Moody's downgrade threatens Ontario's fiscal plan

Thu Apr 26, 2012 7:23pm EDT
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By Claire Sibonney

TORONTO (Reuters) - Credit rating agency Moody's downgraded Ontario's debt on Thursday, just a day after competitor Standard & Poor's suggested it might do the same, the latest blow in the Canadian province's battle to tame its climbing debt.

The negative action on one of the world's largest non-sovereign issuers of debt is a warning signal to markets, and could make borrowing for the province even more expensive - threatening its recently improved plan to balance its budget.

"You see two back-to-back moves by very important credit rating agencies, I think markets are going to be concerned about the risks associated with Ontario debt but I don't think it's going to be a significantly higher risk premium than what we've been seeing," said Sonya Gulati, economist at Toronto-Dominion Bank.

"Nothing has really changed from yesterday versus today but I think there's a bit more concern out there for Ontario's fiscal challenge."

Moody's dropped the issuer and debt ratings on Canada's most populous province to Aa2 from Aa1, with a stable outlook, affecting approximately C$202 billion ($205 billion) in debt securities.

"The downgrade of Ontario's rating reflects the growing debt burden and the risks surrounding the province achieving its medium-term fiscal plan given the subdued growth outlook, extended time frame back to balance and ambitious expenditure targets," Jennifer Wong, Moody's lead analyst on the province, said in a research report.

The move brought Moody's score on the province more in line with the other two big rating agencies, S&P and DBRS. DBRS downgraded the province in the fall of 2009, after the global recession hit the province's manufacturing base.

DBRS gave Ontario's ambitious austerity budget the benefit of the doubt on Thursday, holding a "stable" outlook on its debt rating.   Continued...

A Moody's sign on the 7 World Trade Center tower is photographed in New York August 2, 2011. REUTERS/Mike Segar