2008 Credi Rating-Standard & Poors Analysis

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Essex (County of) Further strengthening Essex's credit profile is its healthy liquidity. The county's strong liquidity, in our opinion, has resulted in it maintaining its net creditor status for many years. Cash and liquid investments represented about 66.4% of operating expenses at Dec. 31, 2007. We expect liquidity to improve moderately and that Essex will maintain above - average levels. Essex's budgetary performance has a lengthy record of strong financial performance. In fiscal 2007, the county generated about a 15% surplus of operating revenue, consistent with all but one of the last six years. Conversely, the county's balance after capital expenditures as a percentage of total revenues declined notably to about 1.6 %, compared with 9.1 % in fiscal 2006. The decline was the result of a marked increase in capital expenditures related to roadways and recycling. Nevertheless, the ability to generate sizable operating surpluses is a key credit strength, in our opinion, because it provides the county with the financial flexibility to maximize pay -as- you -go financing and limit debt issuance. Despite having a strong financial profile on a stand -alone basis, the financial risk profile of lower -tier member municipalities influences the county's credit profile. Debt issuance at the lower -tier level has indirect influence on the county's overall debt - carrying capacity. Essex's economy is relatively less diversified than that of most domestic peers. The county's economy is heavily concentrated in manufacturing, particularly in the cyclical automotive sector, with remaining employment largely being rural. As a result of the recent downturn, especially in Ontario's manufacturing sector, the county's indicators point to below- average economic performance: the unemployment rate in the Essex - Windsor area was 9.3% in 2007, a marginal rise from 2006. In addition, building permits and housing starts decreased about 48% and 24 %, respectively, in 2007, while income - support caseloads increased by about 19 %. Nevertheless, we expect moderate diversification strategies to modestly benefit the county's economy. For example, Essex is refocusing its manufacturing away from the automotive sector, toward sectors such as alternative energy, medical equipment, aerospace, and pure and applied research and development. Capital expenditure program, liquidity, and debt Essex had capital expenditures of about C$22 million in 2007, or 19.2% of total expenditure. The majority of that went to maintaining and expanding road infrastructure. We expect the county's main capital expenditure in the coming years to continue to be ongoing roadwork. Essex expects to spend about C$8 million per year on road reconstruction. We expect road expansion expenditure to escalate significantly in the next 10years to C$20 million -C $ 30 million, provided the county receives provincial and federal government support. Standard & Poor's believes the county's capital expenditure plan is well within its means, as the county primarily funds its capital requirements on a pay -as- you -go basis through reserve management and a 1.5 % annual levy increase. The county bolstered its already strong liquidity position modestly year- over -year in fiscal 2007. Cash and equivalents amounted to 57.8% of operating expenditure (C$41.4 million) . These holdings, together with the county's long - established C$8.0 million line of credit, were 66.4% of operating expenditure in 2007. Furthermore, at the end of 2007, Essex's net creditor position stood at about 15.2% of operating revenues. The county's consolidated net creditor position includes tax- and rate - supported debt (such as for solid waste management) , less discretionary reserves, and cash and marketable securities. We expect Essex's overall net creditor position to remain stable or modestly increase in the next three years through maintaining reserve balances. Standard & Poor "s I ANALYSIS 2