Moody’s Has Concerns About Quebec Pension Taking Over Public Infrastructure Projects

public transit

Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund, recently reached an agreement to finance, execute and own the province’s new public transit projects.

Moody’s views the deal as a credit negative for the pension fund.

From Chief Investment Officer:

Rating agency Moody’s has outlined concerns it has over a C$4 billion (US$3.2 billion) public infrastructure deal signed by one of Canada’s provincial pension funds.


“Although the province is responsible for identifying projects of public interest and has the right to select projects on the basis of optimal solutions provided by the Caisse, the Caisse will be responsible for the execution of the selected projects,” Moody’s said in its latest credit outlook.

Moody’s clarified that the Caisse itself was not rated by its analysts, but the company created to carry out the projects—CDP Financial Inc—currently held an Aaa stable assessment from the agency.

The C$4 billion project is viewed as credit negative by Moody’s.

“The province could participate as an equity partner in projects, but will not have voting rights,” Moody’s said. “As a result, the pension fund will have greater exposure to operational and reputational risks associated with the performance of public infrastructure projects, risks that would have otherwise rested with the provincial government.”

The Caisse de dépôt et placement du Québec manages $214 billion in assets.


Photo by  Claire Brownlow via Flickr CC License

Moody’s: Voter Rejection of Prop. 487 Is “Credit Negative” For Phoenix

Entering Arizona sign

Last week, Phoenix voters shot down Proposition 487, the ballot measure that would have shifted the city’s non-public safety new hires into a 401(k)-style retirement plan.

Many public workers, and the city’s mayor, were happy with the result. But one credit rating agency was not.

A Moody’s report released Tuesday said the measure would have improved the city’s finances, and the results of the vote are a “credit negative” for Phoenix.

From the Arizona Republic:

“The vote is a credit negative for the city,” which is grappling with a $4.4 billion adjusted net pension liability, said Moody’s Investors Service. Phoenix has the sixth-highest adjusted pension shortfall relative to revenues among 50 large cities tracked by Moody’s.


According to the update by Moody’s analysts Tom Aaron and Don Steed, Phoenix actuaries projected the new plan would have increased city contributions by $358 million over 20 years but with savings that would have exceeded those outlays, especially if the underlying investments didn’t perform well.

The ballot measure could have saved the city up to $1.9 billion over 20 years, according to Moody’s, citing a city-council analysis. Cost savings would have derived from limiting the types of pay used to calculate benefits — which leads to the costly practice of “pension spiking” — eliminating supplemental retirement plans offered by the city and calculating pension benefits by spreading them over more years of employee salary, which tends to lower the payout.

But Moody’s admitted the measure would have incurred some extra costs if it had passed. Among the costs: legal expenses. From the Arizona Republic:

On the other hand, Moody’s noted that the measure, had it passed, likely would have triggered costly legal challenges. For example, one part of the proposition would have required only one retirement plan to be offered to newly hired employees, including those in public safety. That would have conflicted with a state law mandating participation in the Public Safety Personnel Retirement Plan, which covers police and fire employees throughout the state.

Moody’s didn’t change the city’s credit rating, however. It remains at Aa1.