Bloomberg News

BlackRock Sees Alberta Bond Sales as Flood Bill Tops C$1 Billion

June 27, 2013

Alberta will probably sell bonds to pay for rebuilding of roads and bridges damaged by the worst flooding in more than a century, according to investors including BlackRock Inc. (BLK:US), the world’s biggest money manager.

Alberta’s government has committed C$1 billion ($955 million) so far to pay for relief from floods that overtook Calgary and other communities last week. Toronto-Dominion Bank and Bank of Montreal (BMO) put initial damage estimates at as much as C$5 billion.

“I think the preference would be to go to the markets to fund it,” said Aubrey Basdeo, who oversees Canadian fixed income including Alberta bonds at the Toronto unit of BlackRock. “All we know at the moment is they’ve committed to spend C$1 billion,” he said yesterday in a phone interview, forecasting government spending on repairs will rise.

Ratings companies may review their outlooks for Alberta if the most “pessimistic” forecasts for destruction are accurate, Jean-Francois Godin, vice-president of fixed income at Desjardins Securities Inc. in Montreal, said in a note yesterday. Alberta, with C$17.9 billion of bonds outstanding, is the only province with a stable, triple-A rating from all agencies, according to data compiled by Bloomberg.

The Alberta government will consider tapping debt markets as it rebuilds from the flooding, though the first relief money will come from cash reserves, Doug Horner, the provincial finance minister, said in a phone interview yesterday. Spending will increase from the initial C$1 billion “down payment” to fix infrastructure such as sewage treatment plants, he said.

No Downgrade

“I feel comfortable and confident right now that our rating is not going to be downgraded because of our capital we’re going to have to put out,” Horner said. He predicted the federal government may cover more than half of the total costs.

Alberta, home to the world’s third-largest crude reserves in the oil sands, announced plans in March to sell C$7.34 billion in debt in the fiscal year that began April 1, a 23 percent increase in issuance and the most in nominal terms since 1986, according to finance ministry data. Plunging oil and gas revenue is pushing the province toward its sixth straight deficit.

With the additional costs of flood relief and uncertainty about the total damage, the province is “not focusing on” meeting deficit-reduction targets, Horner said. The government had planned shortfalls of around C$2 billion this fiscal year and a surplus of about C$500 million in 2014-15.

Alberta bonds probably won’t suffer from the increased spending or issuance triggered by the flooding, Grant Williams, head of Canadian government finance at Bank of Montreal’s BMO Capital Markets unit, said in a phone interview from Toronto yesterday.

“The flood is a one-off thing and there will be some expenses associated with that and some one-off borrowings or increases in debt,” Williams said.

To contact the reporter on this story: Rebecca Penty in Calgary at rpenty@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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