Global Credit Research – 13 Dec 2012
Toronto, December 13, 2012 — In conjunction with the revision of the Province of British Columbia’s outlook to negative, Moody’s has revised the outlook on the City of Vancouver’s Aaa rating to negative from stable and affirmed the ratings and outlooks for four other linked issuers: Municipal Finance Authority of British Columbia (MFABC), South Coast British Columbia Transportation Authority (TransLink), the University of British Columbia (UBC) and Simon Fraser University (SFU).
This announcement follows the change in the Province of British Columbia’s ratings outlook to negative from stable (http://www.moodys.com/research/Moodys-Revises-British-Columbias-Outlook-to-Negative-from-Stable-on–PR_261569). Following Moody’s assessment of the macroeconomic and funding linkages between the Province of British Columbia and its regional and local governments and government-related issuers, Moody’s has revised the outlook for the City of Vancouver and affirmed the ratings and outlooks for four issuers.
City of Vancouver — debt rating outlook changed to Aaa, negative from Aaa, stable.
The outlook revision for the City of Vancouver’s Aaa rating to negative from stable reflects the negative outlook on the Province of British Columbia. The city’s rating reflects its consistent, positive financial results, strong liquidity position and diversified economy. The city’s debt burden is, however, higher than most Aaa-rated Canadian municipalities and its rating presently benefits from support from the province and as such the city’s rating would likely move in tandem with the province’s rating and outlook.
The affirmations reflect the expectation that the following issuers would likely not be downgraded if the province’s rating were downgraded one notch:
Municipal Finance Authority of British Columbia (MFABC) — debt rating affirmed Aaa, stable.
The rating affirmation of MFABC reflects its strong institutional framework and substantial liquidity, along with its continued solid fiscal and financial position. The strong institutional framework provides significant debenture holder security, including the joint and several liability of members of regional districts that borrow from MFABC and the unlimited taxing powers on all taxable properties in the province of British Columbia.
South Coast British Columbia Transportation Authority (TransLink) — issuer and debt ratings affirmed Aa2, stable.
The rating affirmation of TransLink reflects the authority’s access to diverse revenue sources, including taxing authority, and strong governance and management framework requiring funded three-year financial plans, balanced by a sizable capital plan requiring significant debt. While the debt burden of TransLink has increased significantly in recent years, it is expected to stabilize and remain manageable within the current fiscal framework.
University of British Columbia (UBC) — issuer and debt ratings affirmed Aa1, stable.
The rating affirmation of UBC reflects its consistent operating performance, large endowment, strong liquidity and modest debt burden. The ratings also take into account the university’s strong market position, supported by robust student demand and extensive research activities.
Simon Fraser University (SFU) — debt rating affirmed Aa1, stable.
The rating affirmation of SFU reflects the university’s low and declining debt burden as well as its track record of consistent, stable operating performance. The Aa1 rating also reflects SFU’s strong market position as a mid-sized comprehensive university experiencing continued strong student demand.
WHAT COULD MOVE THE RATINGS UP/DOWN
City of Vancouver:
Stabilization of the outlook for the City of Vancouver’s rating would require (i) the stabilization of the Province of British Columbia’s rating outlook; and/or (ii) a sustained decline in the city’s debt burden, particularly a significant decline in the debt burden related to the Olympic Village financing, along with continued fiscal discipline and ongoing improvements in the city’s liquidity position. A downgrade of the Province of British Columbia’s rating could lead to a downgrade of the City of Vancouver’s rating.
Municipal Finance Authority of British Columbia, South Coast British Columbia Transportation Authority, the University of British Columbia and Simon Fraser University:
In the case of TransLink, UBC and SFU, while not expected in the near term, substantial improvements in the financial positions and creditworthiness of the entities could exert upward pressure on the ratings.
Any sector or issuer-specific risks causing a deterioration in an entity’s financial position or creditworthiness would put downward pressure on the ratings.
The principal methodologies used for regional and local governments were: “The Application of Joint-Default Analysis to Regional and Local Governments”, published in December 2008, and “Regional and Local Governments Outside the US”, published in May 2008. The principal methodology used for government-related issuers was: “Government-Related Issuers: Methodology Update”, published in July 2010. The principal methodologies used for universities were: “Government-Related Issuers: Methodology Update”, published in July 2010, and “Methodology for Rating Public Universities”, published August 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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