S&P AFFIRMS PROVINCE OF ALBERTA 'AAA' RATINGS

Tue Oct 2, 2012 5:05pm EDT

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Overview
     -- We are affirming our ratings, including our 'AAA' long-term issuer 
credit rating, on the Province of Alberta. 
     -- We are also affirming our 'AAA' senior unsecured debt ratings on 
Alberta Capital Finance Authority and Alberta Treasury Branch Financial.
     -- The affirmation reflects our view of Alberta's strong economic results 
in 2011 and prospects for 2012 and 2013, very strong liquidity levels, 
moderate burden of tax-supported debt, and support from the Canadian federal 
system.    
     -- The stable outlook reflects our expectations that the province's 
tax-supported debt burden will remain moderate (below 60% of operating 
revenues), cash and temporary investment holdings will remain very strong, and 
both real GDP and employment will increase more than 2% annually in the next 
two years.  

Rating Action
On Oct. 2, 2012, Standard & Poor's Ratings Services affirmed its ratings, 
including its 'AAA' long-term issuer credit rating, on the Province of 
Alberta. The outlook is stable. At the same time, Standard & Poor's affirmed 
its 'AAA' senior unsecured debt ratings on Alberta Capital Finance Authority 
and Alberta Treasury Branch Financial.

Rationale
The ratings on Alberta reflect what we consider to be the following positive 
factors:
     -- We believe 2011 was a good year for the Alberta economy. Real GDP rose 
about 3.5% and nominal GDP about 9.0%, outpacing the national increases of 
2.5% and 5.9%, respectively. The economy's recovery from the recession is 
virtually complete: Real and nominal GDP returned to prerecession levels in 
2011 and employment surpassed its prerecession peak. Labor market results were 
also strong for 2011. Employment soared 3.8%, ending two successive years of 
decline, and the unemployment rate fell to 5.5% from 6.5% in 2010. Growth in 
exports and investment were also strong. For 2012 and 2013, the province 
expects real and nominal GDP in both years to rise close to 4.0% and 7.0%, 
respectively, and employment to rise more than 2.0% each year as the 
unemployment rate falls to 4.9% in 2012 and 4.6% in 2013. The most current 
labor force indicators from July 2012 show that the unemployment rate fell to 
4.6% and employment rose more than 2.0% from July 2011. The chief risks to the 
Alberta economy are softening commodity prices due to a weak U.S. recovery, 
recession in the eurozone, and slowing growth in emerging economies.  
     -- Alberta's liquidity levels are very positive, in our opinion. The 
province has very large holdings of cash and temporary investments, which 
totaled C$38 billion at fiscal year-end 2012 (March 31). After making 
allowances for equity and bond holdings as per our criteria, we estimate that 
Alberta had free cash and liquid assets of about C$25 billion at that time, 
which represents more than 5x projected fiscal 2013 debt service costs. The 
province also has strong access to Canada's well developed capital markets in 
our view. For fiscal 2013, we expect Alberta's liquidity to decline somewhat 
as economic uncertainty continues and resource revenues and the projected 
operating surplus soften. Liquidity could decline as much as C$3 billion.  
     -- The province's debt burden is moderate, in our view. The after-capital 
deficits of recent years have been financed through draws on cash and 
investment holdings and not debt issuance. Alberta's debt and debt burden have 
increased postrecession but the escalation began from very low levels, unlike 
in the majority of provinces. At fiscal year-end 2012, direct and 
tax-supported debt represented 11% and 50% of operating revenues respectively, 
which was up from 7% and 41% a year earlier. Tax-supported debt was 7% of 
nominal GDP, up slightly from the end of fiscal 2011. For fiscal 2013, we 
expect tax-supported debt to represent about 59% of projected operating 
revenues and 7% of projected nominal GDP. We believe direct debt and interest 
expense will remain minor. By our estimation, tax-supported debt should 
stabilize in fiscal 2014 at close to 60% of projected operating revenues.  
     -- Alberta, like all provinces in the country, benefits from revenue 
support through the federal government's Canada Health Transfer and Canada 
Social Transfer payments. Total transfers represented C$5.2 billion in fiscal 
2012, or about 12% of operating revenues.

We believe the province's after-capital deficits of recent years mitigate some 
of these strengths. Alberta, which steadily produced strong after-capital 
surpluses before the recession, recorded three consecutive after-capital 
deficits in the 2009-2011 fiscal period. While the province narrowly avoided a 
deficit in fiscal 2012 thanks to unexpected revenues from the sale of Crown 
leases, it might not avoid one this fiscal year. We expect that Alberta will 
generate another after-capital deficit in fiscal 2013 that should range from 
1%-2% of projected operating revenues. Although, unlike most other Canadian 
provinces, its continuing deficits have not translated into an increase in 
debt and debt burdens, Alberta's cash and investment holdings have been 
declining. Its fiscal stabilization fund, the Sustainability Fund, has fallen 
to C$7.5 billion in fiscal 2012 from about C$15.0 billion in fiscal 2010 and 
could fall to about C$3.0 billion by the end of fiscal 2013. 

Outlook
The stable outlook reflects our expectations that the province's tax-supported 
debt burden will remain moderate (below 60% of operating revenues) in the next 
two years and that cash and temporary investment holdings will remain very 
strong after a modest decline in fiscal 2013. After-capital results should 
begin to strengthen in fiscal 2014, moving back to balance or surplus from a 
likely deficit this fiscal year. We expect that both real GDP and employment 
will increase more than 2% annually this year and next and that the 
unemployment rate will fall. Persistent large after-capital deficits coupled 
with a long-term rise in the province's tax-supported debt burden to above 60% 
of operating revenues or a precipitous decline in cash and temporary 
investments could place downward pressure on the ratings.

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

Ratings List
Ratings Affirmed

Alberta (Province of)
 Issuer credit rating                   AAA/Stable/A-1+    
 Senior unsecured debt                  AAA                

Alberta Capital Finance Authority
 Senior unsecured debt                  AAA                

Alberta Treasury Branch Financial
 Senior unsecured debt                  AAA                


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 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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