Morningstar DBRS Confirms Province of New Brunswick at A (high), Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Long-Term Debt credit rating of the Province of New Brunswick (New Brunswick or the Province) at A (high), and its Short-Term Debt credit rating at R-1 (middle). Concurrently, Morningstar DBRS confirmed the Guaranteed Long-Term Liabilities and Guaranteed Short-Term Liabilities credit ratings of New Brunswick Municipal Finance Corp. at A (high) and R-1 (middle), respectively. All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The government's focus on long-term financial sustainability, its recent track record of budget outperformance, and a robust population growth in the Province lend stability to the credit profile, despite significant cost and affordability pressures (worsened by the high inflation and interest rates), fluctuations in commodity prices, and the global geopolitical conflict contributing to a slowdown in economies of key trading partners. New Brunswick's general elections will be held no later than October 21, 2024. Morningstar DBRS will look to the election outcome to assess any changes in the provincial government's stance on financial sustainability.

For the year ended March 31, 2024, New Brunswick is estimating a surplus of $247.4 million, relative to a reported surplus of $1.0 billion in the prior year. In 2024-25, the budget projects a surplus of $40.9 million (0.1% of GDP), or Morningstar DBRS-adjusted shortfall of $315 million (0.7% of GDP)¿one of the best results among Canadian provinces. Over the medium term, Morningstar DBRS estimates small, adjusted deficits that will remain manageable at less than 0.5% of GDP.

Over the medium term, a sizable capital program would lead to deficits (on a Morningstar DBRS-adjusted basis) and higher borrowing needs. Morningstar DBRS estimates the adjusted debt-to-GDP ratio to increase slightly to more than 31.0% by 2026-27 but still lower than that observed over the past decade. This remains manageable for the current credit ratings.

New Brunswick forecasts the economy will grow by 1.7% in 2025; averaging 1.3% over the subsequent three years. While a growth in population, employment, income levels, and business investment should support economic expansion in the coming years, Morningstar DBRS opines that labour shortages, lingering supply chain issues, slowing economic momentum, potential volatility in commodity prices, and any decline in foreign demand for New Brunswick's manufacturing exports could present risks to the Province's economic outlook.

CREDIT RATING DRIVERS
A positive credit rating action is considered unlikely as the credit ratings remain constrained by New Brunswick's weak economic fundamentals. A negative credit rating action could result from some combination of sustained deterioration in operating results, the debt-to-GDP ratio, and New Brunswick Electric Power Corporation (NB Power) failing to meaningfully reduce leverage, causing Morningstar DBRS to no longer treat NB Power as self-supported.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of the Province, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of the Province, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of the Province, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:
-- Rating Canadian Provincial and Territorial Governments (April 15, 2024), https://dbrs.morningstar.com/research/431208

The following methodology has also been applied:
-- Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186/

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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