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

DBRS has today confirmed the Issuer Rating and the Long-Term Debt and Commercial Paper ratings of the City of Calgary (the City or Calgary) at AA (high), AA (high) and R-1 (high), respectively, all with Stable trends. The trends reflect the continued prudence of the City’s fiscal management, a solid liquidity position and the underlying strength of the local economy that continues to outperform provincial and national averages. The rating is constrained by the challenges associated with managing a steadily growing population and increasing pressure on municipal services and infrastructure, which will drive new debt financing needs over the medium term.

Fiscal results remained strong in 2013, despite the impact of a major flooding event in June 2013, with the City recording a DBRS-adjusted operating surplus of $805 million. Operating revenue growth of 13.2% was supported by a significant increase in municipal property tax revenue stemming from an expanding assessment base and a residential property tax rate hike of 5.5%. Funding for capital fell by 13.7% from 2012 levels, primarily owing to changes in the timing of various grant receipts, and was offset by unbudgeted developer in-kind capital contributions. Operating expenditures, excluding amortization, grew by a brisk 16.8%, as general inflationary pressure, flood-related costs and municipal service expansion drove spending across all categories higher. After accounting for capital expenditures, the City recorded a healthy DBRS-adjusted core surplus of $427 million.

Calgary’s DBRS-adjusted net tax-supported debt burden reached $968.5 million in 2013, up $195 million or 25.2% year over year, primarily owing to issuance of debt to fund new recreation centres. On a per capita basis, net tax-supported debt similarly rose to $837 from $691 the previous year, a level viewed as acceptable for the rating and below historical highs recorded for the City. This measure of leverage is also the lowest of Canadian municipalities rated by DBRS. The $5.8 billion capital budget for 2014 to 2018 will include a considerable component of debt financing, pushing DBRS-adjusted net tax-supported debt up $460 million to a peak of $1.4 billion in 2017. Tax-supported debt per capita is expected to peak just below $1,200 in the same year, assuming the City’s population expands in line with current estimates. While growth-related investments are driving leverage higher, the expected trajectory of debt is deemed to be manageable within the rating and is supported by a track record of prudent management and a considerable base of financial resources.

The City issues external debt through the provincially backed borrowing conduit of the Alberta Capital Financing Authority (rated AAA by DBRS), allowing it to access reliable, low-cost financing from the Province of Alberta (rated AAA and R-1 (high) by DBRS) and providing additional flexibility and support to the credit profile.

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.

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

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

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.