2006 Credit Rating for Essex County

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County of Essex County of Essex - Credit Rating Page 2 It is significant to point out that the County of Essex is one of only two counties in Ontario to achieve the "M" rating, consistent with a number of much larger municipalities including Ottawa, Barrie, Guelph, Windsor and the Regional Municipality of Niagara. As described below, there exist two distinct but equally important elements expressed in a credit rating. First, the AA- rating signifies that County of Essex debentures are of a high quality, and conversely low risk. In the current financial markets, the AA- rating translates into a savings from A+ of about 8-10 basis points. On a placement of $20 million for 15 years this translates into $220,000 to $275,000 in interest savings over the term of the placement. The rating provided by S&P represents an independent testimony to the beneficial effects of the strengthening initiatives and financial stewardship practices and policies subscribed to by Council. Specifically, Standard and Poor's noted the following performance strengths in affirming the County's credit rating to AA-: >- Strong financial position, derived from very low debt and debt service burdens; >- Very good liquidity, a result of the Corporation's solid Reserve Strategy; >- Consistently strong record in terms of budgetary performance. Solid operating surpluses have provided the Corporation with the means to fund its capital expenditures largely from internal sources, reducing debt issuance needs; >- Conservatively managed capital program, which plans for the replacement of assets over their useful lives through contributions to and from capital/infrastructure reserves; and >- Ability to fund capital expenditures largely from internal sources, validating the County's "pay-as-you-go" philosophy of funding capital/infrastructure requirements by creating capacity in the budget in a measured way and through the effective use of reserve balances. Conversely, Standard and Poor's noted the following two key performance weakness or threats to the County's credit rating to AA-: >- Relatively low economic diversification with a high reliance on the automotive sector; and >- Debt issuance at the lower tier level's indirect impact over the County's overall debt- carrying capacity. Debt for both the County and lower tier are serviced from the same tax base.