DBRS Confirms City of Vancouver at AA and R-1 (middle)

DBRS has today confirmed the Long-Term Debt and Commercial Paper ratings of the City of Vancouver (the City or Vancouver) at AA and R-1 (middle), respectively. The trend on both ratings remains Stable, buttressed by the relative affluence of the property tax base, the lengthy record of healthy operating performances and limited direct operating responsibilities. Furthermore, the City’s credit profile continues to stabilize following the heavy investment and capital spending observed in 2008-09 and is forecast to see a gradual improvement as monetizing the investment in the Vancouver Athletes Village (the Village) occurs.

Vancouver continued to produce sound results in 2009 and posted an operating surplus of $224 million, driven primarily by cost-containment initiatives and a 5.85% increase in the property tax levy. The City also produced a balanced operating budget for 2010 that relied heavily on prudent cost management, including a hiring freeze and a service review, which limited the tax levy increase to 2.08%.

In preparation for the 2010 Winter Olympics, both the City and the regional transit authority undertook large capital plans to build the infrastructure necessary to host the event. In addition to the increased capital spending, the City became responsible for the Village and financed the project through reserves and new debt. As a result, Vancouver’s reserves were significantly diminished and the DBRS-adjusted net tax-supported debt burden increased to $1.6 billion by year-end 2009, more than three times the 2006 level. With the Olympics over and capital spending subsiding to more normal levels, leverage should gradually decline as the City plans to use the funds from the Village condominium sales to repay debt as well as replenish reserves. While uncertainty remains with respect to how much of the Village investment will be recovered and the timing of the cash flows, leverage is expected to recede below $2,000 per capita within the next two years, a level more manageable for the long-term rating. Provided the City also maintains its fiscal discipline, this would be expected to introduce an element of flexibility in the rating.

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

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

This is a Corporate (Public) Finance rating.