S&P affirms County of Simcoe, Ontario at ‘AA-‘
Reuters Dec 5, 2012 1
Overview
— We are affirming our ‘AA-‘ long-term issuer credit rating on the
County of Simcoe.
— The affirmation reflects our view of the county’s low levels of debt
and strong liquidity.
— The stable outlook reflects Standard & Poor’s expectations that within
the two-year outlook horizon, tax-supported debt will remain below 30% of
projected operating revenues, liquidity will remain strong despite increasing
capital expenditures, and the local economy will remain stable.
Rating Action
On Dec. 5, 2012, Standard & Poor’s Ratings Services affirmed its ‘AA-‘
long-term issuer credit rating on the County of Simcoe, in the Province of
Ontario (AA-/Negative/A-1+). The outlook is stable.
Rationale
The ratings on Simcoe reflect Standard & Poor’s view of the county’s low
levels of debt and strong liquidity. We believe that a below-average budgetary
flexibility and a weakening budgetary performance constrain the ratings.
We believe Simcoe benefits from a strong liquidity position, to meet debt
servicing and contingent liabilities; we expect liquidity will remain robust
throughout our rating horizon. At year-end 2011, the county’s estimated free
cash and liquid assets (Standard & Poor’s-calculated) were about 10x debt
service. Simcoe also has access to an undrawn credit facility of C$15 million.
We believe the county’s debt burden remains low. Simcoe’s tax-supported debt
was about C$55 million in 2011, or about 21% of consolidated operating
revenues, and its interest-to-adjusted operating revenues ratio was 0.6%. In
2011, the county approved the issuance of C$94 million of debt through Ontario
Infrastructure Projects Corp. Although at year-end no debt had been issued,
Simcoe made a C$14 million advance on this debt to finance projects in
progress. The county’s near-term debt could increase to fund an expanded
capital plan, but we believe that tax-supported debt should remain below 30%
of projected operating revenues within our outlook horizon.
While the county’s budgetary flexibility remains adequate, we believe that it
is somewhat below the average of that of its similarly rated peers who usually
have own-source revenues significantly above 75% of operating revenues.
Simcoe’s 10-year average of modifiable (own-source) revenues to operating
revenues was 70%, principally due to the increase in transfers from senior
levels of government as a proportion of total revenue. Although higher in the
past three years, its capital expenditures are, in average, about 16% of total
expenditures. We expect Simcoe will maintain similar budgetary flexibility
levels in the next two years.
In our opinion, the county’s budgetary performance remains adequate, despite
weakening after-capital balances. Although the 2011 operating surplus of 7% of
adjusted operating revenues was slightly above that of the previous two years,
it remained below the five-year average of 9%. Higher capital expenditures
more than offset the capital revenues’ growth in the past five years leading
to wider after-capital deficits. In 2011, it accounted about 8% of total
revenues, compared with 0.4% in 2007. We estimate Simcoe’s after-capital
balances will remain in deficit in the near-to-medium term as it continues to
invest heavily in growth-related capital projects.
Outlook
The stable outlook reflects Standard & Poor’s expectations that within the
two-year outlook horizon, Simcoe’s tax-supported debt will remain below 30% of
projected operating revenues, liquidity will remain strong despite increasing
capital expenditures, and local economy will remain stable. We could lower the
ratings or revise the outlook to negative if tax-supported debt increases
significantly beyond 30% of projected operating revenues, liquidity
deteriorates significantly, or budgetary performance erodes further.
Conversely, sizable improvement in budgetary performance and financial
flexibility in the next two years could result in an upward revision of the
outlook or the ratings.
Related Criteria And Research
Methodology For Rating International Local And Regional Governments, Sept. 20,
2010
Ratings List
Rating Affirmed
Simcoe (County of)
Issuer credit rating AA-/Stable/–
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor’s public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
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