TEXT-S&P raises County of Oxford, Ontario to 'AA'
Overview -- In our view, the County of Oxford has a long history of superior operating surpluses, strong liquidity position, and moderate debt burden. -- We are raising our long-term issuer credit and senior unsecured debt ratings on the County of Oxford to 'AA' from 'AA-'. -- The stable outlook reflects Standard & Poor's expectations that within the two-year outlook horizon, Oxford's operating performance and liquidity position will remain strong, and its tax-supported debt will not materially surpass 50% of its adjusted operating revenue. Rating Action On Nov. 27, 2012, Standard & Poor's Ratings Services raised its long-term issuer credit and senior unsecured debt ratings on the County of Oxford, in the Province of Ontario (AA-/Negative/A-1+), to 'AA' from 'AA-'. The outlook is stable. Rationale The ratings on Oxford reflect Standard & Poor's view of the county's long history of superior operating surpluses, strong liquidity position, and moderate debt burden. We believe that the county's significant after-capital deficits and a relatively concentrated economy constrain the ratings. Oxford's operating performance remains superior, in our opinion. In 2011, the county posted a 19% operating surplus of adjusted revenues, in line with the 10-year average and significantly above that of its peers. This has allowed the county, in the past decade, to use its reserves to finance a substantial portion of the capital spending, while maintaining a moderate debt burden. Oxford benefits from a strong liquidity position and we expect it to remain robust to meet debt servicing and contingent liabilities throughout our rating horizon. At the end of 2011, the county's estimated free cash and liquid assets (Standard & Poor's-calculated) were C$75.5 million or about 870% of estimated debt service in 2012. Oxford also has access to an undrawn credit facility of C$10 million. Of note, the county has maintained net creditor status for the last 10 years. We believe that the county's debt burden remains moderate. Oxford's tax-supported debt was about 48% of consolidated operating revenues in 2011 and its interest-to-adjusted operating revenues ratio was 2.7%. The county issued C$12.1 million in 2011 to finance about 25% of its capital spending. In 2012, it issued only C$0.34 million, compared with C$9.5 million budgeted, due to lower-than-budgeted capital expenditures. Oxford plans to issue about C$8.8 million in 2013 to support its capital spending, and plans none in 2014. As a result, we expect its tax-supported debt burden will not vary significantly from the current level and will not materially exceed 50% of consolidated operating revenues in the next two years. Higher capital expenditures and lower stimulus funds led to negative after-capital balances over the past three years; Oxford's after-capital deficit was 11% in 2011. We estimate that, in our two-year outlook horizon, Oxford's after-capital balances will improve, as its operating surpluses should remain in line with the historical average and the county expects to lower its capital spending. In our view, Oxford's economy is somewhat concentrated, relying largely on auto manufacturing. The county's largest employers, Toyota and CAMI (a joint venture between Suzuki Motor Corp. and General Motors Co.), increased capacity and added new shifts in the past two years. Nevertheless, new companies are locating in Oxford. Siemens has recently opened a wind turbine blade manufacturing facility. As well, the county expects Sysco (North American marketer and distributor of food services), and Execulink Telecom (provider of high speed Internet and phone services) to start their operations in Woodstock in 2013. In addition to adding about 700 jobs to the economy and largely offsetting jobs losses from business closures, these companies should contribute to diversifying Oxford's economy. Outlook The stable outlook reflects Standard & Poor's expectations that within the two-year outlook horizon, Oxford's operating performance and liquidity position will remain strong, and its tax-supported debt will not materially surpass 50% of its adjusted operating revenue. We could revise the outlook to positive or raise the rating if there were a material improvement in budgetary performance, in particular a return to after-capital surpluses, and the economy showed significant signs of robust growth and diversification. Conversely, we could revise the outlook to negative or lower the ratings if Oxford's tax-supported debt were to increase over 60% of projected operating revenues, liquidity and budgetary performance were to weaken considerably, and there were a sustained deterioration of the local economy. Related Criteria And Research Methodology For Rating International Local And Regional Governments, Sept. 20, 2010 Ratings List Upgraded To From Oxford (County of) Issuer Credit Rating AA/Stable/-- AA-/Positive/-- Senior Unsecured AA AA- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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