Overview -- We are affirming our 'A+' long-term issuer credit rating on the County of Lambton. -- The affirmation reflects our view of the county's strong liquidity and moderate debt burden. -- The stable outlook reflects Standard & Poor's expectations that within the two-year outlook horizon, tax-supported debt will remain below 40% of projected operating revenues, liquidity will remain strong, and the local economy will gradually recover. Rating Action On Dec. 12, 2012, Standard & Poor's Ratings Services affirmed its 'A+' long-term issuer credit rating on the County of Lambton, in the Province of Ontario (AA-/Negative/A-1+). The outlook is stable. Rationale The rating on Lambton reflects Standard & Poor's view of the county's strong liquidity position and moderate debt burden. We believe that a below-average budgetary flexibility and limited economic growth prospects constrain the ratings. In our opinion, Lambton benefits from a strong liquidity position, capable of meeting debt servicing and contingent liabilities and we expect liquidity will remain robust throughout our two year rating horizon. At year-end 2011, the county's estimated free cash and liquid assets (Standard & Poor's-calculated) were C$26 million, or about 460% of the estimated debt service in 2012. Lambton also has access to an undrawn credit facility of C$5.5 million. In our view, the county's debt burden is moderate. Lambton's tax-supported debt was C$42 million or about 32% of consolidated operating revenues in 2011 and its interest-to-adjusted operating revenues ratio was 0.7%. The county borrowed C$1.1 million in 2012 to finance about 7% of its capital projects. It does not expect to use debt as a funding source from 2013-2016. As a result, we expect the county's tax-supported debt burden will not vary significantly from current levels, remaining at 25%-35% of consolidated operating revenues in the next two years. While the county's budgetary flexibility remains adequate, we believe that it is somewhat below that of its similarly rated peers who usually have own-source revenues significantly above 75% of operating revenues. Modifiable revenues were 64% of operating revenues in 2011, below the 10-year average of 68%, principally due to the increase in transfers from senior levels of government as a proportion of total revenue. Lambton's capital expenditures have traditionally been fairly modest, accounting for less than 15% of total expenditures. Although capital spending was slightly higher in 2010 and 2011, accounting for 17% and 18% of the county's total expenditures, respectively, it remained below the level of capital spending of most of its peers. In our view, Lambton's economy faces demographic challenges to growth. The county has had a falling population tied to an aging population and the migration of young workers out of the region. According to the 2011 Census, its population decreased 1.6% from the 2006 Census to 126,199. We believe this could negatively affect budgetary performance. Lambton also has a lower average household income than Ontario and a higher median age and dependent population. We estimate that the county's GDP per capita was below C$35,000 at the end of 2011. In our opinion, its economy is exposed to oil price volatility given its reliance on the petrochemical sector. Nevertheless, in our view, the strong agricultural sector and its related services, which represent an important and stable contributor to the local economy, partially offsets this. Outlook The stable outlook reflects Standard & Poor's expectations that within our two-year outlook horizon, tax-supported debt will not materially surpass 40% of projected operating revenues, liquidity will remain strong, and the local economy will gradually recover. We could lower the rating or revise the outlook to negative if tax-supported debt increases to more than 60% of projected operating revenues, liquidity deteriorates significantly, or budgetary performance weakens meaningfully. Conversely, sizable improvement in budgetary performance and financial flexibility in the next two years, as well as steady economic growth could result in an upward revision of the outlook or the rating. Related Criteria And Research Methodology For Rating International Local And Regional Governments, Sept. 20, 2010 Ratings List Rating Affirmed Lambton (County of) Issuer credit rating A+/Stable/-- 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.