DBRS Confirms City of Montréal at A (high)

DBRS has today confirmed the Issuer Rating and Long-Term Debt rating of the City of Montréal (Montréal or the City) at A (high), with Stable trends. The ratings reflect solid operating results, a prudent and increasingly efficient financial management framework and stabilization in DBRS-adjusted net debt and tax-supported obligations in recent years. However, sustained inflationary pressures and sizable capital requirements for critical infrastructure will necessitate significant additional debt over the medium term. Economic growth has been subdued and the labour market relatively weak; however, higher growth and employment are projected through 2013 and 2014.

The City maintained solid financial performance in 2012, posting a $640.5 million operating surplus and a core deficit of $62.8 million, after recognizing capital expenses as incurred. Operating revenues varied positively from budget and grew by 5.3% year-over-year, with property tax and user fees linked to real estate showing particular strength. Operating expenditures before amortization were relatively stable and below budget, growing by a modest 2.8%. The $4.87 billion 2013 budget maintains fiscal discipline, but a 2.2% average tax increase and draws on prior surpluses and reserves were required to achieve balance. Notwithstanding greater fiscal restraint in recent years, financial flexibility is likely to remain constrained given major capital requirements and elevated labour costs.

Montréal’s debt burden remains among the highest of DBRS-rated municipalities, despite a measured improvement in the trajectory of net debt since 2010. The tax-supported debt burden as calculated by DBRS also fell slightly, to $1,882 per capita. Although gross borrowing increased, it was wholly offset by higher amounts recoverable from the Province of Québec (the Province; rated A (high), Stable) and by significant growth in debt sinking funds. The 2013-2015 $4.1 billion Three-Year Capital Plan will continue to exert pressure on debt, with nearly half of the plan to be financed by tax-supported borrowing. DBRS estimates that capital needs could lead net tax-supported debt to rise by $100 million to $200 million per year in the next few years, limiting any significant improvement in 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.