Rock solid
With very low credit risk and a strong capacity to pay back debts it's unsurprising to find that Alberta, British Columbia, Ontario and Québec's strong credit ratings impact positively on the projects they host
IT's No MEAN feat to keep the public purse in order when governments all over the world are struggling to rein in their costs, but Canada's provinces can be pleased with a job well done.
Throughout the financial crisis, the country's 10 provinces have kept their credit ratings parked at the highest echelons of the international credit agencies' ratings system, holding fast to their reputation as very low-to-low risk propositions with a strong capacity to repay debt.
Alberta, British Columbia, Ontario and Québec - the core markets for public-private partnerships (PPPs) across Canada - are good examples of this. Alberta's finance ministry boasts of its "Triple-A" rating on its website, noting that it "continues as the only province in Canada with total financial assets that exceed total liabilities".
Moody's, the ratings agency, also rates British Columbia as triple-A, pointing out that it has managed to "reduce its debt burden to a level that is below the median of Canadian provinces". The province also holds up well internationally, with Moody's adding "British Columbia's debt burden is low when compared to its international peers, which include the German Länder and the Australian states".
Québec (Aa2) and Ontario (Aa1) are lower down the scale but still within the range of "very low credit risk" investments "supported by high debt affordability". Their resilience is due in no small part to years of revenue growth prior to the downturn, which has created good shock absorption capacity. So much so, in fact, that Moody's does not forecast a change to the Canadian provinces' ratings for 2010.
Which is not to say they are invulnerable. Moody's warns that expensive stimulus efforts are putting pressure on the provinces' debt affordability. This, combined with other possible scenarios such as double-dip recession or a failure to implement fiscal consolidation measures, could prompt a downgrade.
The four provinces' credit worthiness becomes especially important considering that Canadian PPPs are backed by availability payments - public sector contributions paid out (usually over a 30-year period) to the private sector in exchange for their ability to maintain infrastructure assets in good condition.
In this sense, their credit worthiness has a significant impact on the credit ratings of individual projects - their strength a key determinant in attracting lender appetite at all stages of a deal's lifecycle.