TEXT-S&P revises City of Laval, Quebec outlook to stable from positive

Thu Nov 15, 2012 11:34am EST

Related Topics

Overview
     -- We are revising our outlook on the City of Laval to stable from 
positive.
     -- At the same time, we are affirming our 'AA-' long-term issuer credit 
and senior unsecured debt ratings on Laval.
     -- The outlook revision reflects our view regarding the uncertain 
leadership that could delay some of council's priorities, especially regarding 
the 2013 budget.
     -- The ratings on Laval reflect what we view as the city's superior 
budgetary performance, above-average economic growth prospects, and robust 
liquidity. 

Rating Action
On Nov. 15, 2012, Standard & Poor's Ratings Services revised its outlook on 
the City of Laval, in the Province of Quebec (A+/Stable/A-1+), to stable from 
positive. At the same time, Standard & Poor's affirmed its 'AA-' long-term 
issuer credit and senior unsecured debt ratings on the city.

The outlook revision reflects our view regarding the uncertain leadership that 
could delay some of council's priorities, especially regarding the 2013 
budget. 

Rationale
On Nov. 9, 2012, Laval's mayor of 23 years resigned. Council was expected to 
appoint an interim mayor until the next municipal elections in November 2013. 
On Nov. 13, the province appointed an auditor to review the city's 
administrative operations, principally related to the granting of municipal 
contracts, real estate transactions, and city planning. Laval has subsequently 
announced that it is delaying the appointment of an interim mayor. Although we 
acknowledge the administration's ability to implement council's decisions, we 
believe that these events have altered the city's historically stable 
political climate and could delay some of council's priorities.

The ratings on Laval reflect what Standard & Poor's views as the city's 
superior budgetary performance, above-average economic growth prospects, and 
robust liquidity. We believe that high debt burden and leadership uncertainty 
are factors that constrain the ratings.

Laval's budgetary performance remains superior, in our opinion. In 2011, the 
city posted an operating surplus of 22% of adjusted operating revenues, in 
line with the five-year average. Lower capital spending, due to deferred 
projects, more than offset lower provincial and federal stimulus funds in 
2011. As a result, Laval recorded an after-capital surplus that doubled in 
2011, to 14% of total adjusted revenues. We expect the city will continue to 
generate solid operating and after-capital surpluses during our two-year 
outlook horizon.

In our opinion, Laval is sufficiently large and well-diversified to sustain 
economic shocks that are reasonably foreseeable in the near term. The city 
continues to see significant investments in construction, science, technology 
(principally biotechnology), and commercial services. In 2011, Laval's GDP per 
capita was close to C$32,400, up by more than 3% from the previous year. This 
increase was superior to that of most of its peers and to that of greater 
Montreal area. We expect that the city's economy will likely deliver 
above-average growth compared with those of peers, with estimated real GDP 
growth of greater than or equal to 3% per year.

Laval benefits from what we view as a robust liquidity position and we expect 
it to remain strong in the next two years, despite a significant capital 
program. At year-end 2011, the city's free-cash and liquid assets (Standard & 
Poor's-calculated) were about 200% of the city's debt service. Laval also has 
access to an undrawn line of credit of C$140 million.

At year-end 2011, the city's tax-supported debt burden remained stable, at 91% 
of consolidated operating revenues. Interest represented 7.2% of adjusted 
operating revenues, in line with the five-year average. While we believe the 
city's debt burden is somewhat higher than that of other similarly rated 
peers, we do not expect its tax-supported debt to exceed 120% of consolidated 
operating revenues in the next two years. 

Outlook
The stable outlook reflects Standard & Poor's view that the leadership 
uncertainty will ultimately be resolved after the appointment of an interim 
mayor. At the same time, we expect that, in the next two years, Laval's 
budgetary performance and liquidity will remain strong, and that the city's 
economy will continue to deliver above-average growth. We could revise the 
outlook to negative or lower the ratings if leadership uncertainty adversely 
affects council's decision making or tax-supported debt increases beyond 120% 
of projected operating revenues. Conversely, we could revise the outlook to 
positive or raise the ratings in the next year if the city's operating and 
budgetary surpluses continue to be solid, its liquidity remains strong, 
tax-supported debt remains below 120% of projected operating revenues, and 
current leadership uncertainty recedes.

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

Ratings List
Laval (City of)

Outlook Revised To Stable
                                    To                  From
 Issuer credit rating               AA-/Stable/--       AA-/Positive/--

Rating Affirmed
 Senior unsecured debt              AA-

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.
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.