ข่าวประชาสัมพันธ์การเงิน/หลักทรัพย์

Regional Municipality of Peel Affirmed At ‘AAA’; Outlook Is Stable

          RATING ACTION 
          On Sept. 13, 2018, S&P Global Ratings affirmed its 'AAA' long-term issuer credit and senior unsecured debt ratings on the Regional Municipality of Peel, in the Province of Ontario. The outlook is stable.
          OUTLOOK 
          The stable outlook reflects S&P Global Ratings' expectations that, in the next two years, ongoing economic growth will contribute to robust revenue growth, allowing Peel to generate after-capital surpluses, maintain exceptional liquidity, and limit its debt requirements such that tax-supported debt remains in line with forecasts. 
          We could lower the ratings in the next two years if the region's budgetary performance deteriorated such that we believed that sustained after-capital deficits were likely, or greater-than-expected debt issuance would be necessary to finance capital causing the tax-supported debt ratio to exceed 120% of consolidated operating revenues.
 
          RATIONALE
          Peel's location and integration with the Greater Toronto Area (GTA) have propelled economic and population growth in the region. Population growth had necessitated large capital projects and related debt. However, in recent years, the region has begun generating revenues exceeding operational and capital expenses, which it has directed to reserves, reducing its reliance on debt-financing and bolstering liquidity. We expect this to continue, supporting our assessment of the region's creditworthiness. 
          Peel benefits from a strategic geographic location, strong financial management, and a supportive institutional framework. 
          Peel is on the western side of the GTA and contains the local municipalities of Brampton and Mississauga, as well as the Town of Caledon. The region hosts an extensive transportation network, including Canada's largest airport, two national rail lines, and some of Canada's largest highways, that fully integrates it with the GTA's large employment base and allows good access to other markets. 
          Peel's proximity to and integration with the GTA have supported regional population growth, building activity, and property assessment growth, which in turn have bolstered regional revenues. We believe that Peel has a very strong and diverse economy, with high average household income, steady population growth, and good socioeconomic and demographic attributes. Although regional GDP data are not available, we estimate that the region's GDP per capita would be in line with the 2015-2017 provincial average of about US$44,000 given its fairly high average household income, which Peel estimates at about C$104,466 in 2016. The region estimates its population was about 1.48 million in 2017, a 2.9% increase year over year. 
          Peel's robust financial management practices are broadly in line with those of other GTA regional municipalities and contribute to our view of the region's high creditworthiness. Peel's strategic plan, together with its long-range asset management and capital financing plans, guides its annual budget, which includes a multiyear outlook with reasonable revenue and expense assumptions. In our opinion, the experienced management team has the capability to implement the strategic plan and budget in line with a set of financial policies that we believe have broad political support. 
          Like other Canadian municipalities, Peel benefits from a very predictable and well-balanced local and regional government framework that has demonstrated a high degree of institutional stability. Although provincial governments mandate a significant proportion of municipal spending, they also provide operating fund transfers and impose fiscal restraint through legislative requirements to pass balanced operating budgets. Canadian municipalities generally are able to match expenditures well with revenues, except for capital spending, which can be intensive. Operating surpluses typically fund capital expenditures and future liabilities through reserve contributions.
          Strong revenue growth has bolstered Peel's capital reserve, supporting exceptional liquidity and a declining debt burden.
          A strong, diversified economy and steady population growth have expanded Peel's taxable assessment base, resulting in tax revenue growth. In addition, the region has implemented dedicated annual increases in user rates to fund future repair and replacement of infrastructure, resulting in operating revenue growth exceeding that of operating expenses. At the same time, we expect that capital expenditures, while still averaging a high 20% of total expenditures over our 2016-2020 forecast period, will be slightly lower than our previous forecast. This combination results in an overall strong budgetary performance, with stable and robust operating balances averaging about 11% of operating revenue and modest average after-capital surpluses in the next few years.
          Peel's high degree of budgetary flexibility supports the region's performance. More than 80% of Peel's operating revenues are internally modifiable (largely property taxes) and we believe the region has some ability to defer some noncritical capital projects if required under a stress scenario. However, Peel has some practical constraints typical of Canadian municipalities, namely the large number of services that the province mandates with minimum delivery standards, which significantly limits the region's ability to reduce the cost of providing these services. In addition to employee-related cost pressures (typically accounting for close to 45% of adjusted operating expenses), there are political constraints on raising taxes and user fees or reducing service levels. 
          Peel's sustained population growth continues to fuel the expansion of infrastructure and services, and also resulted in a significant increase in the region's debt load from 2009-2016. However, due to an increased capacity to internally finance capital spending resulting from larger operating balances, and a slightly moderated capital expenditures forecast in the next several years, Peel does not expect to issue debt for its own purposes until 2019. Until then, it expects debt repayments to broadly equal total borrowing (own purpose and on behalf of the local area municipalities), resulting in a slight reduction in the debt burden to almost 74% of consolidated operating revenues by the end of 2020. We expect interest costs to be very manageable, averaging less than 5% of adjusted operating revenues in fiscal years 2016-2020. 
          Years of strong budgetary balances and Peel's practice of transferring funds into capital reserves have led to exceptional liquidity, in our opinion, which helps reduce the need to finance the capital program with debt. We estimate the region's adjusted free cash and liquid assets will average C$2.25 billion over the next 12 months, sufficient to cover close to 13x the estimated debt service. We expect this ratio to remain high over the outlook horizon. Supporting Peel's liquidity position is strong access to external liquidity, aided by the region's regular issuance into public debt markets since 2010, its maintenance of benchmark issues, and the presence of a secondary market for Canadian municipal debt instruments. 
          Peel has low material contingent liabilities and does not own any government-related business entities. Standard future employee-benefit liabilities, letters of credit, and landfill postclosure costs totaled almost C$162 million or 8% of 2017 estimated adjusted operating revenues, and the region has dedicated reserves to cover a portion of these.