2009 Ontario Budget
CHAPTER IV
BORROWING AND DEBT MANAGEMENT
LONG-TERM PUBLIC BORROWING
[Chart 1, bar graph: Borrowing - All Markets.]
Ontario successfully completed its 2008-09 borrowing program, despite the
continuing challenges in the global financial markets. It did so by
maintaining a flexible approach and by being responsive to the preferences
of bond investors.
The interim long-term borrowing for 2008-09 is $28.7 billion, compared to
$24.3 billion in the 2008 Budget. The difference is primarily due to the
projected deficit.
In 2008-09, about 34 per cent ($9.7 billion) was borrowed in the
international capital markets. HIC OMITTED]
Bonds issued in foreign currencies were:
[Chart 2, bar graph: Borrowing - Domestic Markets.]
o Global bonds in U.S. dollars and euros
o Euro Medium-Term Notes (EMTNs) in U.K. sterling, Swiss francs,
Japanese yen, and U.S. and Hong Kong dollars
o one Japanese yen loan.
About $18.9 billion, or 66 per cent, of borrowing was completed in the
domestic market through a number of instruments, including:
o syndicated issues
o floating rate notes
o domestic medium-term notes
o bond auctions
o real return bonds
o Ontario Savings Bonds.
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2008-09 Borrowing Program: Province and Ontario Electricity Financial Corporation Table 1
($ Billions)
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Budget Interim In-Year Change
Plan
--------------- ---------------- ---------------
Deficit 0.0 3.9 3.9
Non-Cash Adjustments (0.9) 1.9 2.8
Investment in Capital Assets 4.9 4.3* (0.6)
Net Loans/Investments 1.3 0.9 (0.4)
Debt Maturities 20.5 20.3 (0.2)
Debt Redemptions 1.0 0.5 (0.5)
--------------------------------------------------------------- --------------- ---------------- ---------------
Total Funding Requirement 26.9 31.9 5.0
Canada Pension Plan Borrowing (0.6) (0.5) 0.1
Decrease/(Increase) in Short-Term Borrowing (2.0) (5.5) (3.5)
Increase/(Decrease) in Cash and Cash Equivalents 0.0 2.8 2.8
--------------------------------------------------------------- --------------- ---------------- ---------------
Total Long-Term Public Borrowing Requirement 24.3 28.7 4.4
--------------------------------------------------------------- --------------- ---------------- ---------------
* Using the medium-term outlook presentation, the equivalent number is
$6.2 billion. The need to maintain consistency with the 2008 Budget
for comparison purposes required interim investments in capital assets
to be presented differently. Total capital investments funded remain
consistent since school board acquisitions funded by the Province are
part of Net Loans/Investments.
Note: Numbers may not add due to rounding.
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The interim total long-term public borrowing for 2008-09 is $28.7 billion.
Key contributors to the increase in the total long-term public borrowing
requirement include the projected deficit and non-cash adjustments.
The restructuring of the frozen Canadian asset-backed commercial paper
(ABCP) market was completed in January 2009. Under the agreement, the
Province, along with the federal government, Alberta and Quebec, provided
assistance to the ABCP restructuring efforts through a Senior Funding
Facility (SFF). Ontario's contribution to the SFF is the smallest, with an
allocation of $250 million. The contribution of the government of Alberta
is $300 million, and Quebec and the federal government each contributed
$1.3 billion. No fiscal impact is expected from the SFF as it is in the
form of an indemnity, which is not expected to be called upon.
The Province received $636.8 million in restructured notes due to its
holdings of third-party ABCP. The Province plans to hold the notes to
maturity. By holding the notes to maturity, it is expected that the
Province will recover most of the accounting writedown taken last year.
While no significant further writedown is expected, the Province —
with the assistance of external accounting advisers — will review the
accounting treatment of third-party ABCP for the Public Accounts of
Ontario.
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Medium-Term Borrowing Outlook: Province and Ontario Electricity Financial Corporation Table 2
($ Billions)
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2009-10 2010-11 2011-12
--------------- --------------- ----------------
Deficit 14.1 12.2 9.7
Non-Cash Adjustments (2.0) (2.5) (3.0)
Investment in Capital Assets 9.5 11.4 10.4
Net Loans/Investments 1.9 0.0 0.0
Debt Maturities:
Currently Outstanding 14.6 15.7 13.9
Incremental Impact of Future Financing 0.0 0.0 2.8
Debt Redemptions 0.4 0.4 0.4
--------------------------------------------------------------- --------------- --------------- ----------------
Total Funding Requirement 38.5 37.3 34.1
Canada Pension Plan Borrowing (0.7) 0.0 (1.0)
Decrease/(Increase) in Short-Term Borrowing (3.0) (1.0) 0.0
Increase/(Decrease) in Cash and Cash Equivalents 0.0 (2.0) (1.0)
--------------------------------------------------------------- --------------- --------------- ----------------
Total Long-Term Public Borrowing Requirement 34.8 34.3 32.1
--------------------------------------------------------------- --------------- --------------- ----------------
Note: Numbers may not add due to rounding.
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To meet additional borrowing requirements for 2009-10 as a result of the
deficit and increased investments in capital assets, Ontario will maintain
a flexible approach and remain responsive to investor preferences as it
monitors both domestic and international opportunities. Diversification of
borrowing sources will be a primary objective in 2009-10. Depending on
market conditions, the Province plans to borrow 35 per cent to 50 per cent
in the international markets.
The government will seek approval from the legislature for additional
borrowing authority to meet the Province's requirements and to increase
short-term borrowing, while maintaining a prudent and flexible approach in
the capital markets.
Debt
[Chart 3, bar graph: Debt]
Total debt, which represents all borrowing without offsetting financial
assets, is projected to be $177.3 billion as at March 31, 2009, compared to
$162.2 billion as at March 31, 2008. Ontario's net debt, the difference
between total liabilities and total financial assets, is projected to be
$149.4 billion as at March 31, 2009, compared to $142.4 billion as at March
31, 2008.
Interim 2008-09 results for the Ontario Electricity Financial Corporation
(OEFC) show a projected excess of revenue over expense of almost $1.0
billion, reducing the Corporation's unfunded liability (or "stranded debt
of the electricity sector") from $17.2 billion as at March 31, 2008 to
$16.3 billion as at March 31, 2009. Projected 2009-10 OEFC results are an
excess of revenue over expense of about $1.2 billion, reducing the unfunded
liability to $15.1 billion at March 31, 2010.
Total Debt Composition
[Chart 4, bar graph: Total Debt Composition.]
Total debt is composed of bonds issued in the public capital markets,
non-public debt, treasury bills and U.S. commercial paper.
Public debt totals $158.7 billion, primarily consisting of bonds issued in
the domestic and international markets in 11 currencies. Ontario also has
$18.6 billion outstanding in non-public debt issued in Canadian dollars.
Non-public debt consists of debt instruments issued to public-sector
pension funds in Ontario and the Canada Pension Plan Investment Board. This
debt is not marketable and cannot be traded.
[Chart 5, bar graph: Net Debt-to-GDP]
Debt-to-GDP Ratios
The Province's debt-to-GDP ratios are expected to increase over the next
three years, reflecting investments to preserve and create jobs, as well as
investments in key priority areas.
[Chart 6, bar graph: Accumulated Deficit-to-GDP.]
The net debt-to-GDP ratio is expected to increase more rapidly than
accumulated deficit-to-GDP because net debt-to-GDP includes the Province's
significant investments in capital.
The ratios stabilize and begin to decline during the period of the recovery
plan to balance the budget.
Comparative Debt Ratios
[Chart 7, bar graph: Net Debt-to-GDP Provincial Comparison]
[Chart 8, bar graph: Net Debt-to-GDP G7 Countries and Ontario]
In 2007-08, the most recent year for which data is available for all
jurisdictions, Ontario's net debt-to- GDP level was below the median for
the provinces.
In 2008-09, Canada and Ontario's combined net debt-to-GDP was below the
average compared to G7 countries.
Cost of Debt
[Chart 9, bar graph: Effective Interest Rate (Weighted Average) on Debt]
The effective interest rate (on a weighted-average basis) on total debt is
estimated to be 5.19 per cent as at March 31, 2009 (March 31, 2008, 5.76
per cent). For comparison, as at March 31, 1993, the effective interest
rate on total debt was 10.14 per cent.
The effective interest rate on public debt is estimated to be 4.86 per cent
as at March 31, 2009 (March 31, 2008, 5.35 per cent). The effective
interest rate on non-public debt is estimated to be 8.05 per cent as at
March 31, 2009 (March 31, 2008, 8.59 per cent).
Risk Exposure
The Province limits itself to a maximum net interest-rate resetting
exposure of 35 per cent of debt issued for Provincial purposes and a
maximum foreign-exchange exposure of five per cent of debt issued for
Provincial purposes. As at February 28, 2009, the net interest-rate
resetting exposure was 13.4 per cent and foreign-exchange exposure was 0.2
per cent. All exposures remained well below policy limits in 2008-09.
Consolidated Financial Tables
- ---------------------------------------------------------------------------------------------------------------------------
Net Debt and Accumulated Deficit Table 3
Interim 2009 ($ Millions)
- ---------------------------------------------------------------------------------------------------------------------------
Interim Plan
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
-------------- ------------- ---------- ----------- ---------- -----------
Debt(1)
Publicly Held Debt
Bonds(2) 125,279 123,129 128,666 134,362 145,663 168,361
Treasury Bills 3,747 5,215 4,249 5,092 9,430 12,465
U.S. Commercial Paper(2) 269 706 254 644 1,809 1,809
Ontario Infrastructure Projects Corporation 1,288 1,323 1,262 1,632 1,700 1,996
(OIPC)(3)
Other 404 387 - - - -
-------------- ------------- ---------- ----------- ---------- -----------
130,987 130,760 134,431 141,730 158,602 184,631
-------------- ------------- ---------- ----------- ---------- -----------
Non-Public Debt
Canada Pension Plan Investment Board 10,233 10,233 10,233 10,233 10,233 9,797
Ontario Teachers' Pension Fund 8,666 7,596 6,411 4,466 3,001 1,765
Public Service Pension Fund 2,886 2,705 2,502 2,260 1,991 1,713
Ontario Public Service Employees' Union 1,371 1,285 1,188 1,074 946 814
Pension Fund (OPSEU)
Canada Mortgage and Housing Corporation 1,003 960 914 863 810 754
Other(4) 1,231 1,367 1,314 1,430 1,642 1,469
-------------- ------------- ---------- ----------- ---------- -----------
25,390 24,146 22,562 20,326 18,623 16,312
-------------- ------------- ---------- ----------- ---------- -----------
156,377 154,906 156,993 162,056 177,225 200,943
Unrealized Foreign Exchange Gains 424 426 318 161 77 47
-------------- ------------- ---------- ----------- ---------- -----------
Total Debt 156,801 155,332 157,311 162,217 177,302 200,990
-------------- ------------- ---------- ----------- ---------- -----------
Cash and Temporary Investments(5) (13,422) (6,258) (6,622) (7,124) (9,929) (9,929)
Other Net (Assets)/Liabilities(6) (1,193) (5,824) (8,493) (11,230) (16,505) (19,226)
OIPC Net (Assets)/Other Liabilities(3) (1,265) (1,322) (1,096) (1,445) (1,511) (2,005)
-------------- ------------- ---------- ----------- ---------- -----------
Net Debt 140,921 141,928 141,100 142,418 149,357 169,830
Non-Financial Assets(7) (15,178) (32,773) (34,324) (36,801) (39,850) (46,223)
- ------------------------------------------------ -------------- ------------- ---------- ----------- ---------- -----------
Accumulated Deficit(8) 125,743 109,155 106,776 105,617 109,507 123,607
- ---------------------------------------------------------------------------------------------------------------------------
(1) Includes debt issued by the Province and Government Organizations,
including the OEFC.
(2) All balances are expressed in Canadian dollars. The balances above reflect
the effect of related derivative contracts.
(3) OIPC's interim 2008-09 debt is composed of Infrastructure Renewal Bonds
($1.25 billion) and short-term commercial paper ($450 million). OIPC's debt
is not guaranteed by the Province. OIPC Net (Assets)/Other Liabilities
include cash, temporary investments, accounts receivable, loans receivable,
debt issue costs, accounts payable and loans payable.
(4) Other non-public debt includes Ontario Municipal Employees Retirement Fund,
College of Applied Arts and Technology Pension Plan, Ryerson Retirement
Pension Plan, Ontario Immigrant Investor Corporation and indirect debt of
school boards (the indirect debt of school boards was incurred in June 2003
to refinance the non-permanently financed debt of 55 school boards; an
equivalent amount is included in Net Assets as advance payments to school
boards).
(5) Cash and Temporary Investments excludes OIPC cash and temporary
investments, which are reported separately under OIPC Net (Assets)/ Other
Liabilities.
(6) Other Net (Assets)/Liabilities include accounts receivable, loans
receivable, advances and investments in government business enterprises,
accounts payable, accrued liabilities, pensions and the liability for power
purchase agreements with non-utility generators.
(7) Non-financial assets include the Province's tangible capital assets and net
assets of hospitals, school boards and colleges, which, starting with
fiscal year 2005-06, are consolidated using one-line consolidation.
(8) Accumulated deficit represents net debt adjusted for non-financial assets.
Starting with 2005-06, accumulated deficit includes the opening combined
net assets of hospitals, school boards and colleges.
Source: Ontario Ministry of Finance.
- ---------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Debt Maturity Schedule Table 4
Interim 2009 ($ Millions)
- ----------------------------------------------------------------------------------------------------------------------
Currency
- -------------------------- -------------------------------------------------------------------------------------------
Interim
Canadian U.S. Japanese Other 2008-09 2007-08
Dollar Dollar Yen Euro(1) Currencies(2) Total Total
- ---------------------------------------------------------------------------------------------------------- -----------
Fiscal Year Payable
- ---------------------------------------------------------------------------------------------------------- -----------
Year 1 19,010 3,443 747 1,490 870 25,560 27,035
Year 2 12,612 3,519 - - 252 16,383 13,696
Year 3 8,770 4,924 - - 47 13,741 11,038
Year 4 7,886 3,530 - - 550 11,966 7,352
Year 5 12,830 1,010 182 2,404 554 16,980 11,317
- -------------------------- -------------- --------- ------------ -------- --------------- ---------------- -----------
1-5 years 61,108 16,426 929 3,894 2,273 84,630 70,438
6-10 years 19,495 4,957 161 385 2,302 27,300 30,670
11-15 years 11,097 - - - - 11,097 9,037
16-20 years 16,658 - - - - 16,658 14,710
21-25 years 8,819 - - - - 8,819 13,469
26-46 years(3) 28,721 - - - - 28,721 23,732
Unamortized Foreign
Exchange Gains - 84 - - (7) 77 161
- -------------------------- -------------- --------- ------------ -------- --------------- ---------------- -----------
Total(4) 145,898 21,467 1,090 4,279 4,568 177,302 162,217
- -------------------------- -------------- --------- ------------ -------- --------------- ---------------- -----------
Debt Issued for 1,090 4,100 3,230
Provincial Purposes 121,065 19,738 149,223 133,880
OEFC Debt 24,833 1,729 - 179 1,338 28,079 28,337
- -------------------------- -------------- --------- ------------ -------- --------------- ---------------- -----------
Total(5) 145,898 21,467 1,090 4,279 4,568 177,302 162,217
- ----------------------------------------------------------------------------------------------------------------------
(1) Euro includes debt issued in euros and French franc legacy currency.
(2) Other currencies comprise Australian dollar, New Zealand dollar, U.K.
sterling, Swiss franc, Hong Kong dollar, South African rand and New Turkish
lira.
(3) The longest term to maturity is to June 2, 2054.
(4) Total foreign currency denominated debt (before unrealized foreign exchange
gains) as at March 31, 2009, is projected to be $31.4 billion (2008, $24.7
billion). Of that, $31.0 billion or 99.0 per cent (2008, $23.9 billion or
96.8 per cent) was fully hedged to Canadian dollars.
(5) Total debt includes issues totalling $2.4 billion (2008, $2.7 billion) that
have embedded options exercisable by either the Province or the bondholder
under specific conditions.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Medium-Term Outlook Table 5
Net Debt and Accumulated Deficit ($ Billions)
- ----------------------------------------------------------------------------------------------------------------------
2010-11 2011-12
--------------- --------------
Total Debt 220.3 236.6
Cash and Temporary Investments (7.9) (6.9)
Other Net (Assets)/Liabilities (20.6) (21.6)
OIPC Net (Assets)/Liabilities (2.3) (2.6)
- --------------------------------------------------------------------------------------- --------------- --------------
Net Debt 189.5 205.4
Non-Financial Assets (53.7) (59.9)
- --------------------------------------------------------------------------------------- --------------- --------------
Accumulated Deficit 135.8 145.5
- --------------------------------------------------------------------------------------- --------------- --------------
Note: Numbers may not add due to rounding.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Derivative Portfolio Notional Value Table 6
Interim 2009 ($ Millions)
- ----------------------------------------------------------------------------------------------------------------------
Interim
Maturity in 6-10 Over 10 2008-09 2007-08
Fiscal Year 2009-10 2010-11 2011-12 2012-13 2013-14 Years Years Total Total
- ------------------- ---------- ----------- ----------- ---------- ---------- ---------- -------- ---------- ----------
Swaps:
Interest rate 9,529 9,200 11,144 8,347 5,838 22,997 6,651 73,706 61,028
Cross currency 5,380 3,194 3,097 3,791 6,423 10,485 - 32,370 27,032
Forward foreign
exchange
contracts 7,665 - - - - - - 7,665 2,649
Caps and floors 88 - - - - - - 88 88
- ------------------- ---------- ----------- ----------- ---------- ---------- ---------- -------- ---------- ----------
Total 22,662 12,394 14,241 12,138 12,261 33,482 6,651 113,829 90,797
- ------------------- ---------- ----------- ----------- ---------- ---------- ---------- -------- ---------- ----------
The table above presents the maturity schedule of the Province's
derivatives, by type, interim at March 31, 2009, based on the notional
amounts of the contracts. Notional amounts represent the volume of
outstanding derivative contracts and are not indicative of credit risk,
market risk or actual cash flows. The Province uses derivatives to hedge
and to minimize interest costs. Hedges are created primarily through swaps.
Swaps allow the Province to offset existing obligations, effectively
converting them into obligations with more desirable characteristics.
