The credit crunch, and made-in-Canada ABCP meltdown, haven given fixed income investors ample reason to revisit their relationship with credit rating agencies.
Portfolio managers have learned they can't blindly trust what DBRS and its rivals say about credit quality. The new faith, or lack of same, shows up in a financing done Tuesday by the Ontario Infrastructure Projects Corp., or OIPC.
Standard & Poor's rates OIPC, a crown corporation, as a double-A-plus credit. That puts the financing agency, which hs a hannd in $5-billion worth of projects, at one notch above the S&P rating for the province of Ontario.
That implies OIPC should be able to borrow at better rates than Ontario, because the agency is a lower-risk credit. (This despite the fact that OPIC debt is not guaranteed by the province.)
In the real world, OIPC raised $300-million in a five-year bond issue that was led by TD Securities. That is a healthy 27 basis points premium to the rate paid on a five-year province of Ontario debt (and 92 basis points over the comparable government of Canada bond. Even after allowing for the fact that OIPC debt is illiquid than Ontario paper, this spread speaks to the fact that the privince is viewed by the market as the lower risk credit.