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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.