DBRS Confirms the City of Hamilton at AA

Dominion Bond Rating Service (“DBRS”) has today confirmed the rating of the City of Hamilton (the “City” or “Hamilton”) as indicated above.

DBRS notes that the City remains on task in addressing major infrastructure needs while keeping net tax-supported debt within reasonable levels. While these factors support a Stable trend in its current rating, Hamilton’s financial profile is constrained by the City’s plan to gradually draw down a notable portion of its liquidity position.

In 2004, the City recorded its first post-capex surplus in three years, due in great part to a healthy increase in the amount of operating grants provided from other tiers of government, as well as increases in municipal taxes. However, preliminary indications for 2005 suggest that attaining a second consecutive surplus will have been challenging for the City given recent high levels of debt-financed capital expenditures. The City’s net tax-supported debt level remains on an upward trend and is expected to have reached a DBRS-adjusted Cdn$233 million in 2005, up approximately Cdn$60 million from 2004, driven primarily by significant capital projects.

While Hamilton’s medium-term financial outlook remains adequate, DBRS expects a fairly tight operating environment resulting from social program costs and salary pressures. In addition, the City is expected to draw down approximately Cdn$50 million of its Hamilton Future Fund over the next five years in order to finance capital expenditures, notably reducing its liquidity position (cash and investments net of deferred revenue). Nevertheless, the City’s ratio of liquidity-to-net tax-supported debt is expected to remain solid and in line with similarly rated Canadian municipalities, comfortably above 1.0 times over the next five years. Moreover, Hamilton’s decision not to leverage its federal gas tax funds provides the City with a cushion to deal with unforeseen events.

The level of net tax-supported debt is expected to peak at approximately Cdn$287 million or Cdn$534 per capita in 2008, which remains well manageable in light of increased senior government funding that serves to bolster the City’s financial flexibility.

Although not presently a major concern, DBRS recognizes that current macroeconomic conditions have been less than favourable for Hamilton’s relatively large manufacturing sector. High energy prices and a continually strengthening Canadian dollar present added risks for the City. Persistence in these factors over the medium term could begin constraining Hamilton’s fiscal and economic performance. In an effort to mitigate the economic impact of these factors, the City is taking steps to raise its industrial and manufacturing profile and provide an attractive locale for businesses.