DBRS Confirms City of Montréal at A (high)

DBRS has today confirmed the Long-Term Debt rating of the City of Montréal (the City) at A (high) with a Stable trend. The City continues to display sound credit fundamentals, underpinned by a proven track record of positive operating results, a strong emphasis on financial management policies, and access to Montréal’s large and well-diversified tax base. The rating remains constrained, however, by the City’s comparatively heavy tax-supported debt burden.

The City has consistently posted annual surpluses (DBRS-adjusted, including capital activities) over the past ten years, despite the difficulties associated with implementing a series of major territorial reorganizations, including the de-merger of 15 small municipalities last year. A DBRS-adjusted surplus of $1.8 million was posted in 2006, as the City kept spending pressures under control by instituting a citywide departmental review and hiring freeze. Tax-supported debt remained on an upward trend, however, rising 6% last year to $3.2 billion or $1,716 per capita, which is high relative to other large Canadian municipalities.

Helped by further cost-containment efforts, the City managed to balance its operating budget and hold the line on general taxes in 2007. Looking ahead, the operating budget is expected to remain balanced, although significant capital investment activities are likely to weigh on results and could produce modest DBRS-adjusted annual shortfalls. Despite soft conditions in the manufacturing sector, Montréal’s economy is poised for solid growth over the medium term, thanks to rising non-residential building activity fuelled by the proposed construction of two mega hospital projects.

While the operating outlook remains favourable, the City is saddled with the significant cost of rehabilitating its mature asset base, which is likely to continue exerting upward pressure on debt going forward. However, recent increases to the level of capital grants provided by senior governments, such as the sharing of federal gas tax revenues, are expected to provide relief and help keep debt growth manageable under the current rating.

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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