Alberta and ATB’s Aa2 ratings affirmed, outlook revised to stable by Moody’s

Investing.com -- Moody’s Ratings has revised the outlook for the Province of Alberta’s ratings from positive to stable, while also affirming the Aa2 long-term debt and program ratings, and P-1 short-term issuer and commercial paper ratings. ATB Financial’s Aa2 long-term and P-1 short-term issuer ratings were also affirmed, with the outlook revised to stable from positive.

The revision to a stable outlook reflects Moody’s view that the assumptions supporting the positive outlook are unlikely to materialize. These assumptions, including high oil revenues, limited debt increase, and robust liquidity growth, are now being reassessed. Moody’s expects the West Texas Intermediate crude oil price to be at the lower end of the medium-term outlook of $55-75 per barrel, which is below the average price of $75 per barrel in 2024 and the province’s budget projection of $68 per barrel for fiscal year 2025-26.

The fiscal path has been significantly revised down, shifting from surpluses to deficits of around 14% of revenue in 2025-26 before reducing to 6% in 2027-28. Despite these fiscal headwinds, Moody’s affirms the Aa2 long-term debt ratings, citing Alberta’s competitive economy, high liquidity, and fiscal policy flexibility. The rating also factors in pressures from oil price volatility and heightened trade uncertainty.

Alberta’s economic advantages include a young population, high per capita income, and a competitive tax regime. The province also has strong total wealth metrics, with nearly CAD52 billion in cash and investments as of March 31, 2024. However, the province’s revenue is highly dependent on oil production, which brings volatility tied to global oil prices.

Moody’s also affirmed the Aa2 long-term issuer rating of ATB Financial, reflecting its status as an agent of Alberta and the provincial guarantee of ATB’s liabilities.

Environmental, social, and governance considerations have limited impact on the rating, according to Moody’s. Alberta’s exposure to carbon transition risk and elevated exposure to physical climate risks are noted. The province’s strong institutional and governance framework, transparent reporting and debt management efforts also contribute to the rating.

Upgrades to the rating could occur with a significant economic recovery, rising resource prices, multi-year forecast surpluses, and a deceleration of debt growth. Conversely, the rating could be downgraded if the province fails to mitigate cost pressures, experiences prolonged low oil prices, or sees a material rise in the debt burden.

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