Research Update:

City of Peterborough 'AA-' Ratings

Affirmed On Exceptional Liquidity
And Low Debt Burden
Primary Credit Analyst:
Dina Shillis, CFA, Toronto (416) 507-3214; dina.shillis@standardandpoors.com
Secondary Contact:
Nineta Zetea, Toronto (416) 507-2508; nineta.zetea@standardandpoors.com

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

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 7, 2015 1
1544948 | 301674611

Research Update:

City of Peterborough 'AA-' Ratings Affirmed On

Exceptional Liquidity And Low Debt Burden
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 total about 40% of
consolidated operating revenues, and Peterborough will maintain an
exceptional liquidity position.

Rating Action
On Dec. 7, 2015, Standard & Poor's Ratings Services 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 Standard & Poor's 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.
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.
Peterborough has low debt, in our view, with tax-supported debt (as defined by
our criteria and consisting of all debt outstanding) totaling nearly C$100

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 7, 2015 2
1544948 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Exceptional Liquidity And Low Debt Burden

million at year-end 2014 or 43% of consolidated operating revenues. In our

base-case forecast, we forecast healthy revenue growth to keep the
tax-supported debt burden relatively stable and represent 41% of consolidated
operating revenues in 2017. Nevertheless, we expect debt to increase in the
outer years to fund the capital plan. 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 city's exposure to City of Peterborough Holdings Inc. (COPHI), a
utilities company, is limited and does not pose a significant risk to the
ratings.
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 15% of adjusted operating revenues and more
than negative 4% of adjusted total revenues, respectively, in 2013-2017. In
our base-case forecast, we expect after-capital performance to deteriorate in
the outlook horizon. In addition, we expect operating balances to weaken
somewhat in the next two years, as inflationary and other cost pressures, in
particular those related to personnel, continue to weigh on operating
performance.
We believe Peterborough has satisfactory financial management practices, which
prudent financial policies and debt and liquidity management support. The city
proposed an update to its investment policy to include a broader range of
permitted investments and we expect council to approve the change in early
2016. It 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. We assess its management as capable and
experienced.
We view Peterborough's economic profile as strong, benefiting from a good
level of diversification and a large public sector that offers stability. The
aerospace sector continues to increase in line with expansion of the
Peterborough airport, which supports the local labor market. Nevertheless, we
believe that the city's 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$49,000. Labor market results and building
activity were positive in 2014 and we expect these to be stable during the
outlook horizon.
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 its limited ability to
cut spending and raise modifiable revenues. In our base-case forecast, we

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 7, 2015 3
1544948 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Exceptional Liquidity And Low Debt Burden

expect modifiable revenues to remain at current levels and capital spending to

average more than 22% of adjusted total spending in 2013-2017. 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 Canadian
municipalities, provinces mandate 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. In addition, we believe the city benefits from robust internal cash flow
generation. We estimate its free cash and liquid assets (Standard &
Poor's-adjusted) to be about C$117 million in 2016, 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, we assess the city's access to external liquidity
as satisfactory.

Outlook
The stable outlook reflects Standard & Poor's expectations that, in the next
two years, Peterborough's operating balance will remain above 5% of adjusted
operating revenues, tax-supported debt will represent about 40% 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,
tax-supported debt of more than 60% of consolidated operating revenues, and
increased pressure on liquidity balances stemming from growing funding needs.
We could take a positive rating action if there is measurable and sustainable
improvement in economic profile, in particular obtaining additional land to
support future economic development, or the city demonstrated continued
managerial strength and fiscal restraint.

Key Statistics
Table 1

City of Peterborough -- Economic Statistics

--Fiscal year ended Dec. 31-(%)

2010

2011

2012

2013

2014

78,027

78,698

78,698

78,698

78,698

Population growth

0.9

0.9

0.0

0.0

0.0

Unemployment rate

9.4

9.6

8.5

9.6

8.2

Population (total)

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 7, 2015 4
1544948 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Exceptional Liquidity And Low Debt Burden

Table 1

City of Peterborough -- Economic Statistics (cont.)

Note: The data and ratios above result in part from Standard & Poor's own calculations, drawing on national as well as international sources,
reflecting Standard & Poor's 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$)

2012

2013

2014

2015bc

2016bc

2017bc

Operating revenues

223

221

231

237

243

250

Operating expenditures

185

190

195

202

207

214

Operating balance
Operating balance (% of operating revenues)

38

32

36

36

36

37

17.0

14.3

15.7

15.1

14.8

14.7

13

13

14

15

Capital revenues
Capital expenditures

46

61

60

40

65

66

(16)

(11)

(15)

(15)

0.4

(7.0)

(4.7)

1.8

(5.7)

(5.6)

Balance after capital accounts

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

10

13

14

(7)

(26)

(20)

(6)

(28)

(29)

(3.0)

(10.9)

(8.4)

(2.3)

(10.9)

(10.9)

Gross borrowings

22

10

23

13

Balance after borrowings

15

(16)

(10)

17

(21)

(16)

Operating revenue growth (%)

3.2

(0.8)

4.5

2.7

2.5

3.0

Operating expenditure growth (%)

0.6

2.5

2.7

3.4

2.9

3.0

Modifiable revenues (% of operating revenues)

83.1

84.3

84.4

84.7

85.1

85.5

Capital expenditures (% of total expenditures)

20.0

24.3

23.6

16.6

23.8

23.7

Direct debt (outstanding at year-end)

94

94

95

108

101

100

Direct debt (% of operating revenues)

42.2

42.5

41.3

45.5

41.5

39.8

Tax-supported debt (% of consolidated operating

revenues)

44.3

44.5

43.2

47.2

43.2

41.4

Interest (% of operating revenues)

1.7

1.7

1.7

2.1

2.1

2.0

Debt service (% of operating revenues)

5.3

5.9

5.6

6.4

7.6

7.6

Note: The data and ratios above result in part from Standard & Poor's own calculations, drawing on national as well as international sources,
reflecting Standard & Poor's 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 Standard & Poor's expectations of the most likely
scenario. Downside case represents some but not all aspects of Standard & Poor's scenarios that could be consistent with a downgrade. Upside
case represents some but not all aspects of Standard & Poor's scenarios that could be consistent with an upgrade. bc -- base case.

Ratings Score Snapshot

Table 3

City of Peterborough -- Ratings Score Snapshot

Key rating factors

Assessment

Institutional Framework

Very predictable and well-balanced

Economy

Strong

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 7, 2015 5
1544948 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Exceptional Liquidity And Low Debt Burden

Table 3

City of Peterborough -- Ratings Score Snapshot (cont.)

Financial Management

Satisfactory

Budgetary Flexibility

Average

Budgetary Performance

Average

Liquidity

Exceptional

Debt Burden

Low

Contingent Liabilities

Low

Note: Standard & Poor's ratings on local and regional governments are based on eight main rating factors listed in the table above. Section A of
Standard & Poor's "Methodology For Rating Non-U.S. Local And Regional Governments," published on June 30, 2014, summarizes how the eight
factors are combined to derive the foreign currency rating on the government.

Key Sovereign Statistics

Sovereign Risk Indicators, June 30, 2015. Interactive version available at
http://www/spratings.com/sri

Related Criteria And Research

Related Criteria
Methodology For Rating Non-U.S. Local And Regional Governments, June 30,
2014

Related Research
2014 Annual International Public Finance Default Study And Rating
Transitions, June 8, 2015
Institutional Framework Assessments For Non-U.S. Local And Regional
Governments, Feb. 5, 2015
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.
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

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 7, 2015 6
1544948 | 301674611

Research Update: City of Peterborough 'AA-' Ratings Affirmed On Exceptional Liquidity And Low Debt Burden

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-

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 Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 7, 2015 7
1544948 | 301674611

Copyright 2015 Standard & Poor's Financial Services LLC, a part of McGraw Hill Financial. 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.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

DECEMBER 7, 2015 8
1544948 | 301674611