December 3, 2008
Primary Credit Analyst:
Suleman Souleyman, Toronto (1) 416-507-2514; suleman_souleyman@standardandpoors.com
Secondary Credit Analyst:
Stephen Ogilvie, Toronto (1) 416-507-2524; stephen_ogilvie@standardandpoors.com
TORONTO (Standard & Poor's) Dec. 3, 2008--Standard & Poor's Ratings Services today said it affirmed its 'A+' long-term issuer credit and senior unsecured debt rating on the City of Thunder Bay, in the Province of Ontario
(AA/Stable/A-1+). The outlook is stable.
"In our opinion, the ratings on Thunder Bay reflect the city's strong cash and equivalent balances, higher than-average level of senior government support and its low-but-adequate operating surpluses," said Standard & Poor's credit analyst Suleman Souleyman. "Higher-but-stabilizing debt and a stable economy but with limited diversification constrain the ratings," Mr. Souleyman added.
Thunder Bay's operating balance decreased to almost 9% of operating revenues in 2007 from 11% the previous year, a figure it has also averaged in the past five years. This is slightly below average compared with that of peers, both domestically and globally. On a consolidated basis (incorporating the city's telephone utility operations), however, Thunder Bay's operating surplus was almost 13% of operating revenues. These surpluses have helped fund the city's capital expenditures and contribute to its reserves.
In 2007 Thunder Bay's net debt (debt minus cash and investments) was 22% of operating revenues, which for the rating, is about average on a domestic basis, but stronger-than-average globally. The city's very healthy cash and investment balances were almost 58% of operating expenditures. Mitigating this is sharply rising debt in the past three years, which we expect to begin to www.standardandpoors.com/ratingsdirect
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City of Thunder Bay Ratings Affirmed At 'A+' On Excellent Cash And Equivalent Balances moderate.
Located on the northwestern tip of Lake Superior, Thunder Bay has an economy that focuses largely on the public sector (more than a third of total employment), trade and transport (about 25% of total employment), and retail.
The public sector includes Lakehead University, which has a medical school that is attracting significant healthcare investment and providing sustained employment. Planned investments include a Cancer Cardiac Research Centre, and a Seniors Centre of Excellence (SCE). The SCE is estimated at C$56.6 million.
The province and St. Joseph's Care Group will fund it, with the city committing C$8 million. Also, provincial and municipal officials are planning a Molecular Medicine Research Centre (MMRC; estimated at C$79 million). The city estimates that the MMRC's economic impact alone on the area will be C$92 million-C$110 million during a five-year period, and expects it to create 205 full-time knowledge-based jobs and 400 spin-off jobs across the region. This should help the city transition from the more than 2,000 manufacturing-related jobs that were lost from 2001-2006 in the Thunder Bay census metropolitan area, mostly in the struggling forest sector.
The stable outlook reflects Standard & Poor's expectation that Thunder
Bay's debt will not substantially increase and liquidity will not diminish. It also reflects our expectation that senior government support will not significantly diminish and operating performance will not weaken further. Not meeting some of these expectations could place downward pressure on the ratings. A substantial decrease in debt and rise in liquidity, all else being equal, could lead to a rise in the ratings.
Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Credit Ratings Search.
Standard & Poor’s RatingsDirect | December 3, 2008
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