Region retains AAA credit rating despite inflationary pressures

Moody’s Investors Service has given the Region of Waterloo another AAA credit rating in its latest analysis of the municipality's financial health.

The annual rating, which will be presented at regional council this week, provides information to the Canadian debt capital markets concerning the municipality's long term debt.

The AAA rating reflects “prudent fiscal management and prudent long-term planning which support strong financial results. Operating results are underpinned by a wealthy economic base and diversified sectors,” reads the Aug. 11 report.

Municipalities that attain the AAA rating are “judged to be of the highest quality, with minimal lending risk.”

Despite the strong rating, the Moody's report states that the region's credit profile is challenged by inflationary pressures on costs and fuel expenses, weaker liquidity levels and higher debt burden than its peers.

The report acknowledges that “a faster than anticipated rise in the debt burden, combined with a significant decline in the level of cash, investments and reserves relative to debt,” could lead to a downgrade in the rating.

A weakening of operating performance leading to sustained deficits would also result in downward rating pressure, the report states. 

It goes on to say the “projected debt burden could approach 90 per cent of operating revenue within the next five years,” above the median of other AAA-rated Canadian municipalities.

In response, the region says it is planning to fund asset renewal projects from “pay-as-you-go” sources. In other words, by using cash on hand instead of taking on more debt. The region also plans to achieve its target reserve contributions and balances. 

The Moody's rating is based on historical actuals and projected levels of debt, cash, investments and reserves.

Moody’s, a leading provider of credit ratings, research and risk analysis, undertakes a credit analysis of the Region of Waterloo on an annual basis.