2015 Credit Rating Report - Laserfiche WebLink

Home Browse Search

Research Update: County of Essex 'AA' Ratings Affirmed On Exceptional Liquidity; Outlook Stable 7.9% (all figures Standard & Poor's-adjusted). We expect Essex's operating balance to stay well above 5%, on average, for 2013-2017. In addition, we believe the county will maintain moderate capital spending in the medium term and its after -capital balances will remain in surplus. We believe Essex has a very low debt burden. At Dec. 31, 2015, the county had C$72.7 million in tax supported debt outstanding, or 51.8% of consolidated operating revenues. The total debt figure includes C$67.6 million of debt borrowed under Essex's name on behalf of the Essex -Windsor Solid Waste Authority (EWSWA; half of which the county services, with the other half being serviced by the City of Windsor), and C$5.1 million of debt borrowed on behalf of its lower -tier municipalities. Standard & Poor's recognizes that there is a lower credit risk associated with the debt on -lent to these self-supporting entities. Essex's overall debt burden (excluding self -supported debt issued on behalf of lower -tier municipalities and 50% of EWSWA's debt serviced by Windsor) is 24.1% of consolidated operating revenues, and we believe that it will continue to decline, because of the county's pay-as-you-go capital financing strategy and no debt prospects in the next two years. In addition, we expect that interest payments on own -purpose debt will account for less than 2% of operating revenue, in line with previous years' levels. We estimate Essex's GDP per capita is below US$38,000 due to some concentration in lower value-added employment and based on its below-average household income. The county's economy has historically focused on the manufacturing and agricultural sectors, affecting its economic growth during the recession. Essex is increasing its efforts at diversifying its economy into service -based sectors (including tourism, health care and social assistance, and educational services), which we believe could contribute to what we view as moderate medium-term growth prospects. The county's budgetary flexibility is average in our view. Its high modifiable revenues typically account for about 80% of operating revenues and we expect them to remain close to this level in the next two years. Capital expenditures -to -total expenditures have been below 15% in the past five years, due to some capital being carried over, which we expect may reoccur in the next two years. As a result, we have estimated a deferral rate of 30% in 2016-2017 and expect capital expenditures to average about 15% of total expenditures for 2013-2017.In our opinion, similar to that of its Canadian peers, Essex has a limited ability to materially cut operating expenditures, constraining its budgetary flexibility. This is primarily due to provincially mandated service levels, collective agreements with employees, inflation, and political pressures. In our opinion, Essex's financial management is strong. We believe the county has improved its political and managerial strength in the past years, as reflected by its capacity to pass budgets and steady improvement in the relationship between the county and its single -tier municipality. Management has a financial plan that provides visibility on revenues and expenditures, and the county's management of debt and liquidity is prudent. In addition, its financial statements are comprehensive and transparent. Essex's operating and WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 12, 2015 3 1480044 13M76M4