Winnipeg, City of: Confirms at AA (low) & R-1 (middle)

Paul Judson; Eric Beauchemin, CFA / 416-593-5577 ext.2261, ext.2252 / pjudson@dbrs.com

 

DBRS confirms the City of Winnipeg’s (the “City”) short-term and long-term ratings as indicated above.  The City is expected to have recorded another good fiscal performance in 2002, helped by growth in the taxable assessment base.  In addition, net tax-supported debt (excluding sinking fund assets) is expected to have further declined with the assistance of strong cash flows that allowed the City to postpone the refinancing of $80 million in tax-supported debt.  On September 3, 2002, the City sold Winnipeg Hydro to The Manitoba Hydro-Electrical Board (Manitoba Hydro) in exchange for: (1) payments in perpetuity roughly equal to the dividend Winnipeg Hydro provided to the City; and (2) $166 million in bonds to mirror the outstanding debt obligations related to Winnipeg Hydro.  The perpetual annuity provides a benefit to the City by improving the predictability of revenues, which assists the budgeting process.  However, this transaction had no impact on tax-supported debt, as the outstanding obligation was considered by DBRS to be self-supporting.

 

The financial outlook is positive for 2003 and beyond.  Despite continued spending pressures and sluggish growth expected in revenues, the tax-supported budget should stay balanced in 2003.  Net tax-supported debt is expected to rise slightly due to the refinancing of $80 million in tax-supported debt that has matured over recent years.  Over the long term, continued fiscal prudence combined with a policy of no new borrowing for tax-supported capital projects should put net tax-supported debt back on a downward trend.

 

While the City has taken considerable steps towards improving its financial profile in recent years, it is still confronted with some key challenges, which prevent a higher rating.  First and foremost, it must contend with a relatively heavy debt burden, which consumes considerable resources and restrains financial flexibility.  Second, the City is faced with the task of finding alternative revenue sources to fill the gap left behind by recent tax cuts.  Third, like all other large Canadian municipalities, growing capital expenditure requirements must be addressed without placing undue pressure on property tax rates or debt.  Finally, Winnipeg’s weak population growth poses a challenge, as it limits expansion of the tax base.

 

 

Dominion Bond Rating Service Limited (DBRS) will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, please contact us at: info@dbrs.com.