Moody’s Investors Service, an international bond credit rating firm, affirmed the District’s credit rating of Aa2 and upgraded its status from stable to a positive outlook.
In a release issued by Moody’s on September 24, 2021, the firm cites District Council’s strong governance and its prudent fiscal management during the pandemic.
“Maintaining a high-quality credit rating provides access to lower long-term borrowing costs for both the District and the area municipalities for investments in infrastructure such as water, wastewater, roads, bridges, and other community projects,” noted the District in a subsequent media release. “This ensures the District’s services remain affordable and sustainable for both residents and businesses, now and in the future.”
Moody’s rationale for the positive outlook and rating included:
- The positive outlook reflects Moody’s expectation of continued growth in Muskoka’s liquidity levels and the District’s capacity to continue to generate strong operating results in 2021 and 2022, while factoring in lingering uncertainty caused by the coronavirus pandemic.
- The positive outlook also reflects Moody’s expectation of only modest debt increases over the next two to three years without adverse impacts on debt affordability as the district prioritizes non-debt financing for the majority of its long-term capital plan.
- The affirmation of the Aa2 ratings and aa2 BCA reflects Muskoka’s strong levels of cash and investments which supports high liquidity coverage ratios, strong governance and fiscal management, and the district’s capacity to generate significant operating surpluses.
- Cash and investment balances stood at $207 million at year-end 2020, and provided 253 per cent coverage of net direct and indirect debt and 124 per cent of total expense. Moody’s projects that these balances will continue to increase from anticipated operating surpluses which will result in rising coverage ratios.
- Muskoka’s governance is strong which reduces the risk to the District, and reflects its prudent fiscal management including during the coronavirus pandemic, strong liquidity and debt management with a focus on limiting the increase in debt, as well as forward-looking capital planning.
- The District faces manageable pressures from elevated levels of capital spending related to it road and utilities networks, with the 10-year tax- and rate-supported capital plan for 2021-2030 totaling $374 million. Cost increases typically reflect both general cost inflation, as well as cost overruns relating to construction in more remote areas.
- The rating also reflects the District’s dependence on seasonal tourism along with an aging demographic. Seasonal tourism drives business investment, construction and property values in the District. Given the strong reliance on seasonal tourism, Muskoka’s economy is more exposed to changes in the province’s economic conditions than other municipalities.
- The debt burden has been on a declining trend over the last five years, with net direct and indirect debt standing at 43 per cent of operating revenue in 2020. Moody’s projects that the debt burden will rise modestly over the next two years to 50 – 60 per cent (in line with 2018 and 2019 levels) to fund capital plans as the District prioritizes other funding sources including reserves or pay-go funding from development charges.
- The district also maintains conservative debt management policies which limit the growth in the debt burden.
- Muskoka’s Aa2 ratings take into account the aa2 BCA, which represents the district’s standalone credit strength, before the application of a high likelihood of extraordinary support coming from the Province of Ontario.
“This positive outlook is a vote of confidence by the market in the District,” said District Chair John Klinck. “It is a testament to the past prudent financial oversight of this term of Council and previous Councils who, working in collaboration with staff, have been able to build reserve funds and live within budget guidelines for the long-term benefit of our communities.”
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