Morningstar DBRS Confirms the City of Calgary's Issuer Rating at AA (high) With a Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the City of Calgary's (Calgary or the City) Issuer Rating and Long-Term Debt rating at AA (high) and its Commercial Paper (CP) rating at R-1 (high). All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The ratings are supported by the City's approach to fiscal management, its currently low debt burden, and robust liquidity. However, Calgary's credit profile is vulnerable to volatility in the global energy markets. The Stable trends reflect Morningstar DBRS' view that the City has been able to prudently manage temporary and short-term operating pressures, a view that is further supported by provincial legislation, which requires any budgetary shortfall to be recovered in subsequent years.

Calgary's 2024 operating budget represents the second year of the 2023-2026 Service Plans & Budgets cycle. Following the release of the midcycle budget adjustments, there were no material changes to the City's debt outlook or capital plans, apart from modest recasting of capital spending to match the timing of anticipated cash flows (deferrals mainly related to the Green Line LRT project). The City is projecting slightly higher levels of spending compared with the prior year and will be matched by a similar increase in revenues, with a property tax rate increase of approximately 5.2%. Morningstar DBRS notes that the City has a track record of effectively implementing reforms and cost reduction initiatives. Economic growth will likely moderate given the expectation of some weakness in oil prices; however, it will exceed the national average, in part because of strong population growth and a relatively stable energy sector supported by increased export capacity from the completion of the Trans Mountain Pipeline.

According to Calgary's most recent debt projections, the City's tax-supported debt burden is expected to increase over the medium term, as financing ramps up for infrastructure-related projects like the Green Line LRT. For 2024, Morningstar DBRS estimates adjusted tax-supported debt will be $652 per capita, or 0.3% as a share of total taxable assessment, still low compared with rated peers. Net tax-supported debt per capita is expected to remain stable for 2025 and thereafter increase to around $940 by 2028. Previously, debt per capita was expected to rise substantially approaching $1,300 in 2028. Based on the most recent debt forecast Morningstar DBRS expects the increase in debt to be manageable.

CREDIT RATING DRIVERS
A positive rating action is highly unlikely in absence of a substantial improvement in both critical risk or financial risk metrics. A downgrade could arise from a sustained deterioration in the fiscal outlook, or material acceleration in debt growth contrary to current expectations.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant 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) https://dbrs.morningstar.com/research/427030

CRITICAL RATING FACTORS (CRFs) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of CRF Factors
In the analysis of Calgary, the CRF factors are considered in the order of importance contemplated in the methodology.

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

(C) Weighting of the CRF and the FRA
In the analysis of Calgary, the CRF 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 Municipal Governments (April 15, 2024)
https://dbrs.morningstar.com/research/431207/

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024) - https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following criteria has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030

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 rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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