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

DBRS has today confirmed the Issuer Rating of the City of Vancouver (the City or Vancouver) at AA, along with its Long-Term Debt and Commercial Paper ratings at AA and R-1 (middle), respectively, all with Stable trends. The ratings reflect the City’s strong operating results, a relatively affluent tax base and significant progress in reducing its tax-support debt burden. The steady monetization of the Vancouver Olympic Village assets (the Village) continues to reduce the City’s financial liability and is on track to be completed before the end of 2014 or shortly thereafter, despite some softening in real estate prices and initial uncertainty about the realizable value of the properties.

The City produced an operating surplus of $224 million in 2012, supported by a property tax levy increase of 2.84%, higher user-fee revenue and continued fiscal discipline. A solid post-capex surplus of $145 million in 2012 is indicative of more normal capital spending and increased flexibility following significant outlays related to the 2010 Winter Olympic Games. The 2013 operating budget remains balanced, growing 1.8% year over year, with a property tax rate increase of 1.36% and higher utilities fees. Total spending is expected to grow by an equal amount, driven higher by regional utility fees, protective services and modest inflation across other departments, and offset by a budgeted reduction in debt charges and capital spending. Results for the first half of the year point to positive variances, which should leave the City with a small year-end surplus.

Vancouver’s DBRS-adjusted net tax-supported debt burden fell to $2,374 per capita at December 31, 2012, down from $2,554 in 2011. The court-appointed receiver continued to transfer the proceeds from sales of the Village properties, reducing the City’s liability to $312 million down from $460 million the previous year. The City has since repaid $145 million, the entirety of the commercial paper program, and has also completely repaid the $16.9 million owing on the mortgages for the transferred properties. The overall occupancy rate of residential units in the Village, including units for sale, rentals and affordable housing, now stands at 92%. With a sales process for the Village’s commercial space underway and a limited number of remaining residential units, the City remains confident that all assets will be fully monetized by the end of 2014 or shortly thereafter.

DBRS is encouraged by the City’s efforts to reduce its direct tax-supported debt, and it expects leverage to recede significantly in 2013 and 2014 with the repayment of Village-related obligations, thus improving financial flexibility and providing an offset to new issuance. An increase in the portion of the capital plan funded by development charges and other external funding sources will ease debt pressure and reliance on operating funding for capital. In addition, a greater reliance on pay-as-you-go financing will assist with the management of future debt growth. However, projected growth in the debt of the regional transit authority is expected to be the main driver of growth in the City’s DBRS-adjusted debt burden going forward. It is also expected to keep tax-supported leverage at or above approximately $2,000 per capita into 2015 if the capital plans and profile of regional debt evolve as currently projected.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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