DBRS Confirms Infrastructure Ontario’s Long-Term Rating, Discontinues Short-Term Rating

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of the Ontario Infrastructure and Lands Corporation (Infrastructure Ontario or IO) at AA with Stable trends. Furthermore, DBRS has discontinued the commercial paper (CP) rating of IO as all outstanding amounts were repaid in August 2014 and the program is no longer being used. IO has entered into an agreement with the Ontario Financing Authority to secure its short-term funding requirements going forward.

IO’s credit profile remains solid, supported by the considerable reserve fund, which stood at $926 million as of March 31, 2014, as well as the generally sound credit quality of its loan portfolio and prudent credit risk management practices. IO posted net income of $24.9 million or 8.0% of revenues in F2014, with the bulk of the surplus generated from IO’s Alternative Financing and Procurement (AFP) activities. DBRS expects IO to continue to post modest levels of net income over the medium term driven by the reimbursement of previous expensed AFP costs, benefits from economies of scale in the loan portfolio and a revised real estate management fee structure.

Total senior debt decreased to $1.6 billion at F2014 because of a debenture maturity and lower amounts of CP outstanding. DBRS notes that an upcoming $650 million senior unsecured debt maturity in June 2015 will be refinanced through subordinated debt issued to the Province of Ontario (rated AA (low) with a Stable trend by DBRS). This is indicative of IO’s funding strategy going forward. The loan portfolio increased by $508 million to $4.9 billion by March 31, 2014. Municipalities account for the bulk of loans extended by IO; however, the loan portfolio continues to diversify into non-municipal sectors, with municipalities accounting for 64.3% of the loan portfolio in F2014, down from 70.3% in the prior year. IO employs prudent credit risk management practices and continues to refine its loan underwriting and monitoring practices to mitigate the risks associated with expanding into non-municipal sectors, which have weaker credit fundamentals.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are General Corporate Methodology: Appendix for Ontario Infrastructure and Lands Corporation (November 2014) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (February 2014), which can be found on our website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.