-- We are affirming our ratings, including our 'A+' long-term issuer
credit rating, on the Province of Nova Scotia.
-- At the same time, we are affirming our 'A+' issue-level ratings on
Borealis Infrastructure Trust and on Scotia Schools Trust. The outlook on the
Borealis debt is stable.
-- The affirmation reflects our view of the province's modest but
positive economic growth in 2011, adequate liquidity, and significant transfer
payments from the federal government.
-- The stable outlook reflects our expectation that financial results
will remain weak in the next two years but eventually lead to stronger
operating results after 2014, the pace of economic growth in 2012 will
strengthen somewhat with rising employment, liquidity levels will remain
adequate, and the debt burden will begin to decline in fiscal 2013.
On June 4, 2012, Standard & Poor's Ratings Services affirmed its ratings on
the Province of Nova Scotia, including its 'A+' long-term issuer credit rating
(ICR), reflecting our view of the province's modest but positive economic
growth in 2011, adequate liquidity, and significant transfer payments from the
federal government. The outlook is stable.
At the same time, we are affirming our 'A+' issue-level ratings on Borealis
Infrastructure Trust and on Scotia Schools Trust. The outlook on the Borealis
debt is stable.
In Standard & Poor's opinion, the ratings on Nova Scotia reflect what we
consider to be the following positive factors:
-- The province's economic recovery from the recession slowed in 2011 as
it recorded real GDP growth of 1.2% in 2011, which was down from 1.9% in 2010.
Nominal GDP rose 3.8% from 2010-2011 (which was also lower than the previous
year's increase of 4.5%). Labor force results were moderately positive. The
unemployment rate fell to 8.8% in 2011 from 9.3% a year earlier. Employment
edged up slightly in 2011 by 0.1%--nationally, employment increased 1.6%. For
2012 and 2013, we expect real GDP gains of 1.7% and 1.9%, respectively,
according to the province's projections. Nominal GDP should rise 4.8% and
3.8%, in the same period. We expect employment growth to be about 1% in 2012
and 0.6% in 2013 as the unemployment rate falls to about 7.8% in 2011 and then
7.2% in 2012.
-- Liquidity levels, which strengthened in fiscal 2011 (year ended March
31), are adequate, in our view. At the end of fiscal 2011, the province held
cash and temporary investments of C$1.2 billion, which was up substantially
from the year previous. In addition, the province had sinking funds of close
to C$2.5 billion at the end of fiscal 2012. The sinking funds complement the
province's strong access to capital markets. By Standard & Poor's
calculations, Nova Scotia had estimated free cash and liquid assets of about
C$730 million at the end of fiscal 2011.
-- Nova Scotia benefits from significant revenue support through the
federal government's grant programs: Equalization, Canada Health Transfer, and
Canada Social Transfer. For fiscal 2011, total transfers were C$2.9 billion
and represented 33% of operating revenues, which was in line in line with
shares in previous years. For fiscal 2013, we expect federal transfers to
increase to about C$3.1 billion from C$2.8 billion in fiscal 2012.
Partially offsetting these credit strengths are the following:
-- Nova Scotia's debt burden has been increasing post-recession. At the
end of fiscal 2011, tax-supported debt represented of 148% of operating
revenues. We expect the tax-supported debt burden to rise slightly for fiscal
2012 to 150% of projected operating revenues but decline to about 144% in
fiscal 2013. Tax-supported debt should reach 36% of projected GDP by the end
of fiscal 2011. Like many Canadian provinces, Nova Scotia has a high debt
burden in our opinion: At the end of fiscal 2011, the province's debt burden
was higher than that of many of its international and domestic peers and the
median for the 'A' rating category.
The province's after-capital deficits persist despite its improving revenue
picture. Nova Scotia recorded an after-capital deficit of 5% of total revenues
in fiscal 2011 and a small operating surplus of close to 2% of operating
revenues. Both results were an improvement on the previous year's
after-capital deficit of 9% and operating deficit of 1%. We do not expect a
significant improvement for fiscal 2012 owing to lower-than-previously
expected provincial and national economic growth and planned rebates to the
harmonized sales tax. We project near-breakeven operating results for fiscal
years 2012 and 2013 and after-capital deficits in both years that could be as
high as 7% of total revenues. A return to near-balance after-capital spending
is not likely before fiscal 2014.
The stable outlook reflects our expectation that Nova Scotia's financial
results will remain weak in the next two years but eventually lead to stronger
operating results and near-balanced, after-capital results after 2014. The
pace of economic growth in 2012 should strengthen somewhat compared with 2011,
with rising employment and a decline in unemployment rate. We expect debt
burdens to begin to decline in fiscal 2013 and for liquidity levels to remain
adequate. A return of after-capital surpluses (or near balance), a declining
debt burden, and strengthening liquidity could lead to a positive outlook or
upgrade. Conversely, we believe that continuing substantial after-capital
deficits and unexpected deterioration in the province's debt burden or
liquidity levels could put downward pressure on the ratings.
Related Criteria And Research
Rating International Local And Regional Governments, Sept. 20, 2010
Nova Scotia (Province of)
Issuer credit rating A+/Stable/A-1+
Senior unsecured A+
Senior unsecured AA-/Stable
Canada scale A-1(HIGH)
Global scale A-1+
Scotia Schools Trust
Issuer credit rating A+/Stable/--
Senior secured A+
Borealis Infrastructure Trust (Nova Scotia Learning Centre Bonds)
Senior secured A+/Stable
(Caryn Trokie, New York Ratings Unit)