Morningstar DBRS Confirms Province of Ontario's Credit Ratings at AA and R-1 (high), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and the Long-Term Debt credit rating of the Province of Ontario (Ontario or the Province) at AA, as well as the Province's Short-Term Debt credit rating and U.S. Commercial Paper credit rating at R-1 (high). Morningstar DBRS also confirmed the Ontario Electricity Financial Corporation's (OEFC) Long-Term Obligations credit rating at AA (based on the Province's rating). The trends on all ratings are Stable.

CREDIT RATING DRIVERS
A credit ratings upgrade is considered unlikely and would be dependent on material improvement in critical rating factors and key financial risk metrics. A credit ratings downgrade could result from a deterioration in one or more critical rating factors or a material deterioration in financial risk metrics.

CREDIT RATING RATIONALE
The Progressive Conservative (PC) party was re-elected to a majority government in February 2025 (see "Province of Ontario Election 2025: PC Party Cruises to Victory in Election Overshadowed by U.S. Tariff Threat" published on February 28, 2025) and positioned its recently introduced 2025-26 budget as a plan to insulate Ontario's economy from protectionist U.S. trade policy. While the plan outlines a slower path back to fiscal balance, outperformance in prior years has allowed the Province to maintain its debt targets and, as a result, will help to limit deterioration in its credit profile.

Ontario's economic outlook reflects the uncertainty arising from trade tensions with the U.S. and its potentially disruptive effects on key sectors. The Province has assumed real GDP growth of 0.8% and 1.0% in 2025 and 2026, respectively, which appears reasonable in relation to the current private sector consensus.

For 2025-26, Ontario is forecasting a deficit of $14.6 billion, after incorporating a $2.0 billion reserve. This follows a better-than-expected shortfall of $6.0 billion for the fiscal year just ended on March 31, 2025. Morningstar DBRS adjusts reported results to include capital expenditures (capex) as incurred rather than as amortized and assumes some modest capex underspending. On this adjusted basis, a deficit of 2.4% of GDP is anticipated in 2025-26, falling to less than 1.0% of GDP by 2027-28. Reasonable economic growth assumptions, along with explicit reserves and contingencies, provide some flexibility to manage pressures, but Morningstar DBRS judges the execution risk of hitting these targets to be higher than past budgets.

Despite the deterioration in the economic and fiscal outlook, Ontario is maintaining its debt targets, with key thresholds unchanged: the net debt-to-GDP ratio will remain below 40%, net debt-to-operating revenue will remain below 200%, and net interest-to-operating revenue will remain below 7.5%. On a Morningstar DBRS-adjusted basis, the debt-to-GDP ratio remains largely stable, estimated to be 39.7% in 2025-26 and gradually declining to roughly 39.0% by 2027-28.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors 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 RATING FACTORS (CRF) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of CRFs
In the analysis of the Province of Ontario, the CRFs are considered in the order of importance contemplated in the methodology.

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

(C) Weighting of the CRF and the FRA
In the analysis of the Province of Ontario, the CRF carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodologies:

Rating Canadian Provincial and Territorial Governments (April 25, 2025)
https://dbrs.morningstar.com/research/452575

Global Methodology for Rating Government-Related Entities (June 2, 2025) https://dbrs.morningstar.com/research/455464

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (https://dbrs.morningstar.com/research/447186) which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:

Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (May 16, 2025)
https://dbrs.morningstar.com/research/454196

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@dbrsmorningstar.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

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit 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.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Travis Shaw, Senior Vice President, Sector Lead,
Rating Committee Chair: Thomas R. Torgerson, Managing Director,
Initial Rating Date: May 15, 1987

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

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