Morningstar DBRS Confirms Société de transport de Montréal at A (high)/R-1 (low), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Long-Term Debt rating and Commercial Paper (CP) rating of Société de transport de Montréal (STM) at A (high) and R-1 (low), respectively. All trends are Stable. The confirmations follow that of the ratings on the City of Montréal (Montréal or the City; rated A (high) with a Stable trend by Morningstar DBRS).

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are based on the statutory guarantees from the 16 municipalities comprising the Urban Agglomeration of Montréal and, specifically, the City. All STM debt, obligations, and commitments are fully guaranteed on a joint-and-several basis under the Act respecting public transit authorities (Bill 24). Morningstar DBRS believes that the City has strong incentive and the capacity to provide timely liquidity support to STM should it encounter difficulties meeting its financing obligations, including rolling its short-term CP, in a period of market disruption or loss of access to capital markets. As of December 31, 2023, STM had used $10.0 million in CP issuances, with an authorized program limit of $1.0 billion.

Morningstar DBRS notes that the City has stable and predictable cash flows in the form of tax instalment revenues and ample liquidity available in the form of cash and highly rated Canadian government bonds comfortably covering anticipated same-day CP maturities and total CP program outstanding balances. The City had $2.2 billion in cash and investments (excluding $3.0 billion in sinking fund investments) on hand as at December 31, 2023. STM closed its $100 million committed line of credit in 2023 but Morningstar DBRS notes that the City would be able to support STM with same day liquidity in the event of a disruption of the commercial paper program. The City has other demand lines of credit for corporate purposes totalling $2.3 billion.

The City, as guarantor, provides Morningstar DBRS with certain details regarding STM and its CP program. The guarantee meets Morningstar DBRS' guarantee criteria as outlined in "Morningstar DBRS Global Corporate Criteria" (April 15, 2024). For clarity, Morningstar DBRS notes that it is the City that provides the rating agency with sufficient information to rate the program.

CREDIT RATING DRIVERS
Any upgrade to the City of Montréal's credit ratings would likely lead to an upgrade of STM's credit ratings. Morningstar DBRS could downgrade STM's ratings if one or a combination of the following occurs: (1) the credit ratings on the City were downgraded or (2) Morningstar DBRS' assessment of the likelihood that the City will provide timely financial support were to weaken.

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

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

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 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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