2010 Credit Rating Report-Standard & Poors Ratings

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County of Essex Major Rating Factors Strengths: • Robust liquidity • Adequate budgetary performance • Moderate debt AA /Stable / -- Weaknesses: • Low, but improving, economic diversification • Adequate budgetary flexibility Rationale The ratings on the County of Essex, in the Province of Ontario (AA4Stable /A -1 +), reflect Standard & Poor's Ratings Services' opinion of the following factors: • The county's robust liquidity bolsters its credit profile and has resulted in it maintaining its net creditor status for many years. At fiscal year -end 2010 (Dec. 31), free cash and liquid assets of about C$50 million represented about 43.8% of operating expenses and in excess of 17 times debt service. We expect that liquidity levels will at minimum continue for the next two years. • Essex's operating performance and after - capital performance is moderate. At year -end 2010, the county's operating surplus represented 9.1% of operating revenues and its balance after capital expenditures was a modest 0.6 %. While still a significant improvement from the previous year (largely as a result of accounting changes), financial results were moderately weaker than historical averages and we expect them to stabilize around current levels. • County debt levels, both stand -alone and consolidated (which includes debt at the lower tier level), are moderate.. We expect that stand -alone debt will remain at about 30% of operating revenue, and consolidated debt at about 60 %. We believe that the following factors somewhat offset these strengths: • A relatively less diverse economy compared with those of domestic peers; and • Adequate budgetary flexibility. Declining surpluses and the expected decrease in grants from upper levels of governments from levels of the past could moderately constrain the county's budgetary flexibility. In addition, a recent 1.5 % residential tax increase will somewhat offset Essex's budgetary pressures, particularly for capital financing. Outlook The stable outlook reflects our expectation of no material increase in the county's debt and that cash and investment balances will remain strong. Standard & Poor's also expects that Essex will continue producing stable operating results. A dramatic increase in debt at the lower -tier level or a major.economic deterioration could lead to a negative Standard & Poor's I RatingsDirect on the Global Credit Portal I September 1, 2011 2 M �