DBRS Confirms Ontario Infrastructure Projects Corporation at AA and R-1 (high)

DBRS has today confirmed the Senior Unsecured Debt and Commercial Paper ratings of Ontario Infrastructure Projects Corporation (Infrastructure Ontario or IO) at AA and R-1 (high), respectively. The trend on each rating remains Stable. Despite DBRS’s downgrade of the Province of Ontario (the Province, rated AA (low)) in October 2009, Infrastructure Ontario’s credit profile remains healthy, supported by the considerable credit enhancement of its $974 million reserve fund as well as the sound credit quality of its $1.9 billion loan portfolio. DBRS notes that while Infrastructure Ontario’s credit strength is affected by the Province, it is not capped by the Province’s ratings since IO operates at arm’s length and maintains a substantial liquidity reserve to buttress its lending activities.

IO posted a net loss from operations totalling $12.9 million for the year ending March 31, 2009. The loss was in line with expectations and is primarily driven by $10.7 million in costs for the subsidized legacy loans. Additionally, the loan portfolio recorded a deficit because it has yet to reach its critical mass.

Total market debt increased slightly to $1.7 billion at fiscal year-end 2009; however, the loan portfolio expanded by $284 million, or 20%, as loans were largely funded throughout the year by the proceeds of previously issued debt and a temporary drawdown of reserves. The reserve fund decreased by $249 million but finished the year at a still-substantial $974 million.

IO’s loan portfolio is expected to grow by approximately $450 million per year moving forward, with sizable demand continuing from the municipal sector and modest interest from the university, non-profit long-term-care and social-housing sectors. Loan demand will perpetuate the upward pressure on debt over the medium term. However, IO now has the ability to issue debt to the Province that is subordinated to infrastructure renewable bonds (IRBs) and commercial paper and plans to use this funding source as opportunities arise. DBRS notes that IO maintains ample room for growth of its portfolio within the current rating given the considerable credit enhancement provided by the reserve fund and the generally sound credit quality of the entities within the loan portfolio, which is dominated by municipal credits.

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

DBRS ratings on Infrastructure Ontario are primarily based on the provincial framework governing operations, the credit quality of the loan portfolio, the size of the reserve fund relative to outstanding debt, the sustainability of the loan operations and IO’s track record of prudent management.

This is a Corporate (Public Finance) rating.

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.

Ratings

Back to top