Morningstar DBRS Confirms Province of New Brunswick at A (high), With Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Long-Term Debt credit rating of the Province of New Brunswick (New Brunswick) at A (high) and its Short-Term Debt credit rating at R-1 (middle). Concurrently, Morningstar DBRS confirmed the Guaranteed Long-Term Liabilities and Guaranteed Short-Term Liabilities credit ratings of New Brunswick Municipal Finance Corp. at A (high) and R-1 (middle), respectively. All trends are Stable.

CREDIT RATING DRIVERS
A credit rating upgrade is considered unlikely as the credit ratings remain constrained by New Brunswick's economic fundamentals and weakened operating performance. A credit rating downgrade could result from some combination of sustained deterioration in the debt-to-GDP ratio and New Brunswick Power Corporation (NB Power) failing to meaningfully reduce leverage, causing Morningstar DBRS to no longer treat NB Power as self-supported.

CREDIT RATING RATIONALE
The recently elected Liberal government will prioritize spending in line with its campaign commitments (see commentary, "Province of New Brunswick Election 2024: Could a Change in Government Upset the Balance?" published on October 22, 2024). As such, deficits are budgeted to continue through the medium term, declining to $144.0 million in 2028-29 from $599.0 million in 2025-26 (including a $50.0 million contingency). This will limit flexibility within the current credit ratings through the medium term. On an adjusted basis, shortfalls will gradually shrink to 1.0% as a share of GDP in 2028-29 (from a shortfall of 1.9% in 2025-26). The government indicated that it remains focused on transforming existing operations with a focus on longer-term financial sustainability.

A large capital program and deficit projections suggest the adjusted debt-to-GDP ratio will rise through the medium term to slightly less than 34.0% in 2028-29 (from 30.3% in 2025-26). Morningstar DBRS considers this increase to be manageable for the current credit rating level.

New Brunswick forecasts the economy will grow by 1.1% in 2025, 1.3% in 2026, and average around 1.5% over the subsequent three years. Some erosion is likely if trade dynamics do not improve or stabilize over a prolonged period with potential adverse effects on business, retail, and investment sentiment.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

CRITICAL RISK FACTORS (CRFs) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of CRFs
In the analysis of New Brunswick, the CRFs are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of New Brunswick, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the CRFs and the FRA
In the analysis of New Brunswick, the CRFs carry greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:
-- Rating Canadian Provincial and Territorial Governments (April 25, 2025) https://dbrs.morningstar.com/research/452575

The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025)
https://dbrs.morningstar.com/research/454196
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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