Morningstar DBRS Confirms the Province of Newfoundland and Labrador at "A" and R-1 (low), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Province of Newfoundland and Labrador's (Newfoundland or the Province) Issuer Rating and Long-Term Debt rating at "A" and Short-Term Debt rating at R-1 (low). Concurrently, Morningstar DBRS confirmed Newfoundland and Labrador Hydro's Guaranteed Long-Term Debt and Short-Term Debt ratings at "A" and R-1 (low), respectively. The trends on all credit ratings are Stable.

CREDIT RATING DRIVERS
Morningstar DBRS does not anticipate a credit ratings upgrade in the near term; this would be dependent on a combination of improvement in multiple critical rating factors and financial risk assessment factors. Conversely, Morningstar DBRS would consider a credit ratings downgrade if there were a material deterioration in fiscal performance and debt metrics on a sustained basis.

CREDIT RATING RATIONALE
Newfoundland has chosen to delay its return to balance by a year (to 2026-27), allowing the Province to maintain affordability measures already in place and respond to the ongoing tariff threat while also pursuing a robust capital plan. The budget is void of any material tax measures and pre-election handouts. Following the resignation of Premier Andrew Furey in February 2025, the Liberal Party selected John Hogan as its new leader in early May 2025. A provincial election is expected by October 14, 2025, with current polls suggesting that the Liberals are in a dead heat with the opposition Progressive Conservative Party.

For 2025-26, Newfoundland is forecasting a deficit of $372 million, a deterioration from the $252 million shortfall estimated for the fiscal year just ended (March 31, 2025). On a Morningstar DBRS-adjusted basis, this equates to a deficit of $707 million, or 1.6% of GDP¿still a favourable outlook compared with most other provinces. Over the medium term, the Province anticipates returning to a small surplus by 2026-27, one year later than previously planned, and maintaining surpluses through 2029-30. Volatile commodity prices and potentially lower offshore royalties present ongoing uncertainty.

With a slower return to balance and an intentional desire to boost liquidity, the debt outlook has deteriorated slightly. Net debt is forecast to rise to 44.7% in 2025-26, up slightly from the prior year but still below the peak of 49.8% in 2020-21. On an adjusted basis, we anticipate the debt-to-GDP ratio to rise to 63.3% in 2025-26 and then decline over the following four years.

Despite the challenging macroeconomic environment, Newfoundland is expected to be among the provincial growth leaders, with the Province assuming real GDP growth of 4.4% in 2025 before moderating to 1.6% in 2026. The Province has indicated that it has broadly incorporated the impacts of tariffs in its economic forecast, and the provincial economy has minimal direct exposure to affected sectors (automotive, steel, and aluminum); however, there are clear downside risks as deteriorating economic growth conditions will influence commodity price volatility and the broader outlook for Newfoundland's resource-based economy.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or 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 (May 16, 2025) https://dbrs.morningstar.com/research/454196

CRITICAL RISK FACTORS (CRFs) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of CRFs
In the analysis of Newfoundland, the CRFS are considered in the order of importance contemplated in the methodology.

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

(C) Weighting of the CRFs and the FRA
In the analysis of Newfoundland, the BRA 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 25, 2025)
https://dbrs.morningstar.com/research/452575

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025 - https://dbrs.morningstar.com/research/447186) which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

Morningstar DBRS Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-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.

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

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