Take note of Sault Ste. Marie’s continued efforts to develop the tourism sector, S&P Global Ratings raised the city’s credit rating from AA (stable) to AA+ (stable).
“A strong credit rating will help the city’s ability to obtain long-term debt at competitive rates,” says Shelley Shell, the city’s treasurer and chief financial officer.
“The outlook for the rating as ‘stable’ means that the rating is unlikely to change in the next two years,” Schell says in a report prepared for Tuesday’s city council meeting.
One of the main reasons for the rating improvement cited by Standard & Poor’s is the general institutional reassessment of Canadian municipalities, which are now seen as “highly predictable and supportive”.
“Salt Sainte Marie is the third largest city in northern Ontario and is primarily dependent on the steel industry and forestry,” according to the latest rating published by S&P on September 14.
“We believe that the city’s major industries … will support the city’s continued economic growth. However, the city still faces social, economic and geographic obstacles that may hinder potential economic growth.”
But Standard & Poor’s also notes that “the city continues to gradually diversify from its traditional resource-based economy into other sectors such as tourism.”
However, the credit analyst expects that “mid-term economic GDP and its related [gross domestic product] Growth will remain weak compared to growth in Canada.”
“While GDP per capita is not available at the local level, we estimate it to be somewhat lower than the national level of about $56,000 based on city income data.”
“Salt St. Mary’s challenging demographic profile limits the city’s growth prospects, in our view,” says S&P.
“According to the 2021 Canadian Census, the local population declined by about 1.8 percent over a five-year period, and about a quarter of the local population is over the age of 65 (compared to the national level of 19 percent). We continue to monitor the success of the Rural and Northern Immigration Pilot Program, a government project federal to help smaller rural and northern communities attract and retain skilled foreign workers to meet the needs of economic development and the labor market.”
The report’s authors considered the city to have “satisfactory” financial management.
“Disclosure and transparency are what we describe as good, and the city prepares one-year operating and capital budgets annually, with four-year capital projections.”
“Senior staff are experienced, and we believe debt and liquidity management is prudent. The city updated its investment policy as well as debt management and capital financing policies in September 2020 and looks forward to developing more long-term plans in the medium term.”
The rating service expressed confidence in Sault Ste. Mary’s ability to control her debt levels.
“Given the stability of the city’s primary source of income, property taxes, we believe that Sault Ste. Marie will be able to weather economic headwinds over the outlook horizon.”
“On average, we expect operating balances to remain above 14.5 percent of operating revenue in our base case scenario for 2020-2024.”
“We expect post-capital balances to shrink to a modest surplus of about one percent of total revenue on average in 2020-2024, despite short-term capital requirements, which include sanitation and leisure projects.”
“The city’s five-year capital plan for 2020-2024 totals C$250 million, with average annual spending of approximately C$50 million. We believe Sault Ste. Marie has moderate budget flexibility.”
“Salt St. Mary maintains a strong liquidity position and satisfactory access to external liquidity for refinancing needs, in our opinion. We estimate that its average free cash flow will exceed C$95 million in the next twelve months and cover more than 37 times estimated debt serviced for this period “.
The credit analyst expects the city’s relationship with the province of Ontario to remain “highly predictable and supportive.”
“Despite the additional borrowing, the debt burden of Sault Ste. Mary will remain very low, and the city’s strong liquidity will continue to support its creditworthiness.”
The credit report is on the agenda for next week’s city council meeting.
This meeting will be broadcast live today Starting at 4:30 pm on Tuesday.