Toronto, September 24, 2021 -- Moody's Investors Service ("Moody's") today affirmed the Aa2
issuer and senior unsecured debt ratings of the District Municipality
of Muskoka, and revised the outlook to positive from stable.
The district's aa2 baseline credit assessment (BCA) was also affirmed.
Affirmations:
..Issuer: Muskoka, District Municipality of
.... Issuer Rating (Local Currency),
Affirmed Aa2
....Senior Unsecured Regular Bond/Debenture,
Affirmed Aa2
Outlook Actions:
..Issuer: Muskoka, District Municipality of
....Outlook, Changed To Positive From
Stable
RATIONALE FOR THE POSITIVE OUTLOOK
The positive outlook reflects Moody's expectation of continued growth
in Muskoka's liquidity levels and the district's capacity
to continue to generate strong operating results in 2021 and 2022,
while factoring in lingering uncertainty caused by the coronavirus pandemic.
The positive outlook also reflects Moody's expectation of only modest
debt increases over the next 2-3 years without adverse impacts
on debt affordability as the district prioritizes non-debt financing
for the majority of its long-term capital plan.
RATINGS RATIONALE
The affirmation of the Aa2 ratings and aa2 BCA reflects Muskoka's
strong levels of cash and investments which supports high liquidity coverage
ratios, strong governance and fiscal management, and the district's
capacity to generate significant operating surpluses.
Cash and investment balances stood at CAD207 million at year-end
2020, and provided 253% coverage of net direct and indirect
debt and 124% of total expense. Moody's projects that
these balances will continue to increase from anticipated operating surpluses
which will result in rising coverage ratios.
Muskoka's governance is strong which reduces the risk to the district,
and reflects its prudent fiscal management including during the coronavirus
pandemic, strong liquidity and debt management with a focus on limiting
the increase in debt, as well as forward-looking capital
planning. Revenues are largely protected from market events including
the coronavirus pandemic, and expense pressures are mitigated both
through COVID-related expense control measures and financial support
from the provincial and federal governments. The district has historically
generated strong operating results which averaged 26.5%
of revenue between 2016 and 2020.
The district faces manageable pressures from elevated levels of capital
spending related to it road and utilities networks, with the 10-year
tax- and rate-supported capital plan for 2021-2030
totaling CAD374 million. Cost increases typically reflect both
general cost inflation, as well as cost overruns relating to construction
in more remote areas.
The rating also reflects the district's dependence on seasonal tourism
along with an aging demographic. Seasonal tourism drives business
investment, construction and property values in the district.
Given the strong reliance on seasonal tourism, Muskoka's economy
is more exposed to changes in the province's economic conditions than
other municipalities.
The debt burden has been on a declining trend over the last five years,
with net direct and indirect debt standing at 43% of operating
revenue in 2020. Moody's projects that the debt burden will
rise modestly over the next two years to 50% - 60%
(in line with 2018 and 2019 levels) to fund capital plans as the district
prioritizes other funding sources including reserves or pay-go
funding from development charges. The district also maintains conservative
debt management policies which limit the growth in the debt burden.
Muskoka's Aa2 ratings take into account the aa2 BCA, which
represents the district's standalone credit strength, before
the application of a high likelihood of extraordinary support coming from
the Province of Ontario.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental risks are not material to Muskoka's credit profile.
Social risks are low given that although the district provides public
emergency services including police and paramedic, these services
do not face material risks given predictable demographic trends and given
federal and provincial government funding support during the pandemic.
Moody's regards the coronavirus outbreak as a social risk given
the implications for public health, however the credit impact from
the pandemic is low as the majority of related expenses are the responsibility
of the province and not the district. Governance is strong and
benefits from prudent financial planning which allows for multiyear forecasting
of key trends, allowing the district to identify potential issues
and allows for sufficient time to adjust plans accordingly to mitigate
any credit implications.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The district successfully demonstrating over the next 12-18 months
that it can continue to generate strong fiscal results in the face of
pandemic-related pressures, without material adverse impacts
on its liquidity and debt metrics, could lead to an upgrade in the
ratings.
A sustained weakening of financial performance leading to operating deficits,
a material decline in liquidity and reserve levels, or a significant
increase in the debt and interest burdens above projected levels could
result in a downgrade of the rating.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091595.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
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
Vice President - Senior 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
Alejandro Olivo Villa
MD-Sovereign/Sub Sovereign
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Canada Inc.
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