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Capital
financing, debt and credit ratings |
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Debt Financing for Capital Projects
In order to provide services that are delivered through physical infrastructure, municipalities can issue debt in conjunction with other methods of capital financing such as contributions from current operations and reserves, and reserve funds.
The size of the City of Toronto means debt must be used to help in financing the projects contained in the capital budget. Debt can provide the City with more affordable financing by matching the repayment term to the economic useful life of the project, instead of funding the entire cost from current revenues. Without debt financing, present taxpayers could be paying for the entire cost of a project that will operate for many years and provide a benefit to future residents.
An Ontario municipality may issue long-term debt only for capital purposes and cannot borrow for operations, except by issuing promissory notes that must be repaid when the current year's tax levy is received.
Municipalities differ from other levels of government since the principal must be amortized over the term of the debenture and repaid to investors or contributed to a sinking fund that will provide for repayment when the debt matures. In contrast, the Federal and Provincial governments are allowed to refinance their debt when it matures instead of repaying the principal from their own resources.
City of Toronto Act (2006)
It is recognized that the City of Toronto has a reputation as a respected participant in global capital markets. Adherence to its statement of debt issuance policies and goals enhances this reputation and ensures the City's continued access to these markets in order to raise funds through the issuance of debt securities in an efficient and cost-effective manner for the purpose of capital financing.
The City of Toronto is committed to achieving the lowest cost of funds when financing capital requirements, based upon current capital market conditions. When making decisions regarding the financing of a capital expenditure through the issuance of debt, Council must be satisfied that the lowest cost alternative is utilized from a total cost of funds perspective.
The capital financing policy ensures that Council complies with the debt issuance and management provisions contained in the City of Toronto Act 2006 (COTA) and its regulations while providing Council with the flexibility to meet the City's annual capital needs during its term-of-office.
The City seeks to maintain the highest possible credit rating. While the City recognizes that external economic, natural or other events may affect its credit rating, it is committed to ensuring that actions within its control are prudent and necessary as they relate to the issuance and management of short and long term debt.
History of Net Long-Term Debt:
| (all dollar amounts in thousands of dollars) |
2010 |
2009 |
2008 |
2007 |
Debentures Issued by the City
Debt issued by Toronto Community Housing Corp
Debentures issued by the City on behalf of TDSB
Loans payable to the Province
Loans payable
Sinking fund deposits
Sinking fund deposits- TDSB |
3,682,670
574,315
75,846
170,171
1,194
(1,571,693)
(42,031) |
3,300,318
320,534
75,846
170,171
1,301
(1,031,576)
(38,009) |
2,983,525
325,559
75,846
170,171
1,399
(781,201)
(34,072) |
2,891,403
330,045
75,846
170,171
1,490
(680,932)
(29,843) |
| Total Net Long Term Debt |
2,890,472
|
2,798,585 |
2,741,227 |
2,758,180 |
| The City's net long-term debts are to be recovered from the following sources: |
Property taxes
Toronto Community Housing Corp (TCHC)
Toronto District School Board
(TDSB)
Water Billings |
2,282,342
574,315
33,815
|
2,440,214
320,534
37,837
|
2,373,896
325,559
41,772
|
2,381,981
330,045
46,003
151 |
Source: Consolidated Financial Statements
Credit Ratings:
The City of Toronto's credit ratings (as of July 6, 2011) are:
- AA with a stable outlook from the Dominion Bond Rating Service
- AA with a stable outlook from Standard and Poor's Canada
- Aa1 with a stable outlook from Moody's Investor Service
Contacts:
The City's Capital Markets Section of the Corporate Finance Division issues debt for all of the City's divisions as well as most of its agencies, boards and commissions. Exceptions are the Toronto Hydro Corporation and the Toronto Community Housing Corporation, which have different borrowing powers in their enabling legislation.
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Martin Willschick, Manager, Capital Markets
Corporate Finance Division
Phone: 416-392-8072
E-mail: mwillsch@toronto.ca
Len Brittain, Director, Corporate Finance
Phone: 416-392-5380
E-mail: lbrittai@toronto.ca
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