S&P affirms Province of Quebec's 'A+' ratings

Overview
-- In our view, Quebec has good prospects to achieve a balanced budget by
fiscal 2014 and has demonstrated its commitment to reducing debt in the
medium-to-long term.
-- We are affirming our ratings, including our 'A+' long-term and 'A-1+'
short-term issuer credit ratings, on the Province of Quebec.
-- The stable outlook reflects our expectation that Quebec's revenue and
spending initiatives will lead to a larger operating surplus (in Standard &
Poor's adjusted terms) and a material improvement in the province's
after-capital deficit as a percent of total revenues in the next two fiscal
years.

Rating Action
On July 11, 2012, Standard & Poor's Ratings Services affirmed its ratings,
including its 'A+' long-term and its 'A-1+' short-term issuer credit ratings,
on the Province of Quebec. At the same time, Standard & Poor's affirmed its
'A+' senior unsecured debt rating on Financement Quebec and Hydro-Quebec (the
provincially owned and guaranteed electric utility). The outlook is stable.

The affirmation reflects our view of the province's prospects for achieving a
balanced budget by fiscal 2014, its commitment to debt reduction in the
medium-to-long term, its good economic growth prospects in the next two years,
adequate liquidity levels, and support from the federal government.

Rationale
The ratings on Quebec are supported by what Standard & Poor's views as the
province's large, wealthy, and well-diversified economy, which remains
resilient in the face of continuing global economic challenges, ongoing
support from the federal government, and exceptional access to capital markets
that provides for positive liquidity support for the rating. The provincial
government estimates real GDP growth to have slowed to 1.7% in 2011 from a
2.5% gain in 2010. The government is forecasting real GDP growth to advance by
1.5% in 2012 and a further 1.9% in 2013. While recognizing that the tenuous
recovery in the U.S. and the European sovereign debt crisis pose risks to
Quebec's economic outlook, we believe that the government's forecast for real
GDP growth underpinning its fiscal plan is reasonably cautious.

In our view, a further credit strength is the ongoing support from the federal
government. The Government of Canada provides significant and predictable
transfers to the provinces through the key Equalization, Canada Health
Transfer, and Canada Social Transfer programs. In Quebec, transfers
represented more than 22% of total revenues in fiscal 2012 (year ended March
31), up from the 19% share recorded in 2007, prior to the onset of the global
economic recession. This increase mainly reflects higher federal equalization
payments, federal compensation related to the Harmonized Sales Tax, and higher
funding for labor market programs.

We believe that Quebec's credit profile also benefits from adequate liquidity
levels and exceptional access to global financial markets for refinancing
needs, thanks in large part to a well-entrenched secondary market for its
debt. At the end of fiscal 2012, the province had estimated cash and temporary
investments of about C$4.4 billion and a further C$4.3 billion in its
Generations Fund. The purpose and sole use of the Generations Fund is to
reduce the province's debt burden. Deposits come mainly from water power
rentals from Hydro-Quebec, the province's wholly owned electric utility. The
province also has a large sinking fund balance of C$6.1 billion, which is
available for repayment of maturing debt issues. As well, in our opinion,
Quebec, together with other large provincial borrowers, has benefited from a
flight to quality in the past few years of global market turmoil.

We believe the province's main credit challenges include the already-high
tax-supported debt burden and its relatively large after-capital deficits. In
fiscal 2012, the province's tax-supported debt as a percent of consolidated
operating revenues increased further to about 189% of operating revenues or
48% of GDP. We believe that Quebec's tax-supported debt burden, which is high
compared with peers', will begin to decline in fiscal 2013 to about 183%. The
province's after-capital deficit rose further to 6.8% of total revenues in
fiscal 2012 (Standard & Poor's adjusted) from about 5.4% of total revenues in
fiscal 2011. We expect that Quebec's after-capital deficit will improve to
about 4.7% of total revenues in fiscal 2013. However, we believe that the
province's progress toward a balanced budget and significant improvement in
its after-capital deficit may face headwinds from the slowdown in the global
economy in the latter part of 2012 stemming from the European sovereign debt
crisis and lackluster recovery in the U.S. Any delay to Quebec's fiscal
recovery would likely result in increased debt issuance beyond our
expectations and exacerbate an already-high debt burden.

Outlook
The stable outlook reflects our expectation that Quebec's revenue and spending
initiatives will lead to a larger operating surplus (in Standard & Poor's
adjusted terms) and a material improvement in the province's after-capital
deficit as a percent of total revenues in the next two fiscal years. We also
expect the province to maintain its commitment to debt reduction through
additional deposits to its Generations Fund. We believe that Quebec's
tax-supported debt as a percent of consolidated operating revenues will
stabilize this fiscal year at about 189% of revenues and decline in the medium
term. A return to after-capital surpluses and a decline in its tax-supported
debt burden, continued Generations Fund deposits, and faster economic growth
in the next two fiscal years could lead to a positive outlook. Conversely, we
believe that failing to maintain the debt reduction commitment, substantial
operating and after-capital deficits beyond fiscal 2013, or the inability to
stabilize debt burdens beyond fiscal recovery in 2014 could put downward
pressure on ratings.

Related Criteria And Research
Methodology For Rating International Local And Regional Governments, Sept. 20,
2010

Ratings List
Ratings Affirmed

Quebec (Province of)
Issuer Credit Rating A+/Stable/A-1+
Senior Secured A+
Senior Unsecured A+
Commercial Paper
Global scale A-1+

Financement-Quebec
Senior Unsecured A+
Commercial Paper
Canada scale A-1(HIGH)

Hydro-Quebec
Senior Unsecured A+
Senior Unsecured AA-/Stable
Commercial Paper
Canada scale A-1(HIGH)
Global scale A-1+

Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
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