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Rating Action:

Moody's assigns negative outlook to Ontario's ratings, affirms Aa2 ratings

Global Credit Research - 02 Jul 2014

Toronto, July 02, 2014 -- Moody's Investors Service has today changed the outlook on the Province of Ontario's debt and issuer ratings to negative from stable, and at the same time affirmed the Aa2 ratings. This affects approximately CAD 250 billion in debt securities. Moody's P-1 rating on Ontario's commercial paper program remains unchanged.

RATINGS RATIONALE

The change in the outlook reflects Moody's assessment of risks surrounding the province's ability to meet its medium term fiscal targets. After several years of weak to moderate economic growth, and higher than previously anticipated deficits projected for the next two years, the province is facing a greater challenge to return to balanced outcomes than previously anticipated. Although the province has exceeded fiscal targets in recent years, consolidated deficits have shown little change over the period 2011/12-2013/14, averaging -9.9% of revenues. The required revenue growth, in an environment of continued slower than average economic growth, and necessary operating expense control to achieve fiscal targets will require a considerable shift from recent trends. The province also continues to face large, ongoing capital expenditures which also places pressure on the province's fiscal position.

"The expected path to balance and stabilization of the debt burden, in our opinion, faces greater challenges than before," noted Michael Yake, Moody's Vice President and lead analyst for Ontario. Although the province has not yet tabled a new budget following its June election, indications are that it will be little changed from the May budget, which Moody's indicated was credit negative for the province. "Failure to redress the fiscal challenges would add further pressures to a debt burden that has worsened in recent years," added Mr. Yake.

Ontario's rating benefits from high flexibility of both revenue and expenditure levers providing adequate tools to achieve the desired fiscal outcome should one of these register lower than expected results. However, Moody's has observed over the course of the past several years that Ontario has been reluctant to fully utilize this flexibility.

WHAT COULD CHANGE THE RATING UP/DOWN

Ontario's rating could be downgraded if the province fails to provide clear signals of its ability and willingness to implement the required measures to redress the current fiscal pressures. Furthermore, if medium-term 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 outlook could return to stable if the province demonstrates through concrete measures that it will be able to achieve the very constrained expenditure growth rates and expected revenue growth over the term of its fiscal plan.

The Province of Ontario is Canada's largest province, representing roughly 40% of national GDP. The province's population measured approximately 13.5 million in 2013.

The principal methodology used in this rating was Regional and Local Governments published in January 2013. Please see the Credit Policy 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 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 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 rating action, and whose ratings may change as a result of this 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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody's has not provided advisory services but may have provided Ancillary 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 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.

Michael Yake
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 M 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

Moody's assigns negative outlook to Ontario's ratings, affirms Aa2 ratings
No Related Data.
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