Ottawa, City of: Confirms at AA (high), Trend Now Negative

Geneviève Lavallée, CFA, Eric Beauchemin /  416-593-5577 ext.2277, ext.2252 / e-mail: glavallee@dbrs.com

 

Note: There is currently no foreign currency debt outstanding.

 

The City of Ottawa’s (“City”) long-term ratings are confirmed as above.  The trends have been changed to Negative from Stable.  The trend change reflects the significant challenge facing the City with respect to developing a viable long-term capital plan.  The City faces significant capital expenditure requirements going forward due to: (a) a higher-than-expected level of deferred maintenance on its infrastructure; (b) growth-related capital requirements; and (c) the capital spending required to meet the provincial government’s proposed legislative requirements relating to water and sewage systems.  Based on these capital expenditure requirements, the City’s tax-supported debt burden will likely rise over the long term.  Property tax and user fee increases will likely be required to service the rising debt burden.  Given its current debt burden and the fact that the City already has a high municipal property tax and user fee burden relative to the other major Ontario municipalities, the City’s financial flexibility could be reduced depending on the long-term capital plan that is adopted.

 

In addition to the challenge of developing a viable capital plan, the City faces the short-term challenge of continuing to amalgamate the systems and services of the twelve municipalities.  While the ownership of Hydro Ottawa is a long-term positive consideration, the City has yet to develop a strategy for this investment, including its level of involvement in the utility, the timing of the repayment of the promissory note and a dividend policy.

The City’s rating is supported by its relatively strong economic fundamentals and its track record of good fiscal management.  Furthermore, it is currently in a strong financial position, placing it in a much better position than many municipalities to deal with the current challenges.

 

 

Dominion Bond Rating Service Limited (DBRS) has published a full report that provides additional analytical detail.  To see this report, please click on http://www.dbrs.com/web/sentry?COMP=2900&DocId=105522.  If you do not have access to this document, please contact us at info@dbrs.com.