Morningstar DBRS Confirms the Province of Alberta at AA With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Province of Alberta's (Alberta or the Province) Issuer Rating and Long-Term Debt credit rating at AA and Short-Term Debt credit rating at R-1 (high). All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The Province recently released its first-quarter update, which forecasts a surplus of $2.9 billion in 2024-25, a marked improvement from the February 2024 budget that projected a surplus of $0.4 billion. On a Morningstar DBRS-adjusted basis, this equates to 0.2% of GDP. Supported by the fiscal framework introduced in 2023, Alberta anticipates the continuation of small surpluses and declining debt-to-GDP over the medium term. Morningstar DBRS believes that the Province can maintain its fiscal performance if it adheres to the new fiscal framework, although continuing economic and commodity price volatility could present challenges.

Based on the first-quarter update, Morningstar DBRS expects Alberta's adjusted debt-to-GDP ratio to be 17.2% in 2024-25, down from 19.4% in 2023-24. Over the medium term, adjusted debt is projected to fall below 16.0% of GDP by 2026-27; Morningstar DBRS expects that a muted global economy could present headwinds to improving provincial debt metrics, although anticipated underspending on capital programs should partly mitigate this and reduce debt needs over the medium term.

Although subdued on a per-capita basis, the Province anticipates real GDP growth to rebound to 3.3% in 2025, up from a budgeted 2.9%, supported by ongoing business investment in oil and other industries and resilient residential construction.

CREDIT RATING DRIVERS
Although unlikely in the near term, Morningstar DBRS could upgrade Alberta's credit ratings if there were a combination of material improvements in economic diversification and a significant strengthening of the government's balance sheet. Morningstar DBRS could take a negative credit rating action in the case of a material decline in energy prices leading to materially weaker-than-expected financial risk metrics on a sustained basis.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors

The following Environmental factor had a relevant effect on the credit analysis: Carbon and greenhouse gas (GHG) costs. Alberta is the largest emitter of GHGs among all provinces, although it ranks second on a per-capita basis. In 2022, GHG emissions were 269.9 megatonnes of carbon dioxide¿a 63% increase from 1990, according to Environment and Climate Change Canada. Alberta regulates industry emissions and imposes an industrial carbon tax on heavy emitters. According to the Province, this tax has resulted in limiting the intensity of emissions in the oil and gas sector.

There were no 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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

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

(B) Weighting of FRA Factors
In the analysis of Alberta, 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 Alberta, 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 Provincial and Territorial Governments (April 15, 2024), https://dbrs.morningstar.com/research/431208

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 Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

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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