DBRS Confirms the City of Vancouver at AA (high)

Dominion Bond Rating Service (“DBRS”) has today confirmed the rating of the City of Vancouver (the “City”) at AA (high) with a Stable trend. The City continues to benefit from its large, fairly stable, and affluent property tax base, which, along with prudent financial management, has enabled it to establish a track record of solid fiscal results and to accumulate a sizeable liquidity position. While these positive attributes give the City ample flexibility, the expectation of rapid growth in its DBRS-adjusted tax-supported debt continues to pose a risk to the maintenance of its rating over the medium term.

The City has recorded solid fiscal results in recent years, including a Cdn$37 million surplus (after capex) in 2004. Although the 2005 financial statements are not yet available, DBRS expects that another surplus (after capex) was posted last year, supported by a moderate increase to the property tax levy, strict cost containment, and a limited number of financially onerous capital-intensive responsibilities compared to most other DBRS-rated Canadian municipalities. The City’s positive fiscal performance has enabled it to build up total cash and investments (net of deferred revenue) of Cdn$579 million in 2004, which covered its direct net debt by 1.4 times.

Standing at Cdn$426 million or a moderate Cdn$731 per capita in 2004, DBRS-adjusted net tax-supported debt likely remained on an upward trend in 2005, boosted by borrowing undertaken by the City and by the Greater Vancouver Transportation Authority (GVTA), which is a joint and several liability of all municipalities in the Greater Vancouver Regional District, including the City.

The City is expected to post positive fiscal results over the next few years, lending solid support to its liquidity position. However, DBRS estimates that the significant borrowing intentions of GVTA, which has embarked on a three year Cdn$1.9 billion capital plan, will send the City’s DBRS-adjusted tax-supported debt burden well above Cdn$1,000 per capita over the next three years. In addition, the need for GVTA to grow its revenue to support higher debt charges and capital expenditures could notably increase the property taxes and user fees it imposes on the residents and businesses of Vancouver, possibly impairing the City’s own ability to grow revenues. Since the last rating update, however, GVTA has secured a sizeable stream of gas tax funds from the federal government (approximately Cdn$300 million over five years), which should temper its rising debt, property tax, and user fees needs, and consequently slow the erosion in the City’s credit profile.

Note:
This rating is based on public information.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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