S&P: Societe de Transport de Montreal Affirmed At 'AA-' On Almost-Certain Likelihood In Government Support; Outlook Stable
"The ratings on the authority reflect those on the City of Montreal, based on our opinion that there is an almost certain likelihood of support from the municipal government, reflecting STM's critical role and integral link with the city," said S&P Global Ratings credit analyst Nineta Zetea.
The ratings also reflect the authority's stand-alone credit profile (SACP), which we asses at 'aa-'.
We believe that STM plays a critical role by providing a key service to the Greater Montreal Area (GMA; the Province of Quebec's main economic center). It also holds a monopoly status in its service area. In our opinion, public transportation is one of the key responsibilities of the municipal government. Furthermore, we believe the authority's ownership of the assets and the subsidized, nonprofit nature of its activity make it highly unlikely that a private entity could undertake its responsibilities. We assess the link between STM and Montreal as integral, given the city's entire control over STM and the guarantee the Urban Agglomeration of Montreal (UAM; formed of 16 municipalities, of which Montreal is the largest and only rated municipality) provides for the authority's debt. As a result, we view the likelihood of STM receiving extraordinary government support in an event of financial distress as almost certain.
Established in 1861, STM provides bus, subway, and other transit services (including services for people with disabilities) to the City of Montreal and 15 other municipalities that form the UAM, which is part of the GMA. The GMA is STM's catchment area; its population was 4 million in 2015. STM operates the second most heavily used urban mass transit system in Canada after the Toronto Transit Commission. In fiscal 2015, it carried over 413.3 million passengers.
The stable outlook on STM reflects our outlook on Montreal, as per our criteria. We expect that the municipal government will continue to provide adequate and timely annual financial support grants to the authority to fund its operating and capital activities, and that it will continue to guarantee STM's debt, together with the 15 other municipalities of the UAM. We do not foresee any change in our assessment of an almost certain likelihood of extraordinary municipal government support, given the essential service the authority is providing to the GMA and the UAM guarantees it receives on its debt. Consequently, any rating action on Montreal would lead to a similar action on STM.