DBRS Confirms the City of Edmonton at AA (high) and R-1 (high)

DBRS has today confirmed the Long-Term Debt and Commercial Paper ratings of the City of Edmonton (the City or Edmonton) at AA (high) and R-1 (high), respectively. Both trends on the ratings remain Stable, supported by the City’s healthy liquidity position and management’s fiscal prudence. However, concerns are mounting with respect to the scope of the current capital plan and the amount of new borrowing required over the years to come, which DBRS notes has the potential to push tax-supported debt to a level no longer consistent with the current rating.

Edmonton continues to benefit from one of the strongest economic growth outlooks in the country, a very healthy liquidity position totalling $1.3 billion at year-end 2008 and the strong financial position of the Alberta government (rated AAA). Moreover, operating results remain healthy, as highlighted by the $112 million operating surplus posted in 2008, although down year-over-year due primarily to weakness in the financial market, in particular, lower energy prices and increased spending for expansion. When including substantial net capital spending, the City posted a deficit of $610 million. Despite cost escalation from service expansion and wage inflation, balanced operating budgets are expected for the foreseeable future, although they will most likely rely on tax rate increases.

The City is projecting that the tax-supported debt burden grew by 60% in 2009 to $878 million, or $1,123 per capita, with ongoing capital projects pushing the burden to roughly $1,800 per capita by the end of 2011. Although this represents a significant increase and further squeezes the budget due to debt servicing requirements, DBRS views the burden as potentially manageable provided the City continues to exhibit fiscal discipline. However, Edmonton will have consumed most of its room to manoeuvre within the current rating category. Beyond 2011, the outlook for capital spending and debt is less certain. DBRS notes that any material increase beyond the current tax-supported debt forecast would likely apply notable downward pressure to the rating.

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

Long-Term Debt includes debt issued on behalf of EPCOR Utilities Inc. and Edmonton Northlands.

The applicable methodology is Rating Canadian Municipal Governments, which can be found on our website under Methodologies.

This is a Corporate (Public Finance) rating.