Province of Ontario Presentation August 4, 2020 Ontario Financing - - PowerPoint PPT Presentation

Ontario Financing Authority

http://www.ofina.on.ca

Province of Ontario Presentation August 4, 2020

Ontario Financing Authority www.ofina.on.ca

March 2020 Economic and Fiscal Update

• The COVID-19 pandemic is currently having an adverse impact on the global financial markets

and economy, including the Province’s economy:

• In response, the Provincial government implemented an action plan and revised forecasts.

The Province released its March 2020 Economic and Fiscal Update on March 25, 2020, which due to the prevailing economic uncertainty presents a one-year outlook based on the best information available. The government will release a multi-year provincial Budget by November 15, 2020.

• In addition to negatively impacting the near-term global and Ontario economic growth
• utlooks, the COVID-19 pandemic has made it difficult to quantify the uncertainties

stemming from the pandemic.

• This significant uncertainty makes forecasting more difficult and the economic planning

assumptions underlying such forecasts may be quickly out of date due to rapidly changing circumstances.

• The spread of COVID-19 and the measures taken to contain its spread may continue to

have adverse impacts on the Province’s revenues and economy.

• The March 2020 Economic and Fiscal Update includes Ontario’s Action Plan: Responding to

COVID-19 that will increase resources for the health care system, support people and jobs, and improve cash flows for people and businesses.

1

Ontario’s Fiscal Plan

• The Province is projecting a deficit of $9.2 billion in 2019–20 which represents an improvement of

$1.1 billion relative to the 2019 Budget.

• As a result of the response to the COVID-19 outbreak, the government is planning for a deficit of

$20.5 billion in 2020–21.

• The fiscal plan also includes higher than usual reserve and contingency funds as a measure of

prudence to protect against additional unforeseen adverse changes to revenue and expense.

Fiscal Summary

Actual Interim1 Plan

($ Billions) 2018–19 2019–20 2020–21

Revenue 153.7 156.7 156.3 Expense Programs 148.8 153.1 161.1 Interest on Debt 12.4 12.6 13.2 Total Expense 161.1 165.7 174.3 Surplus/(Deficit) Before Reserve (7.4) (9.0) (18.0) Reserve – 0.2 2.5 Surplus/(Deficit) (7.4) (9.2) (20.5) Net Debt as a Per Cent of GDP 39.5 39.9 41.7 Accumulated Deficit as a Per Cent of GDP 25.3 25.3 26.8

1 Interim represents the March 2020 Economic and Fiscal Update projection for the 2019–20 fiscal year.

Note: Numbers may not add due to rounding. Source: Ontario Ministry of Finance and Treasury Board Secretariat.

2

Ontario’s Action Plan: Responding to COVID-19

$17 Billion in New Support in 2020–21

3

Support for Health Care

• Ontario’s Action Plan includes $3.3 billion in additional

resources for health care, including $2.1 billion in new

• utbreak response measures.

Hospitals

• $935 million for the hospital sector,

including: – $594 million to accelerate progress

• n addressing capacity issues

– $341 million to provide additional acute care and critical care beds, and more assessment centres

• $124 million to support the delivery of

more than 90 transitional care projects to free up hospital capacity

Long-Term Care

• $243 million to provide

emergency capacity in the long-term care sector and virus containment measures

• Approx. $80 million to

improve and maintain the quality of care in long-term care homes

• Approx. $23 million to

support the ongoing repair and modernization of facilities

4

Support for Health Care

• Ontario’s Action Plan includes $3.3 billion in additional

resources for health care, including $2.1 billion in new

• utbreak response measures.

Public Health

• $160 million in increased

funding for public health to support COVID-19 monitoring, surveillance and laboratory and home testing, including investments in virtual care and Telehealth Ontario

• $61 million for publicly

funded vaccines to support the province’s immunization program

Additional Investments

• $1.0 billion for a dedicated COVID-19

response health sector contingency fund for emerging needs

• $75 million to supply personal protective

equipment and supplies to front-line staff

• $120 million to increase home and

community care capacity

• $62 million to provide more physicians,

nurses, and personal support workers

• A new website, Ontario Together, to help

redirect resources towards the production of essential equipment, such as ventilators

5

Support for People and Jobs

• The government is investing $3.7 billion in direct

support for people and to protect jobs.

Seniors

• Proposing to double the

Guaranteed Annual Income System (GAINS) payment for low- income seniors for six months

• Coordinating subsidized deliveries
• f meals, medicines and other

essentials Parents

• Providing emergency child care
• ptions for front-line workers
• Providing one-time payments for

additional costs while schools are closed Students

• Suspending Ontario Student

Assistant Program (OSAP) loan repayments for six months Workers

• Providing job-protected leave to

employees in isolation, quarantine or caring for children

• Committing $100 million for skills

training programs for workers affected by COVID-19

• Working with the federal government to

find ways to support apprentices

6

Support for People and Jobs

• The government is investing $3.7 billion in direct

support for people and to protect jobs.

Indigenous Peoples and Communities

• Providing $26 million in additional

supports to Indigenous peoples and communities, including – Emergency assistance for urban Indigenous people, and – Supporting costs of transporting health care workers and supplies Vulnerable People

• Investing $52 million to expand

access to the emergency assistance for people facing economic hardship

• Providing $148 million to

municipalities and district social service providers to support charitable and not-for-profit service providers

• Supplying personal protective

equipment and supplies to first responders and front-line staff in the justice sector

7

Support for People and Jobs

• The government is investing $3.7 billion in direct

support for people and to protect jobs.

Electricity Relief

• Setting time-of-use prices

at the lowest rate for 45 days

• Expanding eligibility for the

Low income Energy Assistance Program (LEAP), ensuring no disconnections for nonpayment

• Providing $5.6 billion for

electricity cost relief programs in 2020–21, an increase of $1.5 billion Employer Health Tax

• Proposing a temporary increase to the

Employer Health Tax (EHT) exemption – Would cut taxes by $355 million for

• approx. 57,000 employers in 2020

– About 30,000 more employers would not pay any EHT for 2020 Regional Opportunities Investment Tax Credit

• Proposing a new Regional Opportunities

Investment Tax Credit, a new 10 per cent refundable Corporate Income Tax credit to support business investment in regions where employment growth has lagged

8

Support People and Businesses to Improve Cash Flows

• Ontario is making $10 billion available through tax

and other deferrals to improve cash flows for people and businesses over the coming months.

• Providing interest and penalty

relief of five months for businesses to file and make payments for most provincially administered taxes – This measure provides $6 billion in relief to support the cash flow needs of Ontario businesses, and complements federal Corporate Income Tax measures

• Deferring property tax payments

municipalities make to school boards by 90 days. – This deferral will provide municipalities with the flexibility to, in turn, provide over $1.8 billion in property tax deferrals to residents and businesses.

• Allowing deferral of Workplace Safety

and Insurance Board (WSIB) premium payments for up to six months, providing $1.9 billion in financial relief to employers

9

Ontario’s Economic Planning Projection

• For planning purposes, in the March 2020 Economic and Fiscal Update,

the Ministry of Finance assumed Ontario’s real GDP would be unchanged on an annual basis in 2020 and advance by 2.0 per cent in 2021.

Summary of Ontario’s Economic Outlook (Per Cent) 2018 2019 2020p 2021p Real GDP Growth 2.2 1.6 0.0 2.0 Nominal GDP Growth 3.7 3.9 2.0 4.0 Employment Growth 1.6 2.9 0.5 1.0 Unemployment Rate 5.6 5.6 6.6 6.6

Sources: Statistics Canada and Ontario Ministry of Finance. p = Ontario Ministry of Finance planning projection.

10

Ontario’s Diverse Economy

• Ontario has a diverse economy, with extensive financial and business services, manufacturing and a smaller

primary sector compared to the rest of Canada Structure of the Ontario Economy, 2018

(Per Cent Share of Nominal GDP)

Primary Manufacturing 12% Services (77% of GDP) Goods (23% of GDP) Wholesale & Retail Trade 11% 4% 2% Utilities 2% Construction 7% Transportation & Warehousing Information & Cultural 3% Finance & Insurance 9% Real Estate & Renting & Leasing1 13% Professional & Scientific 7% Health & Education 13% Public Administration 7% Other Services2 10%

1 Includes estimate of imputed rental income from owner occupied dwellings. 2 Other services include: management of companies and enterprises; administrative and support, waste management and remediation

services; arts, entertainment and recreation; accommodation and food services; and other services. Source: Statistics Canada. Note: Numbers may not add due to rounding.

11

Estimated Revenue Impact of the COVID-19 Outbreak

Change in Revenue since the 2019 Budget ($ Billions) 3.0 2.6 Higher Base 2.0 1.0 0.0 (1.0) (2.0) (3.0) New Tax Relief $5.8 billion impact due to revised economic outlook as a result of the COVID-19

• utbreak

(3.5) (4.0) 2019–20 2020–21

12 Note: Numbers may not add due to rounding Source: Ontario Ministry of Finance

Composition of Revenue 2020–21

Revenue $156.3 Billion

Other Taxes $26.6B 17.0% Sales Tax $29.1B 18.6% Corporations Tax Other Non-Tax $15.2B Revenue 9.7% $17.6B 11.3%

Source: Ontario Ministry of Finance.

Personal Income Tax $37.3B 23.9% Government

• f Canada

Transfers $26.3B 16.9% Income from Govt. Business Enterprises $4.1B 2.7%

• Revenue sources are diversified.
• Taxation revenues account for 69.2 per cent
• f total revenues.
• Government of Canada transfers including

the Canada Health Transfer and Canada Social Transfer account for 16.9 per cent of total revenues.

• Net Income from Government Business

Enterprises (Liquor Control Board of Ontario, Ontario Lottery and Gaming Corporation, Hydro One Ltd, Ontario Power Generation Inc. and Ontario Cannabis Store) accounts for 2.7 per cent of total revenues.

• Other Non-Tax Revenues such as Fees,

Donations and Other Revenues from the broader public sector, Vehicle and Driver Registration fees, and Sales and Rentals, account for 11.3 per cent of total revenues.

13

Composition of Total Expense 2020–21

Expense $174.3 Billion1

Interest on Debt $13.2B 7.6% Other Programs $30.1B

• The largest expense is the Health Sector

17.3%

at $67.8 billion, accounting for about 39 per cent of total expense.

• Interest on Debt, included as part of total

Justice Sector $4.5B

expense, is $13.2 billion, or 7.6 per cent

2.6%

• f total expense.

Children's and Social Services Sector $17.7B 10.2% Education Sector2 $30.3B 17.4% Health Sector $67.8B 38.9% Postsecondary Education Sector $10.7B 6.1%

1 Sector expenses have been restated for reclassification and program transfer changes. These changes are fiscally neutral. 2 Excludes Teachers’ Pension Plan. Teachers’ Pension Plan expense is included in Other Programs.

Source: Ontario Ministry of Finance and Treasury Board Secretariat.

14

Ontario Bonds

• Bond Offerings
• Wide range of offerings provide extensive investment and trading
• pportunities across the yield curve.
• Liquid
• Strong liquidity in secondary markets and large benchmark issues.
• Attractive Spreads
• Ontario spreads give investors opportunities to enhance their returns.
• Safe
• A diverse economy with direct taxation powers and stable growth.
• Borrowing Program
• Diverse program investor base continues to develop in size and

diversification.

15

Ontario’s Borrowing Outlook

($ Billions)

2019 Budget In-Year Change Interim Adjusted to March 31, 20201 Plan 2019–20 2019–20 2019–20 2020–21

Deficit/(Surplus) Investment in Capital Assets Non-Cash Adjustments Loans to Infrastructure Ontario Other Net Loans/Investments Debt Maturities/ Redemptions 10.3 11.6 (7.7) 0.2 0.7 27.5 (1.1) 0.0 0.7 (0.0) (0.3) (0.1) 9.2 11.6 (7.0) 0.2 0.3 27.4 20.5 10.4 (9.2) 0.3 1.2 26.6 Total Funding Requirement 42.5 (0.8) 41.7 49.7 Decrease/(Increase) in Short-Term Borrowing (1.2) (1.8) (3.0) (2.0) – Increase/(Decrease) in Cash and Cash Equivalents2 (5.3) (1.5) (6.8) Pre-Borrowing from 2019–20 – 7.6 7.6 (7.6) Total Long-Term Public Borrowing 36.0 3.5 39.5 40.1

1 Pre-borrowing in 2019–20 was projected at $4.1 billion, and the total long-term public borrowing was $36.0 billion in 2019–20 and $43.6 billion in 2020–21 at the time of

the March 2020 Economic and Fiscal Update. These amounts have been updated to reflect long-term borrowing completed to March 31, 2020.

2 Excludes 2019–20 pre-borrowing.

Note: Numbers may not add due to rounding. Source: Ontario Financing Authority.

16

2019–20 Borrowing Program

Canadian Dollar $28.9B 73%

Canadian Dollar Syndicated Bonds $26.7B 67% Green Bonds $1.3B Canadian Dollar Bond 3% Auction $1.0B 3%

$39.5

Billion Issued

U.S. Dollar Bonds $10.3B 26% Australian Dollar Bonds $0.3B 1%

Foreign Currencies $10.6B 27%

Note: As of March 31

, 2020. Numbers may not add due to rounding.

17

2020–21 Borrowing Program

Canadian Dollar $17.9B 76%

U.S. Dollar Bond $2.4B 10% Euro Bonds $1.6B 7%

$23.6

Billion Issued

Pound Sterling Bond $1.7B Canadian Dollar 7% Syndicated Bonds $17.9B 76%

Foreign Currencies $5.8B 24%

Note: As of August 4, 2020. Numbers may not add due to rounding.

18

Domestic and International Borrowing

As of August 4, 2020

Total Long-Term Borrowing

Canadian Dollar Foreign Currencies 2020–21 Borrowing Remaining

($ Billions)

43.8

45 40 35 30 25 20 15 10 5

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20 2020–21

15.4 19.0 21.4 23.5 28.4 26.4 29.4 31.4 25.8 19.9 21.1 30.6 28.9 17.9 2.6 9.7 22.4 16.4 6.5 10.2 6.6 8.4 6.3 7.1 12.8 9.0 10.6 5.8

16.5

18.0 28.7 39.9 39.9 27.0 34.9 36.6 36.0 32.1 33.9 39.6 39.5 40.1

Foreign

14% 34% 51% 41% 19% 28% 18% 21% 19% 26% 38% 23% 27% 24%

Domestic

86% 66% 49% 59% 81% 72% 82% 79% 81% 74% 62% 77% 73% 76%

Weighted- Average Term

12.1 8.6 8.1 12.8 13.0 12.4 13.6 14.1 14.2 13.9 12.1 12.9 14.5 11.0 Note: Numbers may not add due to rounding. 19

Weighted-Average Term of Borrowings

• Going back to the beginning of fiscal 2010–11, Ontario has issued $96.4 billion of

bonds 30 years or longer to lock in low interest rates.

As of August 4, 2020

Average Term (Years) 16 14 12 10 8 6 4 2

12.1 8.6 8.1 12.8 13.0 12.4 13.6 14.1 14.2 13.9 12.1 12.9 14.5 11.0 10.7 10.4 9.7 10.0 10.1 10.1 10.4 10.7 10.9 10.9 10.7 10.7 10.8 Weighted Borrowing Average Term Debt Portfolio Average Term

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20 2020–21

Note: Debt Portfolio Average Term for 2019-20 as of March 25, 2020.

20

Domestic Borrowing Program

• Ontario bonds accounted for 67.2 per cent of Canadian provincial bond trading in 2019.1
• Ontario accounts for 14.6 per cent of the FTSE TMX Universe Bond Index, 16.5 per cent of the FTSE TMX

Mid Bond Index and 20.6 per cent of the FTSE TMX Long Bond Index.2

• Large and diverse domestic underwriting syndicate of 12 dealers make active markets in Ontario bonds.
• Regular issuance of 5-year, 10-year and 30-year issues, which are re-opened to achieve benchmark size.
• Large Order Procedure (carve-outs) to accommodate large investors (11 issues totalling $5.2 billion so far

in 2020–21).

Canadian dollar Benchmark Bonds (As of August 4, 2020) Term Ontario Canada

5 yr (old) 2.30% September 8, 2024 $2.75B 1.25% March 1, 2025 $17.30B 5 yr (new) 1.75% September 8, 2025 $9.05B 0.50% September 1, 2025 $32.50B 10 yr (old) 2.70% June 2, 2029 $9.325B 2.25% June 1, 2029 $12.30B 10 yr (new) 2.05% June 2, 2030 $9.40B 1.25% June 1, 2030 $29.20B Long (old) 2.90% June 2, 2049 $13.25B 2.75% December 1, 2048 $14.90B Long (new) 2.65% December 2, 2050 $14.10B 2.00% December 1, 2051 $18.80B

1 Investment Industry Regulatory Organization of Canada (IIROC) Market Trade Reporting System - Provincial Bond Total Trading. 2 PC Bond, as of December 31, 2019.

21

U.S. Dollar Borrowing

• Fixed Global Bonds in 3, 5, 7 and 10 years, with benchmark size of U.S.$1.0B plus.
• Total U.S. denominated bonds of C$44.7B outstanding as of March 31, 2020.
• U.S. commercial paper (1-270 days), with about C$3.5B outstanding as of August 4, 2020.
• Global Bonds are offered in SEC-registered format.
• Ontario bonds are included in a number of bond market indices and sub-indices including BofA

Merrill Lynch, Citi, and Barclays Capital.

Recently Issued U.S. Dollar Bonds

Term Issue Date Amount (U.S.$) Coupon 7 year May 14, 2020 1.75 billion 1.05% 3 year January 16, 2020 3.00 billion 1.75% 10 year September 25, 2019 1.25 billion 2.00% 7 years June 13, 2019 1.75 billion 2.30% 3 years April 17, 2019 1.75 billion 2.55% 5 years January 29, 2019 2.50 billion 3.05% 5 years October 10, 2018 2.50 billion 3.40% 3 years February 6, 2018 3.00 billion 2.55% 5 years September 26, 2017 2.00 billion 2.20%

Sources: Bloomberg, Ontario Financing Authority.

22

U.S. Dollar Market

• Core market with annual issuance since 1991.
• Right-sized bond issues to meet demand.
• U.S. dollar investors diversified both geographically and by type.

USD by Geography

Canada 16% Other 8% United States 40% Middle East / Africa 2% Asia Pacific 16% Europe 18%

Note: Data for USD by Geography and Investor Type since 2010. Source: Ontario Financing Authority.

USD by Investor Type

Central Banks 14% Asset Managers 22% Other 5% Mutual Funds / Fund Managers 3% Government Agencies / Supranationals 16% Banks / Trust Companies 32% Insurance Companies / Pension Funds 8% 23

Liquidity and Short-Term Borrowing Capacity

• The Province has large liquid reserve levels to withstand periods of financial market volatility,

such as currently being experienced.

• Ontario treasury bills and U.S. commercial paper are very well received in the money markets

and provide additional borrowing capacity if required.

• Large capacity for short term borrowing: $61.0 billion authorized, $28.0 billion outstanding,

and $33.0 billion available.

• As of July 31, 2020, liquid reserve levels were $43.6 billion.

Average Unrestricted Liquid Reserve Levels

($ Billions)

35 ($ Billions) C$ T-Bill Program U.S.$ Commercial Paper Program Total Canadian Currency U.S. Dollars – Dollars 1 day-3 Maturity 1-270 day(s) – years* Authorized C$46.0 C$15.0 C$61.0 Outstanding C$24.5 C$3.5 C$28.0 Available C$21.5 C$11.5 C$33.0

*Regular issuance of 3M, 6M and 1Y T-Bills Note: As of August 4, 2020. Numbers may not add due to rounding.

24 8.3 14.4 19.4 20.2 23.3 24.9 23.6 21.7 21.1 30.1 32.7 32.3 5 10 15 20 25 30

Effective Interest Rate (Weighted Average) on Total Debt

Per Cent 12.0

10.9 10.7

10.0 8.0 6.0 4.0 2.0 0.0

10.1 9.5 9.8 9.4 9.0 9.0 8.6 8.4 8.2 7.6 7.2 6.7 6.4 6.1 6.0 5.8 5.2 4.6 4.5 4.4 4.1 3.9 3.7 3.6 3.5 3.6 3.6 3.5

* As of February 28, 2020. Sources: Public Accounts of Ontario (1990–1991 to 2018–2019), and Ontario Financing Authority.

25

Average Annual Ontario Borrowing Rates

3.38 3.27 3.42 3.07 2.50 2.93 2.67 2.25 2.09 2.31 2.81 3.44 3.73 2.17 2.71

1.0 1.5 2.0 2.5 3.0 3.5 4.0

Actuals and 2019 Budget Forecast* 2020 Forecast** Per Cent

*2019–20 and 2020–21 are 2019 Budget forecasts. **2019–20 actual cost of borrowing is as of February 28, 2020. Sources: Public Accounts of Ontario and Ontario Financing Authority.

26

Risk Management

• Monitor and manage debt maturity profile to limit refinancing risk.
• Maintain a high level of liquid reserves and short term borrowing capacity.
• Enforce strict credit limits for financial and investment counterparties.
• Have collateralized swap agreements in place for most swap counterparties.

Exposure Policy Limit Foreign Exchange 0.2% 3.0% Net Interest Rate Resetting 10.4% 35.0%

Of outstanding debt, as of June 30, 2020

Note: Excludes Ontario Electricity Financial Corporation debt.

27

Credit Ratings

Rating Agencies Long-term Rating Short-term Rating Outlook

A+ Aa3 AA- AA (low) A-1 P-1 F1+ R-1 (mid) stable stable stable stable

28

Investor Relations Ontario Financing Authority 1 Dundas Street West, Suite 1200 Toronto, Ontario M5G 1Z3 Canada Telephone: (416) 325-8000

Visit www.ofina.on.ca & subscribe to our email alert service to receive the latest province of Ontario updates

Legal Notice

This presentation was compiled by the Ontario Financing Authority. This information is intended for general information purposes only and does not constitute an offer to sell or a solicitation of offers to purchase any security in any jurisdiction. It has not been approved by any securities regulatory authority and it is not sufficient for the purpose of deciding to purchase securities. It may have errors or omissions resulting from electronic conversion, downloading or unauthorized modifications. Statements in this presentation may be “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve uncertainties, risks, and other factors which could cause the state of Ontario’s economy to differ materially from the forecasts and economic outlook contained expressly or implicitly in such statements. The province of Ontario undertakes no obligation to update forward-looking statements to reflect new information, future events or otherwise, except as may be required under applicable laws and regulations. No warranty is made as to the accuracy or completeness of information contained herein as of any date other than the date it was posted or released.