DBRS Confirms City of Calgary at AA (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Long-Term Debt rating of the City of Calgary (the City or Calgary) at AA (high), and the Commercial Paper rating at R-1 (high), all with Stable trends. The City’s prudent management framework, strong fiscal performance, high level of financial resources and manageable debt burden contribute to a sound credit profile and the flexibility to invest and manage unforeseen events. The ratings are constrained by heavy and growing capital investment requirements to address the growth pressures of an expanding population, a trend that will drive tax-supported debt needs moderately higher over of the medium term. The local economy’s relatively high reliance on the energy sector also presents a challenge as it undergoes a period of significant adjustment and reduced investment.

The City continued to demonstrate solid fiscal performance in 2014, recording a DBRS-adjusted operating surplus of $689.5 million. Operating revenues declined by 3.2%, as local improvement levies fell and as prior-year revenues associated with flood relief and a one-time gain from the sale of an ENMAX Corporation (ENMAX; rated A (low) with a Stable trend by DBRS) subsidiary did not recur. Operating expenditures, excluding amortization, declined by a modest 0.6%. After accounting for net capital expenditure (capex), a post-capex surplus of $357 million was realized, indicative of the City’s considerable fiscal flexibility. Calgary’s DBRS-adjusted net tax-supported debt burden declined slightly to $965 million through 2014, as new debt was concentrated primarily in self-supporting categories, including municipal utilities and at the wholly owned electricity utility ENMAX. On a per capita basis, debt declined to $808 from $837 the prior year, supported by solid population growth of 3.3%. As a share of taxable assessment, Calgary’s debt burden also remains low at 0.4%, the lowest of DBRS-rated municipalities.

Calgary’s 2015–2019 capital plan outlines $7.6 billion in investment, with the tax-supported portion of the plan principally focused on transit and transportation, including major projects such as the Green Line Southeast Transitway LRT and Southwest and West Ring Road connections, as well on building out new community and protective services infrastructure. The majority of debt in the capital plan is for self-supporting utilities. Although the City’s debt burden is expected to increase moderately over the medium term, the projected path of leverage is deemed to be manageable and is below expectations at the time of the last review. DBRS-adjusted net tax-supported debt is expected to peak at just below $1.3 billion in 2017, or less than $1,000 on a per capita basis. While the local economy is expected to contract modestly in 2015 on account of ongoing adjustments in the energy sector, the City’s key revenue sources are fairly insulated from economic cyclicality in the near term and DBRS expects the credit profile to remain sound.

DBRS notes that the City’s CP program does not meet certain aspects of the “DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers,” namely the requirement to have in place 100% CP liquidity backup in the form of a committed bank line facility or cash and marketable securities that have been pledged as security to a trustee for the sole purpose of refinancing CP. However, DBRS believes an exception is warranted in this case because of Calgary’s large base of unrestricted liquidity totalling $2.7 billion as measured by DBRS, well in excess of the authorized program limit. The program is not currently active.

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 Rating Canadian Municipal Governments (June 2015) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015), which can be found on our website under Methodologies.

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.