DBRS Assigns AAA Rating to Canada Post Corporation’s Long-Term Debt

DBRS has today assigned a Long-Term Debt rating of AAA with a Stable trend to Canada Post Corporation’s (CPC or the Corporation) $1 billion bond issue. CPC is a Crown corporation (since 1981) of the Government of Canada, which is the only shareholder. It has a dual mandate to establish and operate a postal service for Canadians, and to conduct its operations on a financially self-sustaining basis.

CPC’s rating is based on: its status as an Agent of Her Majesty in Right of Canada (Agent of the Crown) explicitly granted as per the Canada Post Corporation Act (the Act); and the fact that CPC is empowered by its constituting Act to borrow up to $500 million from the Government of Canada for the purpose of conducting its business activities in addition to its ability to borrow externally. As a result, long-term debt approved by the Minister of Finance and issued by CPC under its Fiscal Agency Agreement ranks equally in respect of payment out of the Consolidated Revenue Fund with all other unsecured and unsubordinated securities issued by the Government of Canada.

The Government of Canada increased CPC’s external borrowing limit to $2.5 billion from $300 million in 2009 in order to facilitate the financing requirements for the Corporation’s capital investment initiatives that are part of its “Postal Transformation” plan. A key element of the program is to update mail-processing equipment from the 1970s and 1980s with leading-edge machinery capable of sorting mail faster, more accurately and more thoroughly. Investment in the Postal Transformation program commenced in 2009 and is expected to amount to approximately $2 billion by 2015.

DBRS notes there is always a possibility for change in legislation and/or ownership that could affect the Agent of the Crown status of CPC, as for other Agents of the Crown currently rated by DBRS (e.g., the Business Development Bank, Canada Mortgage and Housing Corporation). That said, DBRS believes the Government of Canada would continue to support the debt outstanding in the event of such a change. The example of the Canadian Wheat Board (CWB) offers support to our view – debt issued by CWB prior to its Agency status being revoked in 1998 is explicitly guaranteed by the Government of Canada.

CPC is one of Canada’s largest federal Crown corporations and one of the largest employers in the country with approximately 71,000 employees either directly or through its subsidiaries. The main objective of the Corporation is to operate Canada’s postal service on a self-sustaining basis, including the collection, transmission and delivery of messages, information, funds and goods both within Canada and between Canada and other countries. Accordingly, CPC has the sole and exclusive privilege of collecting, transmitting and delivering letters to the addressee thereof within Canada, but faces intense competition in its two other core business lines, namely parcels and direct marketing. It delivers approximately 11 billion pieces of mail, parcels and messages each year to some 15 million addresses across Canada, and operates the largest retail network in Canada with 6,532 post offices.

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

The applicable methodology is Rating Agents of the Crown, which can be found on our website under Methodologies.

This is a Public Finance rating.