Morningstar DBRS Confirms Province of Ontario's Ratings at AA and R-1 (high), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and the Long-Term Debt rating of the Province of Ontario (Ontario or the Province) at AA, as well as the Province's Short-Term Debt rating and U.S. Commercial Paper rating at R-1 (high). Morningstar DBRS also confirmed the Ontario Electricity Financial Corporation's (OEFC) Long-Term Obligations rating at AA (based on the Province's rating). The trends on all ratings are Stable.

CREDIT RATING DRIVERS
A positive rating action is considered unlikely and would be dependent on material improvement in critical rating factors and key financial risk metrics. A negative rating action could result from a deterioration in one or more critical rating factors or a material deterioration in financial risk metrics.

CREDIT RATING RATIONALE
Since the time of our last review, Ontario's fiscal and debt outlook has improved modestly on account of more favourable fiscal year-end results for 2023-24, and upward revisions to GDP growth for 2024. Furthermore, additional upside is possible due to upward revisions to historical GDP that result in a higher base level for nominal GDP and likely higher revenue forecast.

Based on Ontario's fall economic statement, the Province now projects a deficit of $6.6 billion in 2024-25 compared with the shortfall of $9.8 billion that had been anticipated in the spring budget. Higher revenues supported by an improved economic forecast and lower interest costs have more than offset increased spending. The centerpiece of the fall economic statement was the Province's announced one-time taxpayer rebate, sending a $200 cheque to all eligible adults and children in Ontario at an estimated cost of $3.0 billion. This fiscal handout has only heightened speculation that the current government may seek an early election well prior to the next fixed election date in June 2026.

As a result of better-than-anticipated prior-year results and upward revisions to both historical and forward-looking GDP growth, Ontario's debt-to-GDP ratio continues to show improvement. The debt-to-GDP ratio is estimated to fall to 39.8% (Morningstar DBRS-adjusted) in 2024-25 compared with 41.2%, which Morningstar DBRS had anticipated at the time of the June 2024 review. By 2026-27, the debt-to-GDP ratio is expected to be roughly 37.0%.

For 2024, the Province has raised its real GDP growth assumption to 0.9% from of just 0.3% at the time of budget. For 2025, the Province assumes real growth of 1.7%, although uncertainty remains elevated because of ongoing geopolitical conflicts, the incoming U.S. administration and the potential for increasing trade protectionism, and recent changes to federal immigration policy.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) 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) https://dbrs.morningstar.com/research/437781.

CRITICAL RATING FACTOR (CRF) AND FINANCIAL RISK ASSESSMENT (FRA)

A) Weighting of CRFs
In the analysis of (insert issuer name), the CRFs are considered in the order of importance contemplated in the methodology.

B) Weighting of FRA Factors
In the analysis of (insert issuer name), 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 the Province of Ontario, the CRF carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodologies:

Rating Canadian Provincial and Territorial Governments (April 15, 2024)
https://dbrs.morningstar.com/research/431208

Global Methodology for Rating Government Related Entities (April 15, 2024)
https://dbrs.morningstar.com/research/431178

The following methodologies have also been applied:

Morningstar DBRS Global Corporate Criteria (April 15, 2024)
https://dbrs.morningstar.com/research/431186

Morningstar DBRS Criteria: Approach to ESG 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.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed 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.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Travis Shaw, Senior Vice President, Sector Lead,
Rating Committee Chair: Thomas R. Torgerson, Managing Director,
Initial Rating Date: May 15, 1987.

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

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