Morningstar DBRS Confirms the City of Montréal at A (high) with Stable Trends

DBRS Limited (Morningstar DBRS) 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 are supported by the City's prudent fiscal framework, large and well-diversified economic structure, relatively predictable revenues, and tight spending control. Morningstar DBRS notes that recent fiscal deterioration, slower population growth, and a relatively large debt burden resulting from the City's large capital plans and its consolidated transit agency, Société de transport de Montréal (STM), constrain the ratings. Morningstar DBRS also confirmed STM's Long-Term Debt rating and Commercial Paper rating at A (high) and R-1 (low), respectively, with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
For the year ended December 31, 2023, Montréal's Morningstar DBRS-adjusted post-capital expenditure (capex) deficit was $940.6 million compared with the prior year's deficit of $102.4 million, largely reflecting net capex that more than offset the City's operating surplus.

The City's 2024 operating budget is balanced and projects spending of $7.0 billion, up 3.5% from the previous year's budget. This spending includes one-time funding used to cover the Urban Agglomeration of Montréal's accumulated deficit totalling $32.8 million. Other key spending priorities include moderately higher expenditures on public security, debt service, public transportation, and economic development. In line with the Montréal 2030 strategic plan, key policy priorities will focus on public security, affordable housing, economic recovery and development, and ecological transition over the medium to longer term.

The City's investment in its capital plan remains considerable. However, according to most recent projections, Montréal's tax-supported debt burden is expected to decline modestly over the medium term compared with the previous budget forecast, given the changes in provincial government subsidies related to transit projects and as the City increases its cash payments and reduces its reliance on borrowings. The City has signalled that actual capital plan realization will likely be somewhat lower than projected.

CREDIT RATING DRIVERS
A positive rating action would be possible if the pace of growth in tax-supported debt per capita moderates on a sustained basis coupled with a steady improvement in Morningstar DBRS-adjusted post-capex operating results. Although unlikely, Morningstar DBRS could downgrade the ratings if there were a deterioration in a combination of critical ratings factors and financial risk assessments.

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) at https://dbrs.morningstar.com/research/427030.

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

(B) Weighting of FRA Factors
In the analysis of Montréal ,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 Montréal, 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 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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577