Research Update:

City of Peterborough 'AA-' Ratings

Affirmed On Continued Exceptional
Liquidity; Outlook Stable
Primary Credit Analyst:
Dina Shillis, CFA, Toronto (416) 507-3214; dina.shillis@spglobal.com
Secondary Contact:
Bhavini Patel, CFA, Toronto (1) 416-507-2558; bhavini.patel@spglobal.com
Research Contributor:
Pooja Hingorani, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

Table Of Contents
Overview
Rating Action
Rationale
Outlook
Key Statistics
Ratings Score Snapshot
Key Sovereign Statistics
Related Criteria
Ratings List

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 8, 2016 1
1770497 | 301674611

Research Update:

City of Peterborough 'AA-' Ratings Affirmed On

Continued Exceptional Liquidity; Outlook Stable
Overview
We are affirming our 'AA-' long-term issuer credit and senior unsecured
debt ratings on the City of Peterborough.
In part, the ratings reflect our assessment of Peterborough's exceptional
liquidity position, low debt burden, and average budgetary performance.
The stable outlook reflects our expectations that, over our two-year
outlook horizon, the city's operating balance will remain above 5% of
adjusted operating revenues, tax-supported debt will account for nearly
50% of consolidated operating revenues, and Peterborough will maintain an
exceptional liquidity position.

Rating Action
On Dec. 8, 2016, S&P Global Ratings affirmed its 'AA-' long-term issuer credit
and senior unsecured debt ratings on the City of Peterborough, in the Province
of Ontario. The outlook is stable.

Rationale
The ratings reflect S&P Global Ratings' view of Peterborough's exceptional
liquidity position, low debt burden, and average budgetary performance. The
ratings also reflect our view of the very predictable and well-balanced
institutional framework for Canadian municipalities, satisfactory financial
management, and low contingent liabilities. We believe that Peterborough's
growth constraints, which limit its strong economic profile, and average
budgetary flexibility mitigate these strengths somewhat.
We believe Canadian municipalities benefit from a very predictable and
well-balanced local and regional government framework that has demonstrated
high institutional stability. Although provincial governments mandate a
significant proportion of municipal spending, they also provide operating fund
transfers and impose fiscal restraint through legislative requirements to pass
balanced operating budgets. Municipalities generally have the ability to match
expenditures well with revenues, except for capital spending, which can be
intensive. Any operating surpluses typically fund capital expenditures and
future liabilities (such as postemployment obligations and landfill closure
costs) through reserve contributions.
We view Peterborough's economic profile as strong, benefiting from a good
level of diversification and a large public sector that offers stability. The

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 8, 2016 2
1770497 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Continued Exceptional Liquidity; Outlook
Stable

aerospace sector continues to grow in line with expansion of the Peterborough

airport, which supports the local labor market. Nevertheless, we believe that
the city's relatively remote location and aging demographic profile continue
to negatively affect its long-term economic potential. Limited availability of
industrial land further weakens Peterborough's economic profile compared with
that of peers. Although GDP data are not available at the local level, we
believe that the city would have GDP per capita slightly below that of
Ontario's three-year average of US$45,500. Labor market results and building
activity were positive in 2015 and we expect these to be stable during the
outlook horizon.
Peterborough has low debt, in our view, with tax-supported debt totaling
nearly C$112 million at year-end 2015, or 47% of consolidated operating
revenues, a moderate increase from 43% last year. In our base-case scenario,
we forecast higher debt issuance in 2016 and the tax-supported debt burden to
increase to 50% of estimated consolidated operating revenues for the year.
However, the city's total debt repayments are largely aligned with expected
issuance in the next two years and we expect the debt burden to decline to
about 47% by 2018. Although debt remains one of the main funding sources for
Peterborough's capital plan, the city will reach its internal debt capacity in
the medium term, which we expect will result in delays in some of the capital
projects until it repays existing debt. Peterborough's management plans to
operate within its current means and use other sources of revenues, instead of
raising the internal debt limit. Interest costs are stable and we expect them
to remain below 5% of adjusted operating revenues during our two-year outlook
horizon.
The city's contingent liabilities are low and consist primarily of
postemployment benefits and landfill closure and post-closure costs. We
believe the exposure to City of Peterborough Holdings Inc. (COPHI), a
utilities company that we view as self-supporting, is limited.
We view Peterborough's financial management practices as satisfactory, with
prudent financial policies and debt and liquidity management support. There is
no formal reserves policy but the council recently approved an update to the
formal investment policy. The city prepares a detailed operating budget and a
10-year capital plan, approved annually, and its financial statements are
timely and independently audited, with no qualifications. Budgets require
moderate revisions during the year. Management reports to council quarterly
and maintains a good relationship with it. We assess the management team as
capable and experienced.
We believe Peterborough has average budgetary performance and a history of
healthy operating balances. In our base-case forecast, we expect operating and
after-capital balances to average 13% of adjusted operating revenues and about
negative 7% of adjusted total revenues in 2014-2018. We also expect
after-capital performance to deteriorate in the outlook horizon, averaging
about negative 9% of adjusted total revenues in 2017-2018, moving with the
capital plan. In addition, we expect operating balances to weaken somewhat in
2017-2018 to about 11%, as inflationary and other cost pressures, in

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 8, 2016 3
1770497 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Continued Exceptional Liquidity; Outlook
Stable

particular those related to personnel, continue to weigh on operating

performance.
Peterborough benefits from what we consider historically high modifiable
revenues of more than 80% of adjusted operating revenues. However, we assess
the city's budgetary flexibility as average because of Peterborough's limited
ability to cut spending and raise modifiable revenues. In our base-case
forecast, we expect modifiable revenues to remain at current levels and
capital spending to average more than 23% of adjusted total spending in
2014-2018. Because of the city's high tax burden relative to average household
income compared with that of peers, we believe Peterborough is somewhat
constrained in its ability to increase modifiable revenues. Furthermore, and
in line with other Canadian municipalities, the province mandates the
provision of many services and much of the personnel costs are subject to
collective agreements, which limits the city's leeway to cut operating
spending. The rising cost of discretionary benefits remains a pressure on
operations as well.

Liquidity
Peterborough's exceptional liquidity profile remains a credit strength, in our
view. We believe the city benefits from robust internal cash flow generation.
We estimate its free cash and liquid assets to total C$126 million in 2017,
which covers more than 6x of the estimated next 12 months' debt service. We
expect coverage to be stable in the outlook horizon and remain well above 100%
of debt service. In line with that of domestic peers, the city's access to
external liquidity is satisfactory, in our opinion.

Outlook
The stable outlook reflects S&P Global Ratings' expectations that, in the next
two years, Peterborough's budgetary performance will remain strong,
tax-supported debt will represent close to 50% of consolidated operating
revenues, and the city will maintain an exceptional liquidity position.
Although unlikely in the outlook horizon, we could take a negative rating
action if deterioration in fiscal performance leads to sustained after-capital
deficits exceeding 10% of total adjusted revenues, increased borrowing with
tax-supported debt of more than 60% of consolidated operating revenues, and
increased pressure on liquidity balances stemming from rising funding needs.
We could take a positive rating action if the city demonstrated improvement in
its political and managerial strength and continued fiscal restraint, or if
strong operating revenue growth and cost efficiencies strengthen operating
balances and result in sustained after-capital surpluses.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 8, 2016 4
1770497 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Continued Exceptional Liquidity; Outlook
Stable

Key Statistics
Table 1

City of Peterborough -- Economic Statistics

--Fiscal year ended Dec. 31-2011

2012

2013

2014

2015

78,698

78,698

78,698

78,698

78,698

Population growth (%)

0.9

0.0

0.0

0.0

0.0

Unemployment rate (%)

9.6

8.5

9.6

8.2

7.7

Population

Note: The data and ratios above result in part from S&P Global Ratings' own calculations, drawing on national as well as international sources,
reflecting S&P Global Ratings' independent view on the timeliness, coverage, accuracy, credibility, and usability of available information. Sources
typically include Statistics Canada.

Table 2

City of Peterborough -- Financial Statistics

--Fiscal year ended Dec. 31-(Mil. C$)

2013

2014

2015

2016bc

2017bc

2018bc

Operating revenues

221

231

239

247

251

258

Operating expenditures

190

195

207

214

222

229

Operating balance
Operating balance (% of operating revenues)
Capital revenues
Capital expenditures

32

36

32

32

29

29

14.3

15.7

13.2

13.1

11.7

11.3

13

13

18

14

15

19

61

60

64

60

63

79

Balance after capital accounts

(16)

(11)

(14)

(14)

(19)

(32)

Balance after capital accounts (% of total revenues)

(7.0)

(4.7)

(5.6)

(5.2)

(7.2)

(11.4)

Debt repaid
Balance after debt repayment and onlending
Balance after debt repayment and onlending (% of
total revenues)

10

13

15

12

(26)

(20)

(25)

(27)

(34)

(44)

(10.9)

(8.4)

(9.6)

(10.3)

(12.7)

(15.8)

Gross borrowings

10

22

26

17

Balance after borrowings

(16)

(10)

(2)

(1)

(26)

(27)

Operating revenue growth (%)

(0.8)

4.5

3.4

3.3

1.9

2.8

Operating expenditure growth (%)

2.5

2.7

6.4

3.5

3.6

3.3

Modifiable revenues (% of operating revenues)

84.3

84.4

82.6

83.1

83.3

83.8

Capital expenditures (% of total expenditures)

24.3

23.6

23.6

21.9

22.2

25.7

Direct debt (outstanding at year-end)

94

95

108

121

114

119

Direct debt (% of operating revenues)

42.5

41.3

45.0

48.9

45.4

46.0

Tax-supported debt (% of consolidated operating

revenues)

44.5

43.2

46.8

50.5

46.9

47.4

Interest (% of operating revenues)

1.7

1.7

1.6

1.6

1.7

1.5

Debt service (% of operating revenues)

5.9

5.6

5.9

6.9

7.5

6.2

Note: The data and ratios above result in part from S&P Global Ratings' own calculations, drawing on national as well as international sources,
reflecting S&P Global Ratings' independent view on the timeliness, coverage, accuracy, credibility, and usability of available information. The
main sources are the financial statements and budgets, as provided by the issuer. Base case reflects S&P Global Ratings' expectations of the most
likely scenario. Downside case represents some but not all aspects of S&P Global Ratings' scenarios that could be consistent with a downgrade.
Upside case represents some but not all aspects of S&P Global Ratings' scenarios that could be consistent with an upgrade. bc--Base case.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 8, 2016 5
1770497 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Continued Exceptional Liquidity; Outlook
Stable

Ratings Score Snapshot

Table 3

City of Peterborough -- Ratings Score Snapshot

Key rating factors

Assessment

Institutional Framework

Very predictable and well-balanced

Economy

Strong

Financial Management

Satisfactory

Budgetary Flexibility

Average

Budgetary Performance

Average

Liquidity

Exceptional

Debt Burden

Low

Contingent Liabilities

Low

Key Sovereign Statistics

Sovereign Risk Indicators, Oct. 13, 2016. Interactive version available at
http://www/spratings.com/sri

Related Criteria
Criteria - Governments - International Public Finance: Methodology For
Rating Non-U.S. Local And Regional Governments, June 30, 2014
Criteria - Governments - International Public Finance: Methodology And
Assumptions For Analyzing The Liquidity Of Non-U.S. Local And Regional
Governments And Related Entities And For Rating Their Commercial Paper
Programs, Oct. 15, 2009
General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
In accordance with our relevant policies and procedures, the Rating Committee
was composed of analysts that are qualified to vote in the committee, with
sufficient experience to convey the appropriate level of knowledge and
understanding of the methodology applicable (see 'Related Criteria And
Research'). At the onset of the committee, the chair confirmed that the
information provided to the Rating Committee by the primary analyst had been
distributed in a timely manner and was sufficient for Committee members to
make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and critical issues
in accordance with the relevant criteria. Qualitative and quantitative risk
factors were considered and discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected in the
Ratings Score Snapshot above.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 8, 2016 6
1770497 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Continued Exceptional Liquidity; Outlook
Stable

The chair ensured every voting member was given the opportunity to articulate
his/her opinion. The chair or designee reviewed the draft report to ensure
consistency with the Committee decision. The views and the decision of the
rating committee are summarized in the above rationale and outlook. The
weighting of all rating factors is described in the methodology used in this
rating action (see "Related Criteria And Research").

Ratings List
Ratings Affirmed
Peterborough (City of)
Issuer Credit Rating
Senior Unsecured

AA-/Stable/-AA-

Certain terms used in this report, particularly certain adjectives used to

express our view on rating relevant factors, have specific meanings ascribed
to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further
information. Complete ratings information is available to subscribers of
RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All
ratings affected by this rating action can be found on the S&P Global Ratings'
public website at www.standardandpoors.com. Use the Ratings search box located
in the left column.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 8, 2016 7
1770497 | 301674611

Copyright 2016 by Standard & Poors Financial Services LLC. All rights reserved.
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part
thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval
system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be
used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or
agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not
responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for
the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL
EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING
WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no
event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential
damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by
negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and
not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase,
hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to
update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment
and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does
not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be
reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain
regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P
Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any
damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective
activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established
policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P
reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites,
www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com
(subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information
about our ratings fees is available at www.standardandpoors.com/usratingsfees.
STANDARD & POOR'S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor's Financial Services LLC.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 8, 2016 8
1770497 | 301674611