2005 Credit Rating for Essex County

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i The cbunty's economy is very concentrated in the automotive sector, which accounts for an estimated 65% of employment. Remaining employment is primarily in the agricultural sector. This lack of diversification necessarily entails a higher degree of economic risk than would otherwise be the case, as can be seen in the sharp increase in the county's unemployment rate in 2004: to 9.2% from 7.2% the year before. Despite this disadvantage, recent economic performance has generally kept pace with Essex's peers. In fact, by some measures, such as growth in population and taxable assessment, the county has done better than many of its peers. In addition, Essex is well located for future growth, given its position on the Canada-U.S. border, directly in the line of one of the principal Canada-U.S. trade routes. Capital Expenditure Program, Liquidity, And Debt Capital expenditure was about C$11 million in 2004, or 12% of total expenditure. The majority of capital expenditure was dedicated to maintenance and expansion of road infrastructure and solid waste management facilities. The county's main capital expenditure in the coming years is expected to be ongoing roadwork. Essex expects to spend between C$5 million and C$10 million per year on maintenance and C$1 million to C$2 million per year on expansion. Standard & Poor's Ratings Services believes the county's capital expenditure plan is well within its means. Essex's liquidity position is very good. Cash and equivalents amounted to C$35.4 million in 2002, or 45% of operating expenditure. These holdings, together with the county's long-established C$8.0 million line of credit, amounted to 55% of operating expenditure in 2004. Essex has also been a net creditor for many years with cash and equivalents net of debt amounting to 16% of operating revenue in 2004. Essex is expected to maintain net creditor status or close to it, despite gradual reductions to certain reserves in the coming years. The county is thus expected to maintain liquidity that is well above average. On a combined basis, the county and lower tiers were not quite at, but were close to net creditor status in 2004. Essex's current debt burden is very low. The county's C$20.5 million of direct debt outstanding in 2004 amounted to only 22% of operating revenue, the vast majority of which is self-supported. Debt service cost was exceptionally low in 2004 at 2% of total revenue, as was interest expense, at 2% of 2004 operating revenue. The county's debt burden is not expected to greatly increase as a result of the current capital expenditure plan; direct debt should remain below 50% of operating revenue in the next few years. It should be noted that both the county's surface area and its tax base are simply the sum of its lower tier member municipalities, all of whom have the legal right to issue their own debt, in addition to debt issued in the name of the county. Debt issued by the lower tier members necessarily has an influence on the county's own debt-carrying capacity, as the lower tier members provide for their debt service from the same taxpayers. In 2004 the county's combined debt burden (including both the county's own debt and that of its lower tier members) was noticeably higher than its own debt burden, at about 44% of combined operating revenue, althQllgh this was still low by peer comparison. The combined burden is not expected to rise above 55% of combined operating revenue in the coming years. Nevertheless, because the lower tier municipalities have responsibility for water and sewer infrastructure, a major expenditure pressure among Ontario municipalities in recent years, there is potential for this to create future indirect financial pressure on the county. Essex and the City of Windsor recently reached a settlement with Clearlink Capital Corp. (formerly MFP Financial Services Ltd.), ending mutual lawsuits outstanding for several years concerning the financing of the landfill site Page 2 of 4