TEXT - S&P affirms Winnipeg's 'AA' ratings
Overview -- We are affirming our 'AA' long-term issuer credit and senior unsecured debt ratings on the City of Winnipeg. -- In part, the ratings reflect our assessment of the city's healthy budgetary surpluses, robust liquidity, and strong economic performance compared with that of peers. -- The stable outlook reflects our expectation that Winnipeg's credit quality will remain at current levels in the near term, with continued healthy budgetary performance, strong liquidity and moderate debt levels. -- The outlook also reflects our expectation that the city's economy will not deteriorate significantly. Rating Action On Nov. 14, 2012, Standard & Poor's Ratings Services affirmed its 'AA' long-term issuer credit and senior unsecured debt ratings on the City of Winnipeg, in the Province of Manitoba (AA/Stable/A-1+). The outlook is stable. Rationale The ratings on Winnipeg reflect Standard & Poor's opinion of the city's robust liquidity, stable and highly diversified economy, and healthy budgetary performance. We believe an expected increase in debt and limited budgetary flexibility offset these strengths somewhat. While we expect that Winnipeg will draw down its balances moderately as it undertakes its capital plan, we believe its liquidity will continue to remain strong. At fiscal year-end 2011(Dec. 31)], free cash and liquid assets stood at about C$418 million (Standard & Poor's-adjusted) and represented about 6.5x annual debt service. In addition, the city had sinking funds that amounted to almost C$242.5 million at year-end 2011. In our view, a well-diversified economic base underpins Winnipeg's lengthy record of solid economic performances, which continued in 2011 despite the recession's effects that other Canadian municipalities are still feeling. By its estimates, real GDP grew about 1.3% in 2011. Labor and construction indicators remained stable: The unemployment rate rose modestly, to 5.8% in 2011 from 5.7% the previous year. In addition, growth in construction activity was modest in 2011, as building permit values and housing starts increased 0.5% and 0.7%, respectively. In the near term, Standard & Poor's expects that the city's operating performance will remain in line with the historical average. Winnipeg had a surplus of 13.6% of operating revenues at year-end 2011 (Dec. 31), reflecting a modest decline compared with the previous year's 15.4%. The city recorded an after-capital deficit of 7.8% of total revenues, which was moderately lower than the three-year average deficit of 3.4%. We expect consolidated debt levels to rise significantly in the next four years as Winnipeg undertakes its capital plan. At fiscal year-end 2011, tax-supported debt (Standard & Poor's-defined) remained stable, at a moderate 43.9% of consolidated operating revenues. Net of sinking fund balances, based on our conservative forecasts, we expect consolidated debt to peak at an unprecedented 85%-90% of operating revenues by fiscal year-end 2014 as the city issues debt to help fund its sizable capital plan. In our opinion, significant infrastructure renewal requirements moderately constrain flexibility. Winnipeg faces an infrastructure deficiency of about C$3.5 billion, mainly to address aging roads, transit, facilities, buildings and parks. In addition, Manitoba's increased pollution standards and the resulting mandate to improve wastewater systems have resulted in an accelerated capital program for sewage disposal systems. Outlook The stable outlook reflects our expectation that, in the next two years, operating performance will remain in line with historical averages, with surpluses well-above 10% of operating revenues, and that liquidity levels will remain robust. We also expect that any increases in tax-supported debt will not exceed 90% of consolidated operating revenues and that the local economy will continue to produce solid results and that population growth rates will remain low but positive. A significant increase in tax-supported debt or decline in liquidity could exert downward pressure on the ratings. Conversely, declining tax-supported debt and notable improvement in its after-capital performance could result in a positive rating action. Related Criteria And Research Methodology For Rating International Local And Regional Governments, Sept. 20, 2010 Ratings List Ratings Affirmed Winnipeg (City of) Issuer credit rating AA/Stable/-- Senior unsecured debt AA
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