DBRS Confirms City of Calgary at R-1 (high) and AA (high)

DBRS has today confirmed the Commercial Paper, Issuer Rating and Long-Term Debt ratings of the City of Calgary (the City) at R-1 (high), AA (high) and AA (high), respectively. The trends remain Stable, reflective of the City’s prudent fiscal management, sizable liquidity position and the underlying strength of the local economy. The main pressure on the financial profile of the City of Calgary stems from ongoing infrastructure and service expansion requirements to accommodate a steadily growing population, attracted by strong employment prospects and high standards of living. New debt will be issued to finance this growth, with an increasing proportion to be of a DBRS-adjusted tax-supported nature, in a reversal of the recent trend toward self-supported debt. DBRS views current projections for the City’s debt, specifically the tax-supported portion, as within the acceptable range for the rating.

The City reported solid financial performance in 2012, with a DBRS-adjusted operating surplus of $836 million, supported by higher property tax revenues and net income from its ownership of ENMAX Corp. power utility (rated A (low), Stable), combined with lower expenditures on government operations, social services and recreational and cultural services. Total operating revenues grew by 11.5%, while total operating expenditures before amortization were well-contained, declining at a rate of 2.4%. A number of high-profile infrastructure projects were completed in 2012, leading to lower recorded capital expenditures and a significant post-capex surplus of $417 million, marking a reversal of four years of consecutive post-capex deficits.

Calgary’s 2013-2017 capital plan calls for $6.6 billion in capital spending, $5.1 billion of which will be for tax-supported projects and $1.5 billion for utilities investment to accommodate future growth. The City’s total debt burden is projected to increase by 19% by the end of 2014. DBRS-adjusted tax-supported debt will total 54% of new debt attributable to the City in the next two years, rising from the current total of $774 million to $1.2 billion in 2014, before stabilizing. DBRS views this tax-supported debt outlook as manageable, given the City’s considerable capital financing requirements and population growth trend.

The City issues its external debt through the provincially-backed borrowing conduit of the Alberta Capital Financing Authority (ACFA; rated AAA), allowing it to access reliable, low-cost financing from the Province of Alberta (rated AAA and R-1 (high)), providing additional flexibility and support to the credit profile.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Canadian Municipal Governments, which can be found on our website under Methodologies.