Loading...
HomeMy WebLinkAboutFND-014-19Clarftwn Finance Department Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: General Government Committee Date of Meeting: May 6, 2019 Report Number: FND-014-19 Resolution: GG -301-19 File Number: By-law Number: Report Subject: Prudent Investor Recommendations: It is recommended that the Committee choose either: Option A — Prudent Investor 1. That Report FND-014-19 be received; 2. That Staff, in conjunction with ONE Investment, develop an agreement to establish ONE Joint Investment Board ("ONE JIB"), together with all related matters such as codes, policies and appointments and to adopt the prudent investor regime when these items are in place; and 3. That all interested parties listed in Report FND-014-19 and any delegations be advised of Council's decision. Or Option B — Legal List 1. That Report FND-014-19 be received; 2. That Staff be directed to continue following Section 418 of the Municipal Act, 2001 (the "legal list") and no longer pursue implementation of Prudent Investor standards; and 3. That all interested parties listed in Report FND-014-19 and any delegations be advised of Council's decision. Municipality of Clarington Resort FND-014-19 Report Overview Page 2 Recent amendments to the Municipal Act, 2001 allow municipalities to adopt a Prudent Investor Standard under restricted conditions. This standard has the potential to improve returns, increase diversification and enable municipalities to increase revenues without increasing the burden from taxpayers. ONE Investment is looking at establishing a Joint Investment Board which will reduce the costs of complying with the standard while improving investment returns. This report lays out the options, pros and cons available to the Municipality regarding implementing Prudent Investor. 1. Background Provincial Regulations on Investment 1.1 The ability of municipalities in Ontario to invest is outlined in Section 418 of the Municipal Act, 2001. Under this section municipalities are allowed to invest funds not immediately required in prescribed securities. These securities, known as the "legal list" are outlined in Ontario Regulation 438/97. 1.2 In 2018, the Province added section 418.1 which allows a municipality to invest funds not immediately required in any security. The restrictions on this allowance are outlined in Part II of Ontario Regulation 438/97. These regulations were released March 1, 2018 and allow municipalities to adopt the "Prudent Investment Standard" on or after January 1, 2019. 1.3 In June 2018, FND-011-18 was presented to Council to update the Municipality's existing Investment Policy. This report also included the recently approved changes to the legal list as well as a preliminary outline of the prudent investment requirements. 1.4 Council directed staff to explore options for transitioning to Prudent Investor, if feasible, and report back to Council in early 2019. Legal List Eligible Investments 1.5 Municipalities in Ontario have operated historically under a strongly regulated regime when it comes to how they may invest. Only the City of Toronto has the authority to follow Prudent Investor standards which allows them to invest in whatever investment vehicle they deem appropriate. All other municipalities currently follow the "legal list" as no municipalities have yet adopted the prudent investor standard which became available on January 1, 2019. Municipality of Clarington Resort FND-014-19 Page 3 1.6 Our existing investment policy allows the Municipality to invest in any eligible investment under the regulations. Attachment #1 is a summary prepared by the Municipal Finance Officers Association of Ontario (MFOA) which outlines the eligible investments that municipalities may invest in. 1.7 In most cases ratings for investments must be at or above an "A rating", varies based on the investment. As well, certain investments (Canadian equities, long-term corporate bonds) may only be invested through the ONE Investment Program. 1.8 There is no ability to invest in foreign equities or corporate debt under the legal list. 1.9 Over the past decade, interest rates have decreased on low-risk government bonds, as shown in the following chart (source: Bank of Canada). This lowers the investment income available to municipalities under the legal list. Government of Canada marketable bonds - average yield - over 10 years 4.5 4 3.5 3 , 2.5 2 1.5 1 0.5 0 M M O O O ci -4 N N N M M 'zt 'qT M u1 M l0 l0 Il n n W W O O 1_ I ri ri ri ci ci ri ci ri ri 1i ri ci c -I c -I c -I a -i a -i ci ci ci N b.0 Cr- > Q u >? +-' to C C Q g Z Q Ln i 0 f6 O Q z Q i v m O Municipality of Clarington Page 4 Report FND-014-19 1.10 The Municipality has a significant portion of its investments portfolio in Guaranteed Investment Certificates with Canadian Chartered Banks. Over the past five years the interest rates (on a 5 -year GIC) have been as follows: Prudent Investor Standard 1.11 The "prudent investor standard" places no restrictions on eligible securities, however it does require an investor to construct an investment portfolio with the care, skill, diligence and judgment of a prudent investor. The standard was successfully implemented through Ontario pension fund reforms and was included in the Ontario Trustee Act in 1999. It has been available to the City of Toronto since 2018. 1.12 To comply with the standard a municipality must consider the following criteria in planning investments, in addition to other relevant criteria: General economic conditions; 2. The possible effect of inflation or deflation; 3. The role that each investment or course of action plays within the municipality's portfolio of investments; 4. The expected total return from income and the appreciation of capital; and 5. Needs for liquidity, regularity of income and preservation or appreciation of capital. Municipality of Clarington Page 5 Report FND-014-19 1.13 As there are no restrictions on individual securities that can be acquired, the standard allows a wider range of potential investments. This allows for a greater degree of diversification which is a key tool in managing portfolio risk. The standard has the potential to produce higher returns with less risk over time and enable the Municipality to better align its portfolio with its willingness to accept risk. 1.14 The following chart, with information as at February 28, 2019, provides comparative returns for Canadian debt markets (Source: FTSE Russell). Under the legal list, foreign debt markets are not eligible for investment. Foreign corporate debt could be included in a prudent investor portfolio. Federal Yes 3.47 2.25 Provincial Yes 4.00 Yes 3.76 Yes 4.16 Municipal 4.03 Corporate AAA / AA 3.26 Yes (Less than 5 years may be 2.29 Corporate A held directly. More than 5 years must be through ONE Investment Program) 2.96 No 3.54 3.76 Corporate BBB 4.09 One Fund HISA I Yes 12.42 1 N/A Municipality of Clarington Resort FND-014-19 Page 6 1.15 The other area of potential increased returns is through an ability to own foreign equities. Over the past 10 years, the Morgan Stanley Capital International (MSCI) index (an industry accepted gauge for global stock market activity) out performed and been less volatile than the S&P TSX. By adding in global equities, the Municipality would be able to diversify equity holdings and reduce volatility in investments. The equity market, in the long term, provides for a higher return than GIC investments and bank account holdings. 1.16 The following table compares the Legal List and Prudent Investor eligible investments: Government Bonds I Yes I Yes Canadian Corporate A to AAA Bonds I Restrictions I Yes Deposit certificates at Canadian Chartered Banks Yes Yes Equities in Canadian Corporations I Restrictions I Yes Canadian Corporate BBB or Lesser No Yes Rated Bonds Equities in Foreign Corporations No Yes Foreign Corporate Debt I No I Yes Real Estate Holdings I No I Yes Municipality of Clarington Page 7 Resort FND-014-19 Clarington Representation in Provincial Organizations 1.17 The One Investment Program was formed in 1993 to provide investment options to Ontario municipalities. It was formed by CHUMS and LAS. CHUMS is the Colleges, Hospitals, Universities, Municipalities and Schools and is a subsidiary of the Municipal Finance Officers' Association of Ontario (MFOA). LAS is the Local Authority Services is a not-for- profit organization created by AMO. One Investment Inc. was recently incorporated as a not-for-profit organization which operates the One Investment Program. 1.18 The Director of Finance/Treasurer for the Municipality is serving on the MFOA Board of Directors as Vice President (2019), President (2020) and Past -President (2021). This position also applies to the CHUMS Board of Directors. 1.19 The Director of Finance/Treasurer was also elected to the newly formed Board of Directors for ONE Investment Inc. and is currently serving a term of approximately 3 years. 2. Prudent Investor Requirement Overview 2.1 Section 3 of FND-011-18 outlines the Prudent Investor Standard, however some key aspects will be repeated here for clarification and emphasis. 2.2 The decision to move to Prudent Investor is made through by-law and may not be revoked without an order from the Minister. Therefore, this decision must be made with careful thought as it is not easily reversed. 2.3 All funds not immediately required by the municipality must be provided to the investment board (or joint investment board). The board has control over the investment decisions of these funds and the board cannot consist of any elected officials or staff, except Treasurers may comprise up to 25% of the Board. 2.4 Funds not immediately required is at the discretion of the Treasurer; however, there appears to be general acceptance of an 18 month window. Funds within this timeframe are within the control of the municipality and not the investment board. 2.5 Council is still required to adopt an investment policy, the board will use this policy to create an investment plan. Therefore, Council still has control over the policy which sets the foundation for investment decisions. Municipality of Clarington Resort FND-014-19 Structure of Investment Boards Page 8 2.6 An investment board or joint investment board is a Municipal Services Board or Joint Municipal Services Board. The regulations do not dictate a required size of the board, however since a limitation is that only 25% of the Board can be the Treasurer(s) it would be prudent that the minimum size is five individuals. This allows for one person to be the Treasurer and also is an odd number to avoid tied votes. 2.7 While not explicitly required, it is likely that members of this board would be compensated for their time and expertise. Members of the investment board require investment knowledge and training, which comes at a price. The City of Toronto compensates their members as follows: x $10,000 annually, $25,000 for the chair x $750 per board meeting x $500 per business meeting x $25,000 per year maximum ($65,000 for the chair) 2.8 The requirements for the Toronto Investment Board are as follows: x Executive level experience in a major public or private organization; x Senior level experience in the investment industry such as management of institutional portfolios including pension funds, endowments, foundations, mutual funds and closed- end funds; x Professional skills relating to investment and/or debt management as well as understanding of risk and financial administration within the framework of the prudent investor standard; x Post -graduate degree in any one of the fields of: finance, business, economics, risk management, accounting, public administration or related fields that may include certification such as CFA designation, Canadian Investment Manager Certification or equivalent; x Possession of sound judgment and knowledge of good governance; and x Understanding of the principles of public accountability and integrity. 2.9 While the Toronto Board is responsible for over $5 billion of investments, a Clarington Board would still be responsible for over $50 million and it would be prudent to require similar levels of experience and expertise as the Board has control over investments of the Municipality. There is economy of scale by working with other municipalities to manage a larger portfolio. 2.10 A joint investment board requires similar board structure, however rather than being a single municipality, the board is a joint board of two or more municipalities. The restriction of 25% or less composition of Municipal Treasurers still applies. Municipality of Clarington Resort FND-014-19 Page 9 2.11 There are currently no joint investment boards established in Ontario under these regulations, and only the Toronto Investment Board has been established as a single investment board. Prudent Investor Options 2.12 There are several options for the Municipality: a. Establish an investment board on its own; b. Join a joint investment board of Durham Region municipalities (similar to the insurance pool); c. Join a joint investment board through ONE Investment; or d. Maintain the current legal list approach to investing. 2.13 Based on paragraphs 2.7 and 2.8 above it may not be financially feasible to create and maintain an investment board on its own. If a minimum of 5 members were required, and assuming the Toronto Investment Board remuneration scheme the cost just for board remuneration would be over $165,000. This does not include the administrative costs required of a municipal board (such as public meetings, agendas, minutes, other support). It is therefore not recommended that the Municipality of Clarington pursue this option. 2.14 An option would be for municipalities in Durham Region to establish a joint investment board. There are several municipalities in Durham which qualify for prudent investor on their own, including the Municipality of Clarington, Town of Whitby, Town of Ajax and the Region of Durham. A joint board would provide economies of scale as the costs for the board would be shared across the participating municipalities and would make this more feasible. However, in discussions with finance staff at the Region, this is not something they are presently interested in. Therefore, without the Region of Durham's support a Region of Durham Investment Board is not feasible at this time. 2.15 The only feasible option for prudent investor would be to join a joint investment board of municipalities across the Province of Ontario which are wishing to create the ONE Investment Joint Investment Board ("ONE JIB"). Section three will be dedicated to this option. 2.16 A fourth option is the status quo. This does not result in any needed changes to the Municipality's investment policy. Municipality of Clarington Resort FND-014-19 3. ONE Joint Investment Board Page 10 3.1 Municipal staff have been in conversation with ONE Investment, CHUMS and LAS regarding the possibility of being a founding member of ONE JIB. The existing relationship between the Municipality and ONE Investment Inc, with the Treasurer of the Municipality as a Director, along with the Treasurers for the Region of Durham and the Town of Whitby, on the Board provide an opportunity to shape the program to the betterment of the Region and its municipalities. 3.2 An advantage with being a founding member of the ONE JIB include: x The two Municipal Treasurer representatives will be from the founding member municipalities, therefore the Municipality of Clarington would be able to have input into the operations of the ONE JIB where other municipalities would not have any input. x Founding members will have a lower cost, therefore higher returns would be possible. x Founding members are able to dictate the agreements in place at the beginning of the ONE JIB, therefore having a say into how the board is established 3.3 There are several steps for Council to take before a final decision on adoption of the Prudent Investor standard is required by Council: Council provides direction to staff to work on an agreement with ONE Investment to develop the JIB (Note: this report meets this step); 2. Council authorizes the execution of the JIB Initial Agreement, the establishment of ONE JIB pursuant to that agreement, the approval of the Investment Policy Statement ("IPS") and the approval of the ONE JIB Agreement, which will have a future effective date. Authorize, approve or adopt, all the necessary Codes, Policies, and appointments as required; and 3. Council approves a by-law to formally opt into the prudent investor regime (under subsection 418.1(2) of the Municipal Act, 2001 with a future effective date. 3.4 The Town of Whitby, City of Kenora, Town of Innisfil, City of Thunder Bay have all publicly approved staff working on an agreement with ONE Investment to develop the JIB (step 1). The District of Muskoka, Town of Bracebridge, and Region of York are potential partners who have not yet, at the time of this writing, completed step 1. 3.5 It is anticipated that the process will result in the ONE JIB being operational in the late fall of 2019. The transfer of investments to the JIB will then occur shortly thereafter. Municipality of Clarington Page 11 Report FND-014-19 3.6 While the decision to move to the prudent investor standard does not need to be made at this time, a decision on whether the Municipality is interested in being a founding member of the ONE JIB does need to be made in order to allow those other interested municipalities to move forward. It is possible to join the ONE JIB at a later date. 4. Concurrence Not Applicable 5. Conclusion 5.1 Council must make a decision on whether the Municipality will proceed under the Prudent Investor Standard or if it will remain on the existing legal list. Either option is acceptable under the Municipal Act, 2001. 5.2 If Council desires to adopt the Prudent Investor Standard, a decision on how the Investment Board will be established is required. It is respectfully submitted that the only feasible method of establishment would be through the ONE JIB; there are no other joint boards being explored at this time and the Municipality cannot afford to establish an investment board on its own. It is possible to adopt Prudent Investor at a later date, however any advantages with being an early adopter would be lost. 5.3 While adoption of the Prudent Investor Standard gives control of long term investments to an investment board, Council still has control of the desirable risk through the adoption of its investment policy. Further, it is anticipated that ONE Investment will follow similar processes for its Prudent Investor clients which will allow for liquidity of investments if these funds are deemed required. 5.4 Investments are one of the few areas where the Municipality may increase revenue without impacting the taxpayer, opportunities to improve returns while taking reasonable risk should be explored. 5.5 It is recommended that Council provide direction to continue to the next step with the adoption of the Prudent Investor standard through working with ONE Investment to establish a joint investment board. It should be noted that taking this action signals a serious commitment to establish the ONE JIB, however it is not binding at this point. Municipality of Clarington Resort FND-014-19 6. Strategic Plan Application Not applicable. Submitted Trevor Pinn, B.Com, CPA, CA, Director of Finance/Treasurer Page 12 Reviewed by: Z Andrew C. Allison, B. Comm, LL.B CAO Staff Contact: Trevor Pinn, Director of Finance / Treasurer, 905-623-3379 x 2602 or tpinn@clarington.net Attachment 1 — MFOA Summary of Eligible Investments List of interested parties to be notified of Council's decision is on file in the Finance Department Attachment 1 to FND-014-19 Dated May 9, 2018 MFOA SUMMARY OF ELIGIBLE MUNICIPAL INVESTMENTS UNDER PART I OF O. REG. 438/97 AS AMENDED (HEREAFTER REFERRED TO AS THE "REGULATION") LAST REVIEWED: MARCH 2018 NTD: 1) References to "a term of more than 2 years" means a `remaining term to maturity greater than 2 years'. 2) References to "a term of 2 years or less" means a `remaining term to maturity of 2 years or less'. 3) Eligible investments for the proceeds of the sale of shares of the City of Ottawa's corporation incorporated under section 142 of the Electricity Act, 1998 are not included. Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement i. Canada, a province or a Applies to all municipalities territory of Canada ii. an agency of Canada, a Applies to all municipalities province or territory of Canada iii. a country other than Applies to all municipalities DB)RS: AA(low) Section 2, paragraph 1. Canada Sepurities must be rated Fitph: AA - Bonds, debentures, Mgst sell within the expected timelines Mgody's: Aa3 promissory notes or other set out in the Workout Plan *A if S P: AA - evidence of indebtedness investment falls below standard issued or guaranteed by: 3(6) 3(1) iv. a municipality in Applies to all municipalities Canada, including the municipality making the investment v. a school board or similar Applies to all municipalities entity in Canada �A Formerly, municipalities had to sell downgraded securities within 180 days. Now, when a security falls below the required standard, the municipality shall create a plan, including expected timelines for selling the security ("Workout Plan") and shall sell the security in accordance with the Workout Plan. -2 - Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement vi. a local board as defined Applies to all municipalities in the Municipal Affairs Act (excluding a school board or municipality) or a conservation authority established under the Conservation Authorities Act vii. Municipal Finance Applies to all municipalities Authority of British Columbia iv.1 Ontario Infrastructure Applies to all municipalities and Lands Corporation (OILC) v.1 a university in Ontario Applies to all municipalities DBRS: AA(low) that is authorized to engage Securities must be rated Fitch: AA - Section 2, paragraph 1. in an activity described in Must sell within the expected timelines Moody's: Aa3 cont'd. s. 3 of the Post -secondary .A set out in the Workout Plan if S & P: AA - Education Choice and investment falls below standard Excellence Act, 2000 3(6) 3(1) v.2 a college established Applies to all municipalities DBRS: AA(low) under the Ontario Colleges Securities must be rated Fitch: AA - of Applied Arts and Must sell within the expected timelines Moody's: Aa3 Technology Act, 2002 .A set out in the Workout Plan if S & P: AA - investment falls below standard 3(6) 3(1) Formerly, municipalities had to sell downgraded securities within 180 days. Now, when a security falls below the required standard, the municipality shall create a plan, including expected timelines for selling the security ("Workout Plan") and shall sell the security in accordance with the Workout Plan. -3 - Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement vi.1 a board of a public Applies to all municipalities DBRS: AA(low) hospital within the meaning Securities must be rated Fitch: AA - of the Public Hospitals Act Must sell within the expected timelines Moody's: Aa3 set out in the Workout Plan *A if S & P: AA - investment falls below standard 3(6) 3(1) vi.2 a non-profit housing Applies to all municipalities DBRS: AA(low) corporation incorporated Securities must be rated Fitch: AA - under s. 13 of the Housing Must sell within the expected timelines Moody's: Aa3 Development Act .A set out in the Workout Plan if S & P: AA - investment falls below standard 3(6) 3(1) vi.3 a local housing Applies to all municipalities DBRS: AA(low) corporation as defined in Securities must be rated Fitch: AA- s. 24 of the Housing Must sell within the expected timelines Moody's: Aa3 Services Act, 2011 set out in the Workout Plan *A if S & P: AA - investment falls below standard 3(6) 3(1) Section 2, paragraph 2. a corporation Applies to all municipalities Bonds, debentures, Corporate Debt must be secured by the promissory notes or other assignment to a trustee of payments evidence of indebtedness sufficient to meet amounts payable under ("Corporate Debt") the Corporate Debt' Corporate Debt must be secured by the assignment to a trustee (as defined in the Trustee Act) of payments that Canada or a province or territory thereof has agreed to make or is required to make under a federal, provincial or territorial statute and such payments must be sufficient to meet the amounts payable under the Corporate Debt, including the amounts payable at maturity. �A Formerly, municipalities had to sell downgraded securities within 180 days. Now, when a security falls below the required standard, the municipality shall create a plan, including expected timelines for selling the security ("Workout Plan") and shall sell the security in accordance with the Workout Plan. Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement Section 2, paragraph 3. Deposit receipts, deposit notes, certificates of deposit or investment, acceptances or similar instruments ("Deposit Securities") (with a term of 2 years or less) issued, guaranteed or endorsed by: i. a bank listed in Schedule I, II or III of the Bank Act (Canada) Applies to all municipalities May be expressed or payable in US$ 6(3) ii. a loan corporation or Applies to all municipalities trust corporation registered May be expressed or payable in US$ under the Loan and Trust Corporations Act 6(3) iii. a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 applies ("Credit Union or League") Applies to all municipalities May be expressed or payable in US$ 6(3) If a municipality's total investments in Deposit Securities issued by a Credit Union or League, regardless of the term have, in the opinion of the treasurer, a value in excess of $250,000, the municipality is prohibited from making any further investment in such Deposit Securities with a term greater than 2 years unless the Credit Union or League meets the financial requirements set forth in the regulation within 30 days before the investment is made 3(2.0.1) — 3(2.0.4) The Credit Union or League is to provide: (i) audited financial statements indicating that the following financial indicators are met or (ii) written certification that all of the financial indicators mentioned below are met: 1. Positive retained earnings in its audited financial statements for its most recently completed fiscal year 2. Regulatory capital of at least the percentage of its total assets obtained by adding 1% to the minimum percentage set out in paragraph 1 of subsection 15(3) of O. Reg. 237/09 (General) as of the date of the latest audited financial statements, calculated in accordance with O. Reg. 237/09 (General) made under the Credit Unions and Caisses Populaires Act, 1994 3. Regulatory capital of at least the percentage of its total risk weighted assets obtained by adding 1 % to the minimum percentage set out in paragraph 2 of subsection 15(3) of O. Reg. 237/09 (General) as of the date of the latest audited financial statements, calculated in accordance with O. Reg. 237/09 (General) 4. Positive net income in its audited financial statements for 3 of its 5 most recently completed fiscal years. Eligible Investment (and regulatory authority) Security Issuer Section 2, paragraph 3.1. Deposit receipts, deposit notes, certificates of deposit or investment, acceptances or similar instruments ("Deposit Securities") (with a term of more than 2 years) issued, guaranteed or endorsed by: Section 2, paragraph 4. Bonds, debentures, promissory notes or other evidence of indebtedness ("Debt Securities") (with a term of 2 years or less)° issued or guaranteed by: i. a bank listed in Schedule I, II or III of the Bank Act (Canada) �B ii. a loan corporation or trust corporation registered under the Loan and Trust Corporations Act �B i. a bank listed in Schedule I, II or III of the Bank Act (Canada) -5 - Conditions Applies to all municipalities Securities must be rated May be expressed or payable in US$ 6(3) Must sell within the expected timelines set out in the Workout Plan*A if investment falls below standard 3(6) Applies to all municipalities Securities must be rated May be expressed or payable in US$ 6(3) Must sell within the expected timelines set out in the Workout Plan *A if investment falls below standard 3(6) Minimum Security Ratings DBRS: A(low) Fitch: A- Moody's: A3 S&P:A- °c 3(2) DBRS: A(low) Fitch: A- Moody's: A3 S&P:A- °c Applies to all municipalities DBRS: AA(low) Securities must be rated Fitch: AA - Must sell within the expected timelines Moody's: Aa3 set out in the Workout Plan 'A if S & P: AA - investment falls below standard 3(6) 3(1) Minimum Municipal Debt/Credit Rating or Other Requirement " Formerly, municipalities had to sell downgraded securities within 180 days. Now, when a security falls below the required standard, the municipality shall create a plan, including expected timelines for selling the security ("Workout Plan") and shall sell the security in accordance with the Workout Plan. B Deleted a Credit Union or League. Minimum credit ratings were reduced from AA- and equivalents. �D Formerly, there was no differentiation for Debt Securities in credit ratings based on term (all Debt Securities required a minimum rating of AA- or equivalents). a. Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement ii. a loan corporation or Applies to all municipalities DBRS: AA(low) trust corporation registered Securities must be rated Fitch: AA - under the Loan and Trust Must sell within the expected timelines Moody's: Aa3 Corporations Act .A set out in the Workout Plan if S & P: AA - investment falls below standard 3(6) 3(1) Section 2, paragraph 4.1. i. a bank listed in Schedule Applies to all municipalities DBRS: A(low) Bonds, debentures, I, II or III of the Bank Act Securities must be rated Fitch: A - promissory notes or other (Canada) Must sell within the expected timelines Moody's: A3 evidence of indebtedness .A set out in the Workout Plan if S & P: A - ("Debt Securities") (with B investment falls below standard C a term of more than 2 vears)*D issued or 3(6) 3(2) guaranteed by: ii. a loan corporation or Applies to all municipalities DBRS: A(low) trust corporation registered Securities must be rated Fitch: A - under the Loan and Trust Must sell within the expected timelines Moody's: A3 Corporations Act .A set out in the Workout Plan if S & P: A - .B investment falls below standard C 3(6) 3(2) 'A Formerly, municipalities had to sell downgraded securities within 180 days. Now, when a security falls below the required standard, the municipality shall create a plan, including expected timelines for selling the security ("Workout Plan") and shall sell the security in accordance with the Workout Plan. .B Deleted a Credit Union or League. *c Minimum credit ratings were reduced from AA- and equivalents. �D Formerly, there was no differentiation for Debt Securities in credit ratings based on term (all Debt Securities required a minimum rating of AA- or equivalents). 0 Eligible Investment (and regulatory authority) Security Issuer Conditions Minimum Security Ratings Minimum Municipal Debt/Credit Rating or Other Requirement Section 2, paragraph 4.2. a credit union or league to Applies to all municipalities Deposit receipts, deposit which the Credit Unions May be expressed or payable in US$ notes, certificates of and Caisses Populaires 6(3) deposit or investment, Act, 1994 applies ("Credit If a municipality's total investments in acceptances or similar Union or League") Deposit Securities issued by a Credit instruments ("Deposit Union or League, regardless of the term Securities") (with a term of have, in the opinion of the treasurer, a more than 2 years)*E value in excess of $250,000, the issued, guaranteed or municipality is prohibited from making endorsed by: any further investment in such Deposit Securities with a term greater than 2 years unless the Credit Union or League meets the financial requirements set forth in the regulation within 30 days before the investment is made Must sell excess Deposit Securities with a term of more than 2 years within the expected timelines set out in the Workout Plan *F if the $250,000 threshold is exceeded and the Credit Union or League cannot meet the prescribed financial requirements 3(2.0.1) — 3(2.0.4) 3(6.1.1) — 3(6.1.2) The Credit Union or League is to provide: (i) audited financial statements indicating that the following financial indicators are met or (ii) written certification that all of the financial indicators mentioned below are met: 1. Positive retained earnings in its audited financial statements for its most recently completed fiscal year 2. Regulatory capital of at least the percentage of its total assets obtained by adding 1% to the minimum percentage set out in paragraph 1 of subsection 15(3) of O. Reg. 237/09 (General) as of the date of the latest audited financial statements, calculated in accordance with O. Reg. 237/09 (General) made under the Credit Unions and Caisses Populaires Act, 1994 3. Regulatory capital of at least the percentage of its total risk weighted assets obtained by adding 1 % to the minimum percentage set out in paragraph 2 of subsection 15(3) of O. Reg. 237/09 (General) as of the date of the latest audited financial statements, calculated in accordance with O. Reg. 237/09 (General) 4. Positive net income in its audited financial statements for 3 of its 5 most recently completed fiscal years. E Formerly, all Deposit Securities (of a Cdn. bank, a Loan or Trust Corporation or a Credit Union or League) with a term of more than 2 years had a minimum rating requirement of AA- or equivalents. 'F Formerly, municipalities had to sell downgraded securities within 180 days. Now, if a municipality holds Deposit Securities of a Credit Union or League in excess of the $250,000 limit and the Credit Union or League cannot meet the prescribed financial requirements, the municipality shall create a plan, including expected timelines for selling the Deposit Securities with a term of more than 2 years in excess of the $250,000 limit ("Workout Plan") and shall sell such securities in accordance with the Workout Plan. To determine the value of the investments, the value of all such Deposit Securities with a term of 2 years or less shall be counted as part of the total first, followed by the value of all such Deposit Securities with a term of more than 2 years. Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement Section 2, paragraph 4.3. a credit union or league to Bonds, debentures, which the Credit Unions promissory notes or other and Caisses Populaires evidence of indebtedness Act, 1994 applies ("Credit ("Debt Securities") issued or guaranteed by:}" Section 2, paragraph 5. Union or League") i. a university in Ontario Short-term securities, (term that is authorized to engage of 3 days or less) that are in an activity under s. 3 of issued by: the Post -secondary Education Choice and Excellence Act, 2000 Applies to all municipalities Credit Union or League must meet the prescribed financial requirements set forth in the regulation Must sell the investment within the expected timelines set out in the Workout Plan *G if the Credit Union or League cannot meet the prescribed financial requirements 3(2.0.1) — 3(2.0.5) 3(6.1.1) 3(6.1.3) Applies to all municipalities ii. a college established Applies to all municipalities under the Ontario College of Applied Arts and Technology Act, 2002 iii. a board of a public hospital within the meaning of the Public Hospitals Act Applies to all municipalities The Credit Union or League is to: provide (i) audited financial statements indicating that the following financial indicators are met or (ii) written certification that all of the financial indicators mentioned below are met: 1. Positive retained earnings in its audited financial statements for its most recently completed fiscal year 2. Regulatory capital of at least the percentage of its total assets obtained by adding 1% to the minimum percentage set out in paragraph 1 of subsection 15(3) of O. Reg. 237/09 (General) as of the date of the latest audited financial statements, calculated in accordance with O. Reg. 237/09 (General) made under the Credit Unions and Caisses Populaires Act, 1994 3. Regulatory capital of at least the percentage of its total risk weighted assets obtained by adding 1 % to the minimum percentage set out in paragraph 2 of subsection 15(3) of O. Reg. 237/09 (General) as of the date of the latest audited financial statements, calculated in accordance with O. Reg. 237/09 (General) 4. Positive net income in its audited financial statements for 3 of its 5 most recently completed fiscal years. Formerly, municipalities had to sell downgraded securities within 180 days. Now, if a municipality holds Debt Securities of a Credit Union or League and the Credit Union or League can no longer meet the prescribed financial requirements, the municipality shall create a plan, including expected timelines for selling the Debt Securities ("Workout Plan") and shall sell such securities in accordance with the Workout Plan. 'H Formerly, there was no differentiation for Debt Securities and no special requirements for Credit Unions or Leagues (a Cdn. bank, a Loan and Trust Corporation and a Credit Union and League all required a minimum rating of AA- or equivalents). "0 Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement Section 2, paragraph 6. Applies to all municipalities Bonds, debentures, promissory notes, other evidence of indebtedness or other securities issued or guaranteed by the International Bank for Reconstruction and Development (IBRD) Section 2, paragraph 6.1. Applies to all municipalities DBRS: AAA Bonds, debentures, promissory notes or other evidence of Securities must be rated Fitch: AAA indebtedness issued or guaranteed by a supranational Must sell within the expected timelines Moody's: Aaa financial institution or a supranational governmental set out in the Workout Plan *A if S & P: AAA organization other than the IBRD investment falls below standard 3(6) 3(2.1) Section 2, paragraph 7. Applies to all municipalities Term of more than DBRS: AA (low) Securities that are arrangements for the sale of assets Securities must be rated 1 year: Fitch: AA - that entitle the purchaser to an undivided beneficial Municipal debt or credit rating must meet DBRS: AAA Moody's: Aaa interest in a pool of assets (formerly described as asset - ,i prescribed levels Fitch: AAA S & P: AA - backed securities) Must sell within the expected timelines Moody's: Aaa 4.1(1)(a) set out in the Workout Plan *A if S & P: AAA OR investment falls below standard 3(3) Through the One Term of 1 year or less: Investment Program DBRS: R-1 (high) 4.1(1)(b) Fitch: F1+ 4.1(2) Moody's: Prime -1 S&P:A-1+ 3(6) 3(6.1) 3(4) Requirement to sell in accordance with the Workout Plan does not apply to an investment made on a day before subsection 3(6.1) came into force, i.e., July 31, 2009. 3(6.1) 'A Formerly, municipalities had to sell downgraded securities within 180 days. Now, when a security falls below the required standard, the municipality shall create a plan, including expected timelines for selling the security ("Workout Plan") and shall sell the security in accordance with the Workout Plan. The current definition was previously set out in subsection 50(1) of Regulation 733 of the Revised Regulations of Ontario, 1990 made under the Loan and Trust Corporations Act which regulation was revoked on August 1, 2008. -10 - Eligible Investment (and regulatory authority) Security Issuer Conditions Minimum Security Ratings Minimum Municipal Debt/Credit Rating or Other Requirement Section 2, paragraph 7.1. Corporate issuer must be incorporated DBRS: A (low) Security is only eligible Cdn. Corporate Debt — bonds, debentures, promissory under the laws of Canada or a Cdn. Fitch: A- if the investment is notes or other evidence of indebtedness issued by a Cdn. province Moody's: A3 made through the One corporation (with a remaining term to maturity of more Securities must be rated Investment Program than 5 years) S & P: A - Must sell within the expected timelines set out in the Workout Plan *A if investment falls below standard •c 3(6) 3(4.1) 4.1(1.1) 4.1(2) Section 2, paragraph 7.2. Applies to all municipalities DBRS: A (low) Cdn. Corporate Debt — bonds, debentures, promissory Corporate issuer must be incorporated Fitch: A - notes or other evidence of indebtedness issued by a Cdn. under the laws of Canada or a Cdn. Moody's: A3 corporation (with a remaining term to maturity of more province than 1 year and not more than 5 years) S & P: A - A- Securities must be rated Municipal debt or credit rating must meet prescribed levels Must sell within the expected timelines set out in the Workout Plan *A if investment falls below standard �c 3(6) 3(4.1) �A Formerly, municipalities had to sell downgraded securities within 180 days. Now, when a security falls below the required standard, the municipality shall create a plan, including expected timelines for selling the security ("Workout Plan") and shall sell the security in accordance with the Workout Plan. Minimum credit ratings were reduced from AA- and equivalents. -11 - Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement Section 2, paragraph 8. Applies to all municipalities DBRS: R-1 (mid) DBRS: AA (low) Cdn. corporate negotiable promissory notes or Corporate issuer must be incorporated Fitch: F-1+ Fitch: AA - commercial paper other than securities referred to in under the laws of Canada or a Cdn. Moody's: Prime -1 Moody's: Aa3 paragraph 7 (with a term of 1 year or less) province S & P: A-1+ S & P: AA - Securities must be rated 4.1(1)(a) Municipal debt or credit rating must meet OR prescribed levels Through the One Must sell within the expected timelines Investment Program set out in the Workout Plan *A if investment falls below standard 3(6) 3(5) 4.1(1)(b) Section 2, paragraph 8.1. Corporate issuer must be incorporated Security is only eligible Shares of a Cdn. corporation under the laws of Canada or a Cdn. if investment is made province through the One Investment Program 4.1(1.1) 4.1(2) Section 2, paragraph 9. Must meet the requirements set out in Bonds, debentures promissory notes and other evidences the Regulation of indebtedness of a corporation incorporated under s. 142 of the Electricity Act, 1998 3(7) 3(10) Section 2, paragraph 10. Applies to all municipalities Any security acquired as a gift in a will or as a donation Security must have been first acquired as not made for a charitable purpose a gift in a will or as a donation not made for a charitable purpose Must sell within the expected timelines set out in the Workout Plan*j 3(11) *" Formerly, municipalities had to sell downgraded securities within 180 days. Now, when a security falls below the required standard, the municipality shall create a plan, including expected timelines for selling the security ('Workout Plan") and shall sell the security in accordance with the Workout Plan. Formerly, municipalities had to sell downgraded securities within 180 days. Now, if a security acquired as a gift or in a will in accordance with the Regulation does not constitute an eligible security under the Regulation, the municipality shall create a plan, including expected timelines for selling the security ("Workout Plan") and shall sell the security in accordance with the Workout Plan. In the event the security does constitute an eligible investment under the Regulation, the applicable provisions of the Regulation apply to such security. -12 - Eligible Investment (and regulatory authority) Conditions Minimum Security Minimum Municipal Ratings Debt/Credit Rating Security Issuer or Other Requirement Section 2, paragraph 11. revoked Section 2, paragraph 12. Applies to all municipalities Shares of a corporation -court ordered Corporation that issued the shares must have debt payable to the municipality Under a court order, the corporation must have received protection from its creditors The acquisition of the shares in lieu of a debt must have been authorized by the court order The treasurer is of the opinion that the debt is uncollectable unless the debt is converted into shares under the court order Section 2.1. Applies to all municipalities Securities subject to a court ordered plan of compromise Investment must have been made before and arrangement as described in s. 2.1 January 12, 2009 11470133.5