue), and average surpluses of CAD436 million (0.7% of revenues) for 2020/21 and 2021/22. Fiscal results are underpinned by a forecast of strong economic growth that is projected to exceed the national average, with real GDP growth of 2.4% for 2019, 2.3% for 2020 and 2.1% for 2021.

The province's export profile remains diversified. The US accounts for around half of exports, while key Asian markets provide trade diversity, including China (15%), Japan (11%) and other Asian countries (12%). Ongoing trade pressures with the United States, particularly with respect to softwood lumber, and recent political tensions between Canada and China highlight potential risk to trade. Nevertheless, the diversified export profile reduces the risk of trade tensions stemming from any particular sector or trading partner.

British Columbia also posts a very strong debt affordability with a Moody's-adjusted interest expense measuring 3% to 3.5% of revenue over the next three years. This affordability is expected to be maintained despite Moody's expectations that the province's net debt will rise from approximately 77% in 2018/19 to 85% of revenues over the next three years. This increase is in line with previous expectations and is driven by financing requirements for the province's capital spending.

The Aaa rating also takes into account the strong liquidity from sizeable cash and investments held by the province which provides security to bondholders. As of March 31 2018, the province held CAD6.2 billion in liquid reserves (excluding CAD1.35 billion sinking funds), equivalent to 12% of expenses and 15% of net debt. This level of liquidity also allows the province flexibility in the timing of debt issuances, especially during periods of potential market volatility.

British Columbia's baseline credit assessment (BCA) is aaa which incorporates the idiosyncratic credit elements noted above. The province's Aaa issuer and long-term rating incorporates Moody's assumption of a high likelihood of extraordinary support coming from the Government of Canada (Aaa stable).

The affirmation of the P-1 commercial paper and (P)P-1 short-term ratings reflects British Columbia's high investment grade long-term debt rating and sufficient liquidity. The province maintains prudent treasury management practices that ensures sufficient liquidity is available to meet payment obligations, and also incorporates strict policy limits on floating rate, foreign exchange and credit exposures.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects Moody's assumption of continued strong provincial economic and fiscal performance over the next 18-24 months, which should result in continued strong debt affordability and manageable debt burden.

WHAT COULD MOVE THE RATINGS DOWN

The province's credit rating could face downward pressure if net direct and indirect debt were to exceed 95% of revenue across multiple years, coinciding with a loss in the financial management of the province, as evidenced by a return to operating deficits. A deterioration of debt affordability due to a faster than expected rise in interest rates, or a weakening in BC Hydro's financial metrics could also add pressure to the rating.

The principal methodology used in these ratings was Regional and Local Governments published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, 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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Adam Hardi, CFA
Asst Vice President - Analyst
Sub-Sovereign Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

David Rubinoff
MD - Sub Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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