DBRS Confirms the City of Winnipeg at AA (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings of the City of Winnipeg (the ”City” or “Winnipeg”) as indicated above.

DBRS notes that Winnipeg remains in a sound financial position with strong fiscal results, healthy liquidity growth, and a diversified economic base. However, the rating remains constrained by a high, though declining, tax-supported debt burden as well as a significant infrastructure funding gap.

The City continues to record post-capex surpluses, helped in great part by strict fiscal discipline and a steady decline in debt-servicing costs due to its strong emphasis on internally financed capital expenditures. While 2005 financial results have not yet been released, DBRS expects the City to have recorded another post-capex surplus despite a tight operating environment, which is due in part to a continuing policy of holding constant or reducing the tax rate (nine consecutive years as of 2006).

Although down significantly from the late nineties, tax-supported debt remains relatively high when considering the size of Winnipeg’s tax base. In 2005, projections indicate that tax-supported debt amounted to approximately Cdn$370 million or 1.4% of its taxable assessment, the second highest amongst DBRS-rated Canadian municipalities and twice that of the next highest municipality.

Looking forward, Winnipeg’s fiscal performance is expected to continue evolving along its current path of reasonable surpluses and conservative fiscal management. As the City has confirmed that it remains committed to its current policy of not issuing new tax-supported borrowing authority, DBRS expects tax-supported debt to resume its steady decline over the next few years. However, the pace of decline may be impacted by the possible issuance of the City’s Cdn$86 million in previously approved borrowing authority.

Over the long term, the City’s financial profile may be hampered by its significant infrastructure funding gap, which was estimated in 2004 to be Cdn$1.8 billion over the next decade. Though the addition of federal gas tax funding will help alleviate spending pressures related to the gap, it still constitutes a key constraint to the rating. The City will likely find it difficult to meaningfully address the shortfall through internal revenue sources and may be compelled to utilize debt financing, which could reverse the downward trend in tax-supported debt.

Nonetheless, the improvement in the City’s balance sheet in recent years, characterized by strengthening liquidity levels and declining debt, has increased Winnipeg’s flexibility, lending support to its credit profile.

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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