DBRS Limited (DBRS Morningstar) confirmed the Long-Term Debt rating and Commercial Paper (CP) rating of Société de transport de Montréal (STM) at A (high) and R-1 (low), respectively. All trends are Stable. The confirmation follows that of the ratings on the City of Montréal (Montréal or the City; rated A (high) with a Stable trend by DBRS Morningstar).
The ratings are based on the statutory guarantees from the 16 municipalities comprising the Urban Agglomeration of Montréal and, specifically, the City. All STM debt, obligations, and commitments are fully guaranteed on a joint-and-several basis under the Act respecting public transit authorities (Bill 24). DBRS Morningstar believes that the City has a strong incentive and the capacity to provide timely liquidity support to STM should it encounter difficulties in meeting its financing obligations, including rolling its short-term CP, in a period of market disruption or loss of access to capital markets. As of December 31, 2022, STM had used $55.0 million in CP issuances, with an authorized program limit of $1.0 billion.
The CP program complies with “DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers” (February 24, 2023). DBRS Morningstar notes that the City has stable and predictable cash flows in the form of tax instalment revenues and ample liquidity available in the form of cash and highly rated Canadian government bonds comfortably covering anticipated same-day CP maturities and total CP program outstanding balances. The City had $2.0 billion in cash and investments (excluding $3.6 billion in sinking fund investments) on hand as at December 31, 2022. STM also maintains a $100 million committed line of credit for general operating purposes and limits weekly CP maturities to the size of this facility in accordance with an internal debt management policy. The City has other demand lines of credit for corporate purposes totalling $1.4 billion.
The City, as guarantor, provides DBRS Morningstar with certain details regarding STM, its CP program, and STM’s $100 million bank facility. The guarantee meets DBRS Morningstar’s guarantee criteria (“DBRS Morningstar Criteria: Guarantees and Other Forms of Support” (March 28, 2023)). For clarity, DBRS Morningstar notes that it is the City that provides the rating agency with sufficient information to rate the program.
CREDIT RATING DRIVERS
Any upgrade to the City of Montréal’s ratings would likely lead to an upgrade of STM’s ratings. STM’s ratings could be downgraded if one or a combination of the following occurs: (1) the ratings on the City are downgraded or (2) DBRS Morningstar’s assessment of the likelihood that the City will provide timely financial support weakens.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023; https://www.dbrsmorningstar.com/research/416784) .
All figures are in Canadian dollars unless otherwise noted.
DBRS Morningstar applied the following principal methodology:
-- Rating Canadian Municipal Governments (April 28, 2023; https://www.dbrsmorningstar.com/research/413266)
The following methodologies have also been applied:
-- DBRS Morningstar Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694)
-- DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (February 24, 2023; https://www.dbrsmorningstar.com/research/410196)
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at firstname.lastname@example.org.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and credit ratings are under regular surveillance.
Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at email@example.com.
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