DBRS Confirms the City of Montreal at A (high)

Dominion Bond Rating Service (DBRS) has today confirmed the Long-Term Debt rating of the City of Montréal at A (high). The trend remains stable.

The credit profile of the City of Montréal (Montréal or the City) remains unchanged following the territorial reorganization completed last January and amidst continued capital pressure. Pursuant to the de-merger referendum held in June 2004, 15 former municipalities that had merged with the City in 2002 were reconstituted as independent entities on January 1, 2006. Accounting for roughly 13% of the island’s population, the reconstituted municipalities recovered only a portion of their former powers, mainly pertaining to local services. Common services such as drinking water, arterial roads and public safety continue to be delivered island-wide by the City, with all related management functions assumed by the newly created Urban Agglomeration Council. Therefore, despite the short-term challenges imposed by the reorganization, the City continues to benefit from economies of scale, a broader tax base and central planning for key municipal services.

The City continued to post modest surpluses in 2005, reflecting spending discipline, low interest rates and solid construction and renovation activity. The operating outlook remains sound for 2006, with the budget pointing to an operating surplus estimated at $370 million, although sizeable capital investments may result in a modest core shortfall (after capital expenditures). Despite difficulties encountered in the garment sector following the expiry of the Multi-Fibre Agreement in December 2004, and the dampening effect of the stronger Canadian dollar on Montréal’s large manufacturing base, the regional economy (the second in importance in Canada) also maintains good fundamentals, with real GDP growth of 2% to 3% in the years ahead.

At $1,597 per capita (DBRS adjusted), net tax-supported debt remains relatively high and currently constitutes the key impediment to the City’s credit rating, although tighter capital planning practices and increased government funding have provided substantial relief and helped contain debt growth in recent years. Like most other large Canadian municipalities, however, capital needs are substantial, especially with regard to water to road infrastructure, which DBRS expects to continue to exert pressure on debt as well as tax rates and user fees going forward.

Note:
All figures are in Canadian dollars unless otherwise noted.

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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