TEXT-S&P affirms City of Ottawa ratings | Reuters

Overview
-- We are affirming our 'AA+' long-term issuer credit and senior
unsecured debt ratings on the City of Ottawa.
-- The affirmation reflects our view of Ottawa's very positive liquidity,
wealthy and stable local economy, and moderate debt burden.
-- The stable outlook reflects our expectations that the city will
continue to maintain very positive liquidity levels in the next two years
despite moderate after-capital deficits in 2012 and 2013, and that the
tax-supported debt burden could peak at about 78% in 2013.
Rating Action
On April 30, 2012, Standard Poor's Ratings Services affirmed its 'AA+'
long-term issuer credit and senior unsecured debt ratings on the City of
Ottawa, in the Province of Ontario (AA-/Negative/A-1+). The outlook is stable.
The affirmation reflects our view of the city's very positive liquidity,
wealthy and stable local economy, and currently moderate tax-supported debt
burden.
Rationale
The ratings reflect what we consider to be the following positive factors:
-- Ottawa's strong credit profile benefits from its very positive
liquidity. At the end of 2011, the city had cash and investments of C$1.1
billion-C$1.2 billion, by our estimates. In addition, it had a banking
facility of C$100 million (which was undrawn) and held sinking funds of close
to C$90 million. By our calculation, those cash and investment holdings
translated into estimated free cash and liquid assets totaling close to C$430

million. Our ratio of free cash and liquid assets plus committed facilities to
prospective debt service cost was more than 300%. Ottawa also has good access

to Canada's well-developed capital markets, in our view. We expect that the

city will draw down its cash balances somewhat in 2012 and 2013 to support its
capital programs, but liquidity will remain very positive.
-- The local economy is stable, with high wealth and income levels. We
believe the city's GDP per capita was above the provincial average of about
C$46,000 at the end of 2011. Historically, the Ottawa census metropolitan area
has had one of the highest median family incomes in the country. Its large
share of public-sector employment (which stems from the federal
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civil service,
provincial school boards, hospitals, universities, and colleges and the city's
administration) provides a high level of employment stability. Employment
increased close to 1.0% and the unemployment rate fell to 5.9% from 6.6% in
2011, remaining below the provincial rate of 7.8%. Construction activity
indicators weakened, however. Building permits and housing starts declined 5%
and 9%, respectively, in 2011, and income support recipients increased 4%. We
believe that federal and provincial deficit-fighting measures will constrain

the local labor market and the pace of local economic activity might slow
somewhat in 2012 as a result.
-- Historically, the city's debt burden has been low-to-moderate. At the
end of 2011, the burden stood at 57% of projected operating revenues by our
estimate. For much of the past decade, the burden hovered near 45% of
operating revenues. With expanded capital projects in 2012 and 2013, we expect
the burden to rise to about 78% by the end of 2013, which we believe is still
moderate.
Partially offsetting these credit strengths are the following:
-- Financial results in 2011 followed a recent pattern of small operating
surpluses and moderate after-capital deficits. By our estimate, Ottawa
generated an operating surplus of about 6% of operating revenues and an
after-capital deficit of 12% of total revenues. Its operating and
after-capital results deteriorated substantially beginning in 2009 and have
remained below those of most peers since. We do not expect a substantial
improvement in operating results for 2012, and after-capital deficits could
deteriorate further in 2012 and 2013, owing to expanded capital programs.
-- Ottawa intends to expand its capital programs substantially in 2012
and 2013. Capital works will focus primarily on the transportation network and
transit, much of which is in preparation for the construction of the Ottawa
Light Rail Transit (OLRT) project. We expect the capital program to be about
C$970 million in 2012 and C$2.2 billion in 2013 as work begins on the OLRT.

The city plans to issue about C$450 million in 2012 and C$300 million in 2013
as part of the funding packages for the programs.
Outlook
The stable outlook reflects Standard Poor's expectation that Ottawa will
maintain very positive liquidity levels in the next two years and that local
economic growth will remain healthy. We expect that the city
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modest operating surplus and a moderate after-capital deficit in 2012 and that
the tax burden could reach a peak of about 78% in 2013 as a result of
borrowing plans for 2012 and 2013. Continued weak financial results, a
significant decline in liquidity, or a substantial increase in debt burden in
the next two years could place downward pressure on the ratings. A sustained
and material improvement in financial results (including a return or
near-return to balanced capital results) and a decline in the debt burden,

coupled with maintenance of very positive liquidity, are preconditions for an

upgrade.
Related Criteria And Research
Methodology For Rating International Local And Regional Governments, Sept. 20,
2010
Rating List
Ratings Affirmed
Ottawa (City of)
Issuer credit rating AA+/Stable/-Senior unsecured debt AA+