DBRS Confirms City of Calgary at AA (high) and R-1 (high) with Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Long-Term Debt rating of the City of Calgary (Calgary or the City) at AA (high) and its Commercial Paper (CP) rating at R-1 (high); all trends are Stable. The ratings are supported by the City’s relatively low DBRS-adjusted tax-supported debt burden, very strong liquidity and reserve levels and a disciplined and responsive fiscal management framework. The City’s economic performance has improved as world oil prices have firmed following the recent recession in the Province of Alberta (the Province; rated AA with a Negative trend by DBRS). The population continues to grow and key revenue streams remain resilient.

Calgary reported a DBRS-adjusted post-capex surplus of $170.2 million, up from $85.5 million the prior year, or a healthy 3.5% of total revenue, reflecting the City’s strong fiscal position. Operating revenues rose by 4.2% in 2017 (ex-capital revenue), compared with expense growth of 3.8% (DBRS-adjusted, ex-amortization). The 2018 budget is the final year of the current four-year budget plan, and DBRS expects fiscal results to be broadly consistent with recent years. Council will approve a new four-year budget plan covering the period from 2019 to 2022 this year, and DBRS expects that the plan will continue to be anchored by a commitment to long-term fiscal sustainability and prudent budget management, including strategies to fund incremental operating pressures and long-term capital requirements with moderate tax rate increases and ongoing savings and efficiencies.

The DBRS-adjusted tax-supported debt burden rose moderately in 2017 to $808 per capita and 0.4% of the taxable assessment base, from $747 and 0.3% the prior year, respectively. These levels remain comfortable for the ratings. Current projections indicate that debt will rise modestly in support of new capital projects. DBRS-adjusted tax-supported debt-per-capita will peak in the near term at approximately $887 in 2019, before declining through 2021, and debt as a share of taxable assessment will be essentially stable at 0.4% over the forecast horizon. Tax-supported debt is expected to rise again in 2022 and beyond as borrowing for the Green Line Light-Rail Transit (LRT) resumes, but the debt outlook is expected to remain manageable for the ratings.

RATING DRIVERS
Upward pressure on the ratings is unlikely over the medium term, given DBRS’s assessment of the City’s economic structure and its high direct and indirect exposure to the provincial energy sector. While unlikely, downward pressure on the ratings could come from a change in fiscal management, producing large post-capex deficits and a significant deterioration in the City’s balance sheet. DBRS will continue to monitor the City’s financing plan for the Green Line LRT for the impact on the DBRS-adjusted tax-supported debt burden but does not anticipate that the project or the broader tax-supported capital plan will pressure key credit metrics.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Canadian Municipal Governments and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on dbrs.com under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.