TEXT-S&P affirms County of Simcoe, Ontario at 'AA-'

Wed Dec 5, 2012 12:30pm EST
 
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Overview
     -- We are affirming our 'AA-' long-term issuer credit rating on the 
County of Simcoe.
     -- The affirmation reflects our view of the county's low levels of debt 
and strong liquidity.
     -- The stable outlook reflects Standard & Poor's expectations that within 
the two-year outlook horizon, tax-supported debt will remain below 30% of 
projected operating revenues, liquidity will remain strong despite increasing 
capital expenditures, and the local economy will remain stable.

Rating Action
On Dec. 5, 2012, Standard & Poor's Ratings Services affirmed its 'AA-' 
long-term issuer credit rating on the County of Simcoe, in the Province of 
Ontario (AA-/Negative/A-1+). The outlook is stable. 

Rationale
The ratings on Simcoe reflect Standard & Poor's view of the county's low 
levels of debt and strong liquidity. We believe that a below-average budgetary 
flexibility and a weakening budgetary performance constrain the ratings.

We believe Simcoe benefits from a strong liquidity position, to meet debt 
servicing and contingent liabilities; we expect liquidity will remain robust 
throughout our rating horizon. At year-end 2011, the county's estimated free 
cash and liquid assets (Standard & Poor's-calculated) were about 10x debt 
service. Simcoe also has access to an undrawn credit facility of C$15 million.

We believe the county's debt burden remains low. Simcoe's tax-supported debt 
was about C$55 million in 2011, or about 21% of consolidated operating 
revenues, and its interest-to-adjusted operating revenues ratio was 0.6%. In 
2011, the county approved the issuance of C$94 million of debt through Ontario 
Infrastructure Projects Corp. Although at year-end no debt had been issued, 
Simcoe made a C$14 million advance on this debt to finance projects in 
progress. The county's near-term debt could increase to fund an expanded 
capital plan, but we believe that tax-supported debt should remain below 30% 
of projected operating revenues within our outlook horizon.

While the county's budgetary flexibility remains adequate, we believe that it 
is somewhat below the average of that of its similarly rated peers who usually 
have own-source revenues significantly above 75% of operating revenues. 
Simcoe's 10-year average of modifiable (own-source) revenues to operating 
revenues was 70%, principally due to the increase in transfers from senior 
levels of government as a proportion of total revenue. Although higher in the 
past three years, its capital expenditures are, in average, about 16% of total 
expenditures. We expect Simcoe will maintain similar budgetary flexibility 
levels in the next two years.

In our opinion, the county's budgetary performance remains adequate, despite 
weakening after-capital balances. Although the 2011 operating surplus of 7% of 
adjusted operating revenues was slightly above that of the previous two years, 
it remained below the five-year average of 9%. Higher capital expenditures 
more than offset the capital revenues' growth in the past five years leading 
to wider after-capital deficits. In 2011, it accounted about 8% of total 
revenues, compared with 0.4% in 2007. We estimate Simcoe's after-capital 
balances will remain in deficit in the near-to-medium term as it continues to 
invest heavily in growth-related capital projects. 

Outlook
The stable outlook reflects Standard & Poor's expectations that within the 
two-year outlook horizon, Simcoe's tax-supported debt will remain below 30% of 
projected operating revenues, liquidity will remain strong despite increasing 
capital expenditures, and local economy will remain stable. We could lower the 
ratings or revise the outlook to negative if tax-supported debt increases 
significantly beyond 30% of projected operating revenues, liquidity 
deteriorates significantly, or budgetary performance erodes further. 
Conversely, sizable improvement in budgetary performance and financial 
flexibility in the next two years could result in an upward revision of the 
outlook or the ratings. 

Related Criteria And Research
Methodology For Rating International Local And Regional Governments, Sept. 20, 
2010

Ratings List
Rating Affirmed

Simcoe (County of)
 Issuer credit rating                            AA-/Stable/--


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.