Province of Ontario - IR Presentation · 10 years April 27, 2016 April 27, 2026 1.00 billion 2.50%...

May 2016

Investor Presentation

Ontario Financing Authority

http://www.ofina.on.ca


www.ofina.on.ca

Overview

• Ontario Bonds

Exceptional liquidity with a wide range of bond offerings

Attractive spreads provide opportunities for investors to achieve higher

returns

• Ontario’s Economic and Fiscal Summary

A diverse economy with a well-educated and highly skilled workforce,

generating almost 40 per cent of the national GDP

The government is on track to eliminate the deficit in 2017–18, while

continuing to make investments in priority areas to enhance public

services, support economic growth and a low-carbon economy, and

create jobs

Ontario is also projecting to remain balanced in 2018–19

Building on previous commitments, Ontario is investing about $160

billion in public infrastructure over 12 years, starting in 2014–15

1

Ontario Bonds

• Bond Offerings

Wide range of offerings provide extensive investment and trading

opportunities 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

Largest Canadian provincial economy by GDP and population

A diverse economy with direct taxation powers and stable growth

• Borrowing Program

Long-term borrowing for 2016–17 is forecast to be $24.4 billion, this would be the Province’s lowest borrowing program since 2007–08

2

Domestic and International Borrowing

Note: Numbers may not add due to rounding.

Source: Ontario Financing Authority.

3

26.4

As of April 28, 2016

28.9

14.2 15.419.0

21.423.5

28.426.4

29.431.4

25.8

4.5 2.6

9.7

22.416.4 6.5 10.2

6.6

8.4

6.2

22.4

18.7 18.0

28.7

43.8

39.9

34.936.6 36.0

39.8

32.1

24.423.3

28.7

0

5

10

15

20

25

30

35

40

45

2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19

Canadian Dollar Foreign Currencies 2016–17 Borrowing Remaining Projected Total

Total Long-Term Borrowing

($ Billions)

Foreign 24% 14% 34% 51% 41% 19% 28% 18% 21% 19% 63% - -

Domestic 76% 86% 66% 49% 59% 81% 72% 82% 79% 81% 37% - -

Weighted-

Average Term14.6 12.1 8.6 8.1 12.8 13.0 12.4 13.6 14.1 14.2 10.1 - -

4

Total Long-Term Public Borrowing Forecasts


43.8

39.9

34.936.6 36.0

39.8

32.1

21.4

23.5

28.4

26.4

29.4

31.4

25.8

18.317.5

21.5

24.423.3

28.7

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19

Total Borrowing Completed Domestic Completed Domestic Forecast Current Forecast

3-Year Total:$76.4B

• At the peak of the financial crisis, the total long-term public borrowing from fiscal 2009–10 to

2011–12 totalled $118.6 billion compared to the current three year forecast of $76.4 billion

Long-Term Public Borrowing

($ Billions)

Actual Projected

3-Year Total:$118.6B

Canadian Dollar Bonds$25.1

78.2%

U.S. Dollar Bonds$6.0 18.8%

Euro Bonds$0.1 <1%

Australian Dollar Bonds

$0.1 <1%

Green Bond Issue$0.7 2.3%

2015–16 Borrowing Completed: $32.1 Billion

5


2015–16 Total Borrowing Requirement as per 2016 Budget: $30.1B

Preborrowing for 2016–17: $2.0B

Borrowing Completed: $32.1B

Domestic: 81%

International: 19%

Average Term: 14.2 years

As of March 31, 2016

Domestic Borrowing Program

• Narrow Bid-Ask Spreads

• Large and diverse domestic underwriting syndicate of 12 dealers make active markets in Ontario bonds

• Ontario accounts for 14.5 per cent of the FTSE TMX Universe Bond Index, 20.1 per cent of the FTSE

TMX Mid Bond Index and 19.1 per cent of the FTSE TMX Long Bond Index1

• Ontario bonds accounted for 59.4 per cent of Canadian provincial bond trading in 20152

• Regular issuance of 5-year, 10-year and 30-year issues, which are re-opened to achieve benchmark

size

• Large Order Procedure set up to accommodate large investors

Canadian Dollar Benchmark Bonds

(As of April 28, 2016)

6

1 PC Bond, as of December 31, 2015.2 IIROC Market Trade Reporting System - Provincial Bond Total Trading.

Ontario Canada

5 yr (old) 2.10% September 8, 2019 $3.50B 1.75% September 1, 2019 $10.20B

5 yr (new) 4.20% June 2, 2020 $10.80B 0.75% September 1, 2020 $13.00B

10 yr (old) 2.60% June 2, 2025 $13.60B 2.25% June 1, 2025 $13.10B

10 yr (new) 2.40% June 2, 2026 $2.60B 1.50% June 1, 2026 $10.50B

Long (old) 3.45% June 2, 2045 $16.05B 4.00% June 1, 2041 $15.69B

Long (new) 2.90% December 2, 2046 $13.00B 3.50% December 1, 2045 $16.40B

7

Canadian Domestic Bond Offerings over $1 Billion

Yield to Maturity

(Per Cent)

Types of Offerings

Syndicated bonds

Medium-term notes

Floating rate notes

Bond auctions

Real return bonds

Ontario Savings Bonds

Term

Note: As of April 28, 2016.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0 5 10 15 20 25 30 35

• Fixed and floating rate Global Bonds in 3, 5, 7 and 10 years,

with benchmark size of C$1B plus

• Fixed and floating U.S. Medium-Term Notes (USMTN) in

2-10 years

• Total U.S. denominated bonds of about C$45B outstanding

as of March 31, 2016

• U.S. commercial paper (1-270 days), with about C$7.6B

outstanding as of April 28, 2016

• Global Bonds and USMTNs are offered in SEC-registered format

• Financial information filed by the Province is available to investors

electronically through the SEC’s EDGAR system

• Eligible Ontario bonds included in a number of bond market

indices and sub-indices including BofA Merrill Lynch, Citi and

Barclays Capital

• Notes issued under the Province’s U.S. Commercial Paper

Program are exempt from SEC registration under the U.S.

Securities Act

Sources: Bloomberg, Ontario Financing Authority.

U.S. Dollar Borrowing

MaturityIssue Details

Issue Date Maturity Date Amount (U.S.$) Coupon

10 years April 27, 2016 April 27, 2026 1.00 billion 2.50%

3 years January 21, 2016 January 18, 2019 2.50 billion 1.625%

5 years May 21, 2015 May 21, 2020 2.00 billion 1.875%

7 years September 11, 2014 September 10, 2021 2.00 billion 2.50%

Recently Issued U.S. Dollar Bonds

8

Fixed & floating rate Global Bonds in 3, 5, 7

and 10 years

Fixed & floating U.S. Medium-Term Notes

(USMTN) in 2-10 years

U.S. Dollar Bond Offerings over $1 Billion

Term

Yield to Maturity

(Per Cent)

Types of Offerings


9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0 2 4 6 8 10 12

Canada15%

United States46%

Europe14%

Asia Pacific14%

Middle East / Africa

3%

Other8%

• 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 Geography1 USD by Investor Type1

1 Since 2010.


Asset Managers

28%

Central Banks14%

Banks / Trust

Companies24%

Insurance Companies /

Pension Funds10%

Government Agencies /

Supranationals11%

Mutual Funds / Fund Managers

5%

Other8%

U.S. Dollar Market

10

Ontario’s Green Bond Initiative

• Ontario’s Green Bonds are being used to finance transit and other environmentally

friendly infrastructure projects across the province

• Ontario’s Green Bond framework specifies five categories of eligible projects:

Clean Transportation

Energy Efficiency and Conservation

Clean Energy and Technology

Forestry, Agriculture and Land Management

Climate Adaptation and Resilience

• Assurances:

Ontario’s Green Bond Framework has been developed in consultation with the

Center for International Climate and Environmental Research – Oslo (CICERO)

An assurance audit is performed by the Auditor General of Ontario verifying

amounts allocated to selected projects and tracking the amount of Green Bond

proceeds

• Ontario’s issues under the Green Bond program will carry the full faith and credit of the

Province of Ontario with no project risk

• The Province issued its second Canadian dollar Green Bond in January 2016

11

Distribution by Geographic Region Distribution by Investor Type

Insurance, Pensions, and

Corporates19%

Asset Managers

54%

Banks15%

Official Institutions

11%

Retail1%

Canada65%

U.S.21%

Europe, Middle East and Africa

(EMEA)14%

• On January 22nd, 2016, the Province of Ontario successfully launched its second Global CAD Green Bond,

with a 7-year, $750 million issue

• Demand was strongly driven by investors with Green mandates and/or UN PRI signatories, representing

70 per cent of overall sales

• There was strong international interest, with 35 per cent of investor participation from the U.S. and Europe

• The issue was also made available to retail investors through Canadian financial institutions

• Global offering format was used to leverage and facilitate international investor interest with strong trading

liquidity supported by Ontario’s Canadian dollar syndicate

• Eight eligible projects have been selected to receive funding, with an emphasis on clean transportation and

energy efficiency and conservation

Ontario’s Second Green Bond Deal Highlights

12

Average Unrestricted Liquid Reserve Levels

($ Billions)

Note: Chart dates represent fiscal years ending March 31st.


Liquid Reserve Levels

8.3

14.4

19.420.2

23.3

24.923.5

21.7

0

5

10

15

20

25

30

2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16

• Liquid reserves (cash and short term investments) are maintained at levels sufficient to ensure the Province

is able to meet its short-term financial obligations

13

C$ T-Bill ProgramU.S.$ Commercial

Paper ProgramTotal

Currency Canadian Dollars U.S. Dollars -

Maturity 1 day-3 years* 1-270 day(s) -

Authorized C$33.0 billion C$15.0 billion C$48.0 billion

Outstanding C$14.7 billion C$7.6 billion C$22.3 billion

Available C$18.3 billion C$7.4 billion C$25.7 billion

Short-Term Borrowing Capacity

14

*Regular issuance of 3M, 6M and 1Y T-Bills

• 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: $48.0B authorized and $25.7B available



Medium-Term Borrowing Outlook

Note: The 2015–16 and 2016–17 borrowing requirements reflect current borrowing, they were $30.1B and $26.4B in the 2016 Budget projections

respectively, and will be updated with the next quarterly release. Numbers may not add due to rounding.

2015–16 Medium-Term Outlook

($ Billions)2015

Budget

Current

Outlook

In-Year

Change2016–17 2017–18 2018–19

Deficit/(Surplus) 8.5 5.7 (2.8) 4.3 0.0 0.0

Investment in Capital Assets 9.1 8.5 (0.6) 11.2 12.4 14.2

Non-Cash Adjustments (4.9) (3.1) 1.8 (5.8) (6.1) (6.3)

Loans to Infrastructure Ontario 1.1 0.8 (0.2) – 0.3 0.1

Other Net Loans/Investments 1.0 (0.2) (1.2) (0.9) (0.8) (1.2)

Debt Maturities 21.0 21.1 0.1 21.5 17.5 22.1

Debt Redemptions 0.2 – (0.2) 0.1 0.1 0.1

Hydro One Special Dividend – (0.8) (0.8) – – –

Total Funding Requirement 35.9 31.9 (4.0) 30.3 23.3 28.8

Canada Pension Plan Borrowing – – – (0.1) – –

Decrease/(Increase) in Short-Term Borrowing – – – (1.0) – –

Increase/(Decrease) in Cash and Cash Equivalents – 3.5 3.5 (2.7) – –

Preborrowing from 2014–15 (4.8) (5.3) (0.5) – – –

Total Long-Term Public Borrowing 31.1 30.1 (1.0) 26.4 23.3 28.7

Preborrowing in 2015–16 – 2.0 2.0 (2.0) – –

Total Long-Term Public Borrowing* 31.1 32.1 1.0 24.4 23.3 28.7

15

Canadian Dollar Non-Public Debt

$11.9B4%

Canadian Dollar Treasury

Bills $14.5B4% U.S. Dollar

Commercial Paper$6.4B

2%

Foreign Currency

Bonds$54.5B

17%

Canadian Dollar Public

Bonds, $238.0B

73%

Total Debt Composition

$325.3 Billion Outstanding(projected to March 31, 2016)

Canadian Dollar Public Bonds

• Syndicated Bonds

• Medium-term Notes

• Floating rate Notes

• Ontario Savings Bonds

• Bond Auctions

• Real Return Bonds

• Green Bonds



Debt Outstanding

by Currency

CurrencyDebt

Outstanding

Canadian Dollar Public Debt $252.5B

Canadian Dollar Non-Public Debt $11.9B

U.S. dollars $45.0B

Euros $12.1B

Swiss francs $1.9B

Japanese yen $0.5B

Australian dollars $1.4B

South African rand $0.01B

16

7.7

8.8

10.8

13.9

14.5 14.614.8

14.2 14.3

15.5

15.0

14.2

12.9 12.9

11.1

9.9

9.1

8.68.8

9.18.8

9.2 9.1 9.1 9.0 8.9 9.0 9.09.2

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

Actuals 2016 Budget Forecast

17

Interest on Debt-to-Revenue

(Per Cent)

Interest on Debt-to-Revenue


29%

33%

7%

16%

14%

30+ Years

10 Years

7-8 Years

5 Years

<5 Years

Long-Term Borrowing Maturity Profile

18

Note: Numbers may not add due to rounding. As of March 31, 2016.


2009–10 2015–16

Average Term: 14.2 yearsAverage Term: 8.1 years

7%

37%

1%

39%

17%

Term

• The Province has less refinancing risk and less interest rate risk than it had in

2009–10

21.121.5

17.5

22.1

24.4

20.5

13.9

15.815.0

19.5

16.9

2.6

4.9 4.8

0.0 0.2

4.05.0

0.00.8

7.8

3.8

9.5

3.8

15.6

3.9

13.0

1.0

11.3

0.2

16.2

11.9

0

5

10

15

20

25

30

Note: Chart dates represent fiscal years ending March 31st.

Outstanding Issues

($ Billions)Canadian DollarForeign Currencies

Maturity Profile of Outstanding Issues

As of December 31, 2015

19

Note: Excludes Ontario Electricity Financial Corporation debt.

Exposure Policy Limit

Foreign Exchange 0.3% 5.0%

Net Interest Rate Resetting 9.5% 35.0%

Risk Management

Of outstanding debt, interim April 28, 2016.

20

• 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

Economic and Fiscal Summary

21

• Canada Overview

Economy estimated to have grown faster in 2014 than most major advanced economies,

but growth softened in 2015 mainly due to the drop in oil prices

• Ontario’s Economy

Ontario became one of the strongest growing provincial economies in Canada during

2014 and 2015, and, on average, private sector economists expect that trend to continue

over the next two years1

• Eliminating the Deficit

The government is dedicated to a fiscally sound approach to managing the Province’s

finances, and is committed to balancing the budget by 2017–18

The plan to balance the budget is focused on transforming government and responsibly

managing spending, and ensuring revenue integrity and addressing the underground

economy

• Mortgage Market

Conservative mortgage market

All high ratio residential mortgages issued by banks must be insured and the large

majority is guaranteed by the federal government1Ontario Ministry of Finance Survey of Forecasters (April 2016).

• Canadian economy grew 1.2 per cent in 2015, following a 2.5

per cent advance in 2014

In Canada, growth slowed in 2015 largely due to the impact of lower

oil prices in energy-producing provinces

In Ontario, growth has remained solid, benefiting from ongoing U.S.

demand, a more competitive Canadian dollar and low oil prices

• Ranked as having the world’s soundest banks for eight

consecutive years1

• Lowest general government net debt-to-GDP ratio of any G7

country

1 World Economic Forum, Global Competitiveness Report (2008, 2009, 2010, 2011, 2012, 2013, 2014 and 2015).

Canada Overview

22

Ontario Overview

23

• Located in prime area with

close ties to many major U.S.

cities

• Ontario has a diverse economy

with direct taxation powers and

stable growth

• Population of 13.8 million and

nominal GDP of $748 billion in

2015, both about 40 per cent of

Canada

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

and a smaller energy sector compared to the rest of Canada

Structure of the Ontario Economy, 2014 (Per Cent Share of Ontario Real GDP)

Ontario’s Diverse Economy

1 Includes estimate of imputed rental income on owner occupied dwellings.

Sources: Statistics Canada and Ontario Ministry of Finance.


24

Services (77% of GDP)

Goods (23% of GDP)

Primary2% Utilities

2%Construction

6%

Manufacturing12%

Wholesale & Retail Trade

12%

Transportation & Warehousing

4%

Information & Cultural

4%Finance & Insurance

10%

Real Estate & Renting & Leasing

13%

Professional & Scientific

6%

Health & Education

12%

Public Administration

7%

Other Services9%

1

Primary14%

Utilities3%

Construction9%

Manufacturing9%

Wholesale & Retail Trade

10%

Transportation & Warehousing

4%

Information & Cultural

3%

Finance & Insurance

5%

Real Estate & Renting & Leasing

12%

Professional & Scientific

5%

Health & Education

12%

Public Administration

6%

Other Services8%

1

Structure of Rest of Canada’s Economy, 2014 (Per Cent Share of Rest of Canada’s Real GDP)

Services (65% of GDP)

Goods (35% of GDP)

• Employment Gains Concentrated in Full-Time, Private-Sector, Above-Average Wage Industries

25

Employment Gains since June 2009

(Thousands)

Note: Above-average wage industries are defined as those with earnings above the average hourly earnings of all industries in 2015.

Sources: Statistics Canada and Ontario Ministry of Finance (May 2016).

608 570

37

424

88 96

462

146

0

100

200

300

400

500

600

700

Ontario’s Strong Job Recovery Since the Global Recession

2.7 2.6

2.3

2.5

2.3

2.1

2.42.5

2.32.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2014* 2015* 2016 2017 2018 2019

2016 Budget Current

* Actual

Sources: Statistics Canada and Ontario Ministry of Finance Survey of Private Sector Forecasts (February and April 2016).

Real GDP growth

(Per Cent)

26

• The current average private-sector forecast for real GDP growth is either slightly above or the

same as the time of the Budget over the forecast period

Private-Sector Growth Forecasts

Shifting Global Economic Environment

27

Increased

oil supplyWeakening economic

growth in emerging

economies

Solid economic growth in

the U.S. and strengthening

growth in some advanced

countries

Key Global Economic DevelopmentsOver the past year and a half there has been a significant shift in the global economic environment.

Oil prices declining

from over $100 U.S.

per barrel to

recently $40 U.S.

The Canadian dollar

declining by about

16% relative to the

U.S. dollar

Stock market

volatility

Lower interest-rate

expectations

These developments and broader uncertainty about the global economic outlook have contributed to:

Global Developments and Ontario’s Economy

28

Note: *M&E = Machinery and Equipment.

Sources: Statistics Canada; Ontario Ministry of Finance; IMF World Economic Outlook (January 2016); Bank of Canada and the U.S. Energy Information

Administration; Blue Chip Indicators (February 2016); MarketWatch; Canadian Real Estate Association and Ontario Ministry of Finance Survey of Forecasters

(February 2016).

Steady U.S. economic growth, low oil prices and a weaker Canadian dollar

are all conducive to Ontario’s economic growth.

However, higher import costs and weaker confidence could dampen the outlook.

Lower costs to consumers,

with a 17.9% decrease in

gasoline prices in 2015

Fruit and vegetable prices

increased 14.3% year over year

in 2015Q4

Lower dollar also means

rising import costs

to consumers

Higher travel costs for

Ontarians have decreased

trips abroad by 10.1% in 2015

Lower confidence and

increased competition can

limit investment — M&E*

down four straight quarters

Improvements in export

competitiveness, with

international merchandise

exports up 10.9% in 2015

Ontario saw an 9.0%

increase in international

visitors in 2015

Strong housing market,

with home resales up

9.6% in 2015

29

Key Ontario Economic Indicators Outpacing Canada

28.6

21.0

13.3

10.3 10.1

7.1

1.6

(18.4)

(12.8)

(2.2)(0.5)

13.8

1.6 0.1

(22.0)

(18.0)

(14.0)

(10.0)

(6.0)

(2.0)

2.0

6.0

10.0

14.0

18.0

22.0

26.0

30.0

Housing Starts MerchandiseExports

ManufacturingSales

WholesaleTrade

Home Resales Retail Trade Private-SectorEmployment

Ontario Rest of Canada

Sources: Statistics Canada, Canada Mortgage and Housing Corporation and Canadian Real Estate Association.

Per Cent Change, Year-to-Date 2016

30

2.5 2.6

1.9

1.3 1.2 1.21.0

-0.7

-1.6

-2.6

2.62.4

2.2

1.71.5 1.4

0.9

0.4

-1.0-0.9

2.62.5

2.3

1.9

1.5 1.5

1.2

2.01.8

0.6

(3.0)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

BC ON MB QC NS PEI NB SK AB NL

2015 2016 2017

Note: Ontario 2015 is actual.

Sources: Ontario Ministry of Finance Survey of Private Sector Forecasts (April 2016).

Real GDP growth(Per Cent)

Private-Sector Growth Forecasts

• Private sector economists expect Ontario to be among the growth leaders in 2015, 2016

and 2017

0.6

1.1

1.3

1.61.7

2.0 2.0

2.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Average Real GDP Growth(Per Cent)

0.5

1.2

1.5 1.5

2.2 2.2

2.42.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Average Real GDP Growth (Per Cent)

Sources: Consensus Economics (April 2016) and Ontario Ministry of Finance Survey of Private Sector Forecasts (April 2016).

Ontario’s Outlook Compares Favourably with G7

G7 Economic Growth, 2016 G7 Economic Growth, 2017

31

32

Ontario Economic Growth Will Be Led by Investment and Trade

2.2

1.9

1.1

2.0

3.4

3.0

2.2

0.0

1.0

2.0

3.0

4.0

Ontario RealGDP Growth

HouseholdSpending

Government ResidentialInvestment

BusinessInvestment

Exports Imports

Notes: 1 Government includes investment and consumption expenditure.2 Business investment includes investment in plant, equipment and intellectual property products.

Source: Ontario Ministry of Finance (Budget 2016).

Average Annual Per Cent Change, 2016 to 2019

95

100

105

110

115

120

125

130

135

140

Jan. 2014 Apr. 2014 Jul. 2014 Oct. 2014 Jan. 2015 Apr. 2015 Jul. 2015 Oct. 2015 Jan. 2016

Notes: Exchange-rate-sensitive goods are fabricated metal products, non-metallic mineral products, plastic and rubber products, building and

packaging materials, industrial and electronic machinery, equipment and parts, communication and audio/video equipment, medium and heavy

trucks, buses and other motor vehicles, motor vehicle engines and parts, aircrafts, aircraft and other transportation equipment and parts, clothing,

footwear and textile products, paper and published products, pharmaceutical products, furniture, and cleaning products and appliances. Data

expressed in nominal terms.

Sources: Statistics Canada, Bank of Canada and Ontario Ministry of Finance.

Exchange-Rate-Sensitive Exports Already Benefiting from Lower Canadian Dollar

Index, Nominal Exports

(January 2014 = 100)

Exports of exchange-rate

sensitive products

(Three-month moving average)4.3%

Exports of other products

(Three-month moving average)

33

34

Lower Oil Prices Providing Savings to Consumers and Businesses

3.8

2.7

0.2

6.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Industry Households Other Total

Notes: 1 Savings compare average prices in 2015 to 2014. Adjusted for the exchange rate.2 A small share, “Other” accruing to government and the non-profit sector.

Source: Ontario Ministry of Finance.

Estimated savings in 2015

($ Billions)

33.2

18.116.6 16.3

0

5

10

15

20

25

30

35

40

2009 2010 2014 2015

U.S. (2015)

OECD (2015)

Notes: The marginal effective tax rate (METR) takes into account federal and provincial/state corporate income taxes, capital taxes and sales taxes.

The OECD METR is the average for OECD member countries excluding Canada.

The METRs for the U.S. and OECD countries include measures announced as of January 1, 2015.

Sources: Finance Canada and Ontario Ministry of Finance.for the U.S. and OECD countries include measures announced as of January 1, 2011.

Marginal Effective Tax Rate

(Per Cent)

35

• Ontario’s Marginal Effective Tax Rate on new business investment has been cut in half since 2009

Cutting Ontario’s Marginal Effective Tax Rate

Ontario’s Plan to Eliminate the Deficit

36

(19.3)

(14.0) (13.0)

(9.2)(10.5) (10.3)

(5.7)

(4.3)

0.0 0.0

(24.7)

(19.7)

(17.3)(15.9)

(13.3)(12.5)

(8.5)

(4.8)

(25.0)

(20.0)

(15.0)

(10.0)

(5.0)

0.0

5.0

2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19

Actual

Fiscal Balance

($ Billions)

1 Represents current forecast for 2015–16 to 2018–19. For 2009–10 to 2014–15, actual results are presented. 2 Forecast for 2015–16 to 2017–18 is based on the 2015 Budget; for 2014–15 is based on the 2014 Budget; for 2010–11 to 2013–14 is based on the 2010

Budget; and for 2009–10 is based on the 2009 Ontario Economic Outlook and Fiscal Review.

Source: Ontario Ministry of Finance.

Fiscal Forecast2

Performance / Outlook1

OutlookInterim

Net Debt-to-GDP and Accumulated Deficit-to-GDP

37

13.4

17.1

21.1

26.728.4

30.231.3 30.6 29.5

32.1

29.328.2

26.8 27.2 26.4 27.4 26.6 26.0

27.9

32.434.0

35.737.1

38.5 39.4 39.6 39.6 38.9 38.5

28.2

24.0 24.4 23.6

19.618.5

17.618.6

21.922.9

24.0 24.625.5 26.0 25.9 25.4

24.323.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Net Debt-to-GDP Accumulated Deficit-to-GDP

Notes: Net Debt has been restated to include Broader Public Sector Net Debt, starting in 2005-06. Historical Net Debt-to-GDP has been revised to

reflect historical GDP released by Statistics Canada in November 2015.

Sources: Statistics Canada and Ontario Ministry of Finance.

• Net debt-to-GDP is expected to peak at 39.6 per cent in 2015–16, remain level in

2016–17 and begin to decline in 2017–18

Per Cent

Ontario’s Medium-Term Fiscal Plan and Outlook

Ontario’s Medium-Term Fiscal Plan and Outlook

($ Billions)

ActualCurrent Outlook Medium-Term Outlook

2014–15 2015–16 2016–17 2017–18 2018-19

Revenue 118.5 126.5 130.6 137.7 141.9

Expense

Programs 118.2 120.9 122.1 124.2 127.6

Interest on Debt 10.6 11.2 11.8 12.5 13.1

Total Expense 128.9 132.1 133.9 136.6 140.7

Reserve – 0.2 1.0 1.1 1.2

Surplus/(Deficit) (10.3) (5.7) (4.3) 0.0 0.0


38

• The government is currently projecting deficits of $5.7 billion in 2015–16

and $4.3 billion in 2016–17, and a return to balance in 2017–18. This

reflects an improvement of $2.8 billion in 2015–16 and $0.5 billion in

2016–17 compared with the deficit targets laid out in the 2015 Budget

• Ontario is also projecting that it will remain balanced in 2018–19

Composition of Revenue 2016–17

Revenue $130.6 Billion

Source: Ontario Ministry of Finance, 2016 Budget.


Personal Income Tax

$32.2B24.6%

Government of Canada Transfers

$24.6B18.9%

Income from Govt.

Business Enterprises

$5.0B3.8%

Other Non-Tax Revenue

$9.1B7.0%

Corporations Tax

$12.1B9.2%

Sales Tax$24.0B18.4%

Other Taxes$23.6B18.1%

• Revenue sources are diversified

• Taxation revenues account for 70.3 per

cent of total revenues

• Government of Canada transfers

including the Canada Health Transfer,

Canada Social Transfer and Equalization

account for 18.9 per cent of total

revenues

• Net Income from Government Business

Enterprises (Liquor Control Board of

Ontario, Ontario Lottery and Gaming

Corporation, Hydro One Ltd, Brampton

Distribution Holdco Inc. and Ontario

Power Generation Inc.) account for 3.8

per cent of total revenues

• Other Non-Tax Revenues such as

Vehicle and Driver Registration fees,

Sales and Rentals, and Royalties

account for 7.0 per cent of total revenues

39

Health Sector $51.8B 38.7%

Other Programs

$16.5B 12.3%Education

Sector*$25.6B 19.1%

Children's and Social Services

Sector $15.8B 11.8%

Interest on Debt

$11.8B 8.8%

Postsecondary and Training

Sector $7.9B 5.9%

Justice Sector $4.5B 3.4%

* Excludes Teachers’ Pension Plan. Teachers’ Pension Plan expense is included in Other Programs.


• The largest expense is the Health

Sector at $51.8 billion, accounting

for 38.7 per cent of total expense

• Interest on Debt, included as part

of Total Expense, is $11.8 billion,

or 8.8 per cent of total expense

Total Expense $133.9 Billion

Composition of Total Expense 2016–17

40

Key Risks and Upside Potential to the Outlook

41

Upside Potential

• Sustained lower oil prices could provide a greater-than-expected boost to the Ontario economy through lower costs for businesses and households.

• The recent improvements in Ontario exports and investment due to solid U.S. growth and a weaker Canadian dollar could intensify if business confidence improves.

Downside Risks

• Uneven and uncertain global growth has exacerbated volatility in interest rates, stock markets, currencies and commodity prices. This could dampen business investment and export growth in the province.

• Intense global competition and weak productivity growth could hamper Ontario’s export sector.

• Domestically, a potential housing market correction remains a risk, particularly given high levels of household debt.

• Risks to the forecast beyond 2015 are balanced.

Rating Agencies

A+

Current Ratings

Long-Term

Current Ratings

Short-Term

Credit Ratings

Aa2

A-1+

P-1

Standard & Poor's

Moody’s

F1+AA-Fitch

42

AA (low) R-1 (mid)DBRS

Summary

• Current Ontario spreads represent value for investors

• Ontario bonds are highly liquid

• We maintain a responsive and flexible approach in dealing with markets

• The government remains committed to balancing the budget by 2017–18

• The province is well positioned for long-term fiscal sustainability and is

projecting to remain balanced in 2018–19

For up-to-date information on our borrowing program, please visit our website:

www.ofina.on.ca

To contact our funding team, please use our website or contact us directly

43

http://www.ofina.on.ca/

Appendix

44

ONTARIO U.S.

Credit

Ratings

• Ontario is a strong investment grade credit.

• Moody’s credit rating is based on joint default analysis which builds

in the strong likelihood of federal support.

• Despite higher debt levels, Ontario credit ratings are stronger than

a number of U.S. states.

• Material differences in fiscal flexibility and division of

responsibilities across levels of governments are reasons why the

U.S. states are not considered peers by credit rating agencies.

Financing

• Strong access to international capital markets. Regular issuer in

U.S., with well defined yield curve.

• All bonds issued by the province are General Obligation Bonds.

• Bonds are often tied to certain revenue streams which can impact

term structure.

• Issuing General Obligation Bonds may require voter approval or

legislative backing.

Federal

Support

• Strong federal partner. Federal transfers include health, social and

equalization.

• Transfers account for about 19 per cent of Provincial revenues, and

province has considerable flexibility in how funds are used.

• Federal transfers more secure - multi-year formula agreements.

• Federal support could be jeopardized by cutbacks which increases

uncertainty.

• U.S. states receive conditional transfers. No federal program aimed

explicitly at reducing the disparities in state fiscal capacity.

Public

Pensions

• Canada’s Pension Plan is fully funded with total assets of $282.6

billion (December 31, 2015).

• Joint trusteeship for Ontario Teachers’ Pension Plan and Ontario

Public Service Union. Sole sponsor of the Public Service Pension

Plans.

• The majority of Ontario's pension plans have surpluses. Those with

small unfunded liabilities are being addressed with special

payments over 15 years to fund the shortfall.

• U.S. Social Security Trust Fund has a large unfunded liability.

• Large unfunded pension liability and growing post-employment

liability. Aggressive discount rate assumptions.

• Growing budget pressures will continue to challenge Governments’

ability to provide adequate contributions.

Ontario Compared to U.S. States

4545

ONTARIO U.S.

Spending

• Constitutional authority over health and education spending

which accounts for over 63 per cent of total program

spending.

• Federal government provides support for health and social

spending.

• Health care and education funded by private sector and

various levels of government.

• Dedicated tax structure funds education.

Revenue

• Ontario’s taxation powers are akin to sovereign nations.

• Unfettered access to broad range of tax base including:

personal and corporate income tax, sales, payroll and

property taxes.

• Simple majority of legislature required to raise taxes which

gives the province a high degree of fiscal policy flexibility.

• Limitations under state constitutions to levy and collect taxes

vary widely.

• Voter approval required to raise taxes. Some states require

super majority in legislature or even a referendum to raise

taxes which severely limits flexibility.

• Revenue sources include: personal and corporate income

tax. Most states collect sales tax and some states collect

property taxes.

Balanced

Budget

• Financial Transparency and Accountability Act requires the

government to develop a recovery plan for achieving a

balanced budget.

• Can use fiscal policy as shock absorber in times of

economic weakness.

• Planning assumptions are conservative, prudence and

contingency built in. Plan to return to balance by 2017–18.

• Almost all states are prevented from planning for operating

deficits, with fiscal restraints generally embedded in state

constitutions or other legislation.

• Fiscal tightening has put strain on weak economy and

reduced liquidity.

• Planning assumptions can be aggressive. Many states have

relied on special balances/reserves to meet budget

requirements and funds getting depleted.

Ontario Compared to U.S. States – Cont’d

4646

Canada Compared to U.S. – Housing Market

47

CANADA U.S.

Govern

mentA

gency

• Canada Mortgage and Housing Corporation (CMHC) is Canada’s

national housing agency.

• Established as a government-owned corporation in 1946 to

address Canada’s post-war housing shortage.

• Canada’s premier provider of mortgage loan insurance, mortgage-

backed securities, housing policy and programs, and housing

research.

• No policy goal of increasing home ownership.

• Government-sponsored enterprises, Federal Home Loan Mortgage

Corporation (Freddie Mac) and Federal National Mortgage

Association (Fannie Mae).

• National mortgage finance companies which keep money flowing to

mortgage lenders to help strengthen the U.S. housing and

mortgage markets and to support affordable homeownership.

• Do not offer home loans.

• Securitize or buy mortgage loans from originating lenders.

Mort

gage Insura

nce • Bank Act prohibits federally regulated banks from providing

residential mortgages without mortgage loan insurance if loan is

greater than 80 per cent of the purchase price or value of the

home.

• Insurance covers the entire amount of the loan and is for the entire

life of the mortgage. Mortgage insurance contracts by private

insurers are 90-percent backstopped by the federal government

(CMHC is fully backed by the government).

• Lenders are not legally required to use mortgage loan insurance.

• However, because Fannie Mae and Freddie Mac are prohibited

from purchasing uninsured mortgages when the borrower makes a

down payment of less than 20 per cent, U.S. lenders often require

mortgage loan insurance.

Mort

gage-B

acked

Securities

• About 34 per cent of Canadian mortgages are securitized.

• Almost all securitized Canadian mortgages are funded by

mortgage-backed securities (MBS) guaranteed by CMHC under

National Housing Act.

• Over half of those MBS were held by the Canada Housing Trust,

funded by CMHC-guaranteed Canada Mortgage Bonds (CMBs).

• Approximately 55 per cent of American mortgages are securitized.

Mort

gage D

efa

ult • Mortgages are typically “full-recourse” loans.

• Borrower continues to be responsible for repaying the loan even in

the case of foreclosure.

• Lenders can take legal action to recoup money from homeowner if

foreclosed home is sold for less than the amount owing on the

mortgage, plus many of the costs incurred by the lender.

• In many U.S. jurisdictions, mortgages are “non-recourse”.

• Borrowers can often walk away from their homes and the

associated mortgage debt, leaving lenders with no recourse

beyond the property.

Ontario Compared to Germany

48

CANADA GERMANY

Federal Government Provinces Federal Government Länder

Federalism

Jurisdiction within respective sphere of

assigned responsibilities

Can exercise federal spending power in

areas agreed to by the provinces and

territories

Can legislate in areas not specifically

defined in Constitution

Jurisdiction over constitutionally defined

areas of responsibility

Possess authority to borrow

autonomously in the capital markets

Distribution of powers and duties

between the federal government and

the Länder are set out in the Basic Law

(Constitution)

Holds most legislative powers

Can provide general supplementary

grants or financial aid for particularly

important investments

If Länder acts on federal commission,

then federal government finances the

expenditure

All responsibilities not expressly given to

the federal government are responsibility of

the Länder

Administrative tasks are nearly under the

exclusive jurisdiction of the Länder

Länder manage their own budgets

Participate in federal legislature through

representation in upper house

Possess authority to borrow autonomously

in the capital markets

Taxation

Powers

Power to raise money by any means of

taxation

Occupies majority of tax fields (e.g.

harmonized sales, personal and

corporate income taxes, customs import

duties). Indirect taxes such as

employment Insurance and Canada

pension plan

Power to raise revenue through

taxation within the province (e.g.

harmonized sales taxes, personal and

corporate income taxes, and property

taxes)

Exclusive power to legislate on all forms

of taxes

Imposes the majority of taxes. Some tax

revenue accrues to the federation (e.g.

customs duties, capital transactions)

Revenue from income taxes, corporate

taxes and taxes on imports is shared as

determined by federal law

Generally, Länder have limited taxation

power

Some tax revenue accrues to the Länder

(e.g. property tax, beer tax)

Majority of total tax revenue is reallocated

TransfersEqualization payments, health and

social programs, direct transfers to

individuals

Receive equalization, federal health and

social transfers

Only Alberta, British Columbia,

Newfoundland and Labrador and

Saskatchewan will not receive

Equalization in 2016–17

General supplementary grants are

provided to equalize financial capacities

of the Länder

Financial aid is provided for specific

investments

Länder may make agreements with each

other for delivery of programs/services

Länder are also able to make grants to

communes (municipalities) to support

projects

Areas of

Authority

Includes defence, foreign affairs, trade

and commerce, fisheries, postal and

telecommunications, employment

insurance, national pension plan and

equalization payments

Includes health care, education, social

services, highways, natural resources

and municipal governments

Includes foreign relations, currency,

citizenship and immigration, customs/

trading, air transport, railways, nuclear

energy

Concurrent jurisdiction includes public

welfare, labour law, agriculture, forestry

Federal law takes precedence over

Länder law

Includes education, internal security,

policing

Länder may enact laws at variance with

federal laws in specific areas, including

natural protection, regional planning and

water resource management

Obliged to administer federal laws

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 securities. 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.

While the information in this presentation, when posted or released, was believed to be reliable as of its date, NO WARRANTY IS MADE AS TO

THE ACCURACY OR COMPLETENESS OF THIS DOCUMENT OR THE INFORMATION IT CONTAINS.

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