San Francisco June 2012

Ontario Financing Authority

www.ofina.on.ca


http://www.ofina.on.ca

San Francisco

June 2012

• Economy expected to grow faster

than most other advanced nations

in 2012 and 2013

• Lowest overall tax rate and

business costs1 on new business

investment in the G7

• Best place in the G7 to do

business for the next five years

(2011–2015)2

• Among OECD countries with most

highly educated labour force3

1

1 KPMG. (2010). Competitive Alternatives: KPMG's Guide to International Business Location (2010 edition).

2 Economist Intelligence Unit. (2011). Business Environment Rankings.

3 Organisation for Economic Co-operation and Development (OECD). (2011). Education at a Glance 2011: OECD Indicators. Retrieved from

http://dx.doi.org/10.1787/eag-2011-en

4 World Economic Forum. (2011). Global Competitiveness Report.

Canada Overview

• Ranked as having soundest

banking system for four

consecutive years4

• Lowest general government net

debt-to-GDP ratio of any G7

country, and expected to remain

so

• Healthy housing market,

supported by conservative

mortgage market and long-term

economic fundamentals

410

497 528

549

620 667

802 817

• Located in prime area with close ties to many

major U.S. cities

• Population of 13.4 million and nominal GDP of

$638 billion in 2011, both roughly

40 per cent of Canada

• Access to $17 trillion market

place under NAFTA

• Ranked second

in North America in foreign

direct investment

• Government policy focused on long-term

growth and innovation through investment and

tax reform

2

Sources: IMF World Economic Outlook and Ontario Ministry of Finance

2012 Nominal GDP (forecast) (in U.S. dollars billions)

1 Ontario 2012 nominal GDP forecast converted at Bank of

Canada USD/CAD 2011 average (of 250 days) exchange rate

1

Ontario Overview

• Toronto is the second-largest

financial centre employer in

North America, after New York

• About half of Canada’s high-tech

employment

• Canada’s business and financial

services and manufacturing

center

Structure of the Ontario Economy, 2011 (per cent share of Ontario Nominal GDP)

Services (77% of GDP)

Goods (23% of GDP)

3

Ontario’s Diverse Economy

Auto 1%

Primary and Utilities

4% Construction

7%

Manufacturing (less Auto)

11%

Wholesale, Retail and

Transportation and

Warehousing 16%

Government, Health and Education

19%

Other 19%

Finance, Insurance and Real Estate1

23%

1 Includes estimate of imputed rental income on owner occupied dwellings

Note: Numbers may not add due to rounding

Source: Statistics Canada and Ontario Ministry of Finance

4

• Home resales were up 2.5 per cent in

2011, while the average home price in

Ontario rose 6.9 per cent

• Over the first four months of 2012,

Ontario housing starts were up 29.5 per

cent from a year earlier, while home

resales rose 8.8 per cent over the same

period

• Canadian homeowners have almost 68

per cent equity in their homes

• Thirty per cent of homeowners have 100 per cent

equity in their home – they do not hold a

mortgage or home equity line of credit

• Among home owners who have some form of

debt on their property, 78 per cent have 25 per

cent or more equity in their homes

• Average amount of equity Canadians holding a

mortgage have in their home is $155,000 –

representing 51 per cent of home value

Housing and Mortgage Market

• Resilient and affordable mortgage

market attributed to strong economic

fundamentals

• Lower defaults and arrears reflect

Canadian credit culture and more

rigorous underwriting standards

• Share of total mortgages in arrears in

Ontario was at 0.29 per cent in 2011Q4,

down from recent peak of 0.43 per cent

in mid-2009

• In Canada, all high-ratio residential

mortgages issued by regulated financial

institutions must be insured

Sources: Ontario Ministry of Finance and Canadian Association of Accredited Mortgage Professionals, CAAMP Annual State of the Residential Mortgage

Market Survey, November 2011

5

15

17

19

21

23

25

27

29

31 Canada Ontario

As As a Share of Disposable Income per Household

(per cent)

Note: Carrying cost is based on the average five-year mortgage rate, a

25-year amortization and a 20 per cent down payment

Sources: Statistics Canada, Canadian Real Estate Association and

Ontario Ministry of Finance

Source: Statistics Canada

Mortgage Carrying Cost: Canada and Ontario Debt-Service Ratios: Canada

Housing Market

0

2

4

6

8

10

12

Total Debt-Service Ratio

Mortgage Debt-Service Ratio

Consumer Debt-Service Ratio

(per cent)

1.9 2.0

1.0

0.2 0.2

-1.5

2.1

1.1

-0.1

0.1

0.8

0.3

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Ontario GDP Consumption Government Housing Plant &Equipment

Net Trade

2000–10

2011–15p

p = Ontario Ministry of Finance planning projection

Sources: Statistics Canada and Ontario Ministry of Finance

Forecast for Moderate, Sustained and Better Balanced Growth

6

Average Annual

Per Cent Change

Average Annual Contribution to Real GDP Growth

(Percentage Points)

-7

-6

-5

-4

-3

-2

-1

0

1

2

2008 2009 2010 2011 2012

Ontario U.K. U.S.

7

Relatively Strong Job Recovery in Ontario

Employment

(per cent change from peak)

Sources: Statistics Canada, U.S. Bureau of Labour Statistics and U.K. Office for National Statistics

Ontario

U.K.

U.S.

Attractive Demographics

8

• Total population expected to rise by 32.7 per cent to over 17.7 million by

2036

• Current population growth rate of 1.1 per cent is more than twice the

growth rate for G7 countries (0.4 per cent) and significantly higher than

the growth rate for OECD countries (0.7 per cent)

• Though an aging population will restrain labour force growth, the working

age population will continue to grow

• Ontario remains a desirable destination for immigrants to Canada, having

received over 100,000 immigrants each year over the past decade

• Net migration is projected to account for 68 per cent of all population

growth in the province over the 2011–2036 period, with natural increase

accounting for the remaining 32 per cent

9

(10) (10)

(22)

18

12

49

-30

-20

-10

0

10

20

30

40

50

60

Goods

Goods and Services to Other Provinces

Goods to the Rest of the World

Services

Goods to the U.S.

Goods and Services to Other Countries

Per Cent Change, 2006 to 2011

Source: Statistics Canada

Ontario Exports Shifting to New Markets

Actual Ontario Ministry of Finance planning projection

10

Ontario Economic Outlook

(per cent) 2009 2010 2011 2012 2013 2014 2015

Real GDP Growth (3.2) 3.0 1.8 1.7 2.2 2.4 2.5

Nominal GDP Growth (0.9) 5.3 4.2 3.4 4.1 4.2 4.3

Employment Growth (2.5) 1.7 1.8 0.9 1.3 1.5 1.6

Unemployment Rate 9.0 8.7 7.8 7.7 7.4 7.0 6.7

CPI Inflation 0.4 2.5 3.1 1.7 2.0 2.0 2.0

Ontario Economic Outlook for Continued Growth

Sources: Statistics Canada and Ontario Ministry of Finance

-1.5

0.3

0.7 0.7

2.0 2.0 2.1

2.3

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Average Real GDP Growth (per cent)

G7 Economic Growth, 2012

Sources: Consensus Economics (May 2012), Blue Chip Economic Indicators (May 2012) and Ontario Ministry of Finance Survey of Forecasts (May 2012)

11

0.2

1.0

1.5 1.6

1.8

2.2 2.3

2.6

0

1

2

3

Average Real GDP Growth (per cent)

G7 Economic Growth, 2013

Relatively Strong Economic Growth Outlook


Source: Ontario Ministry of Finance, Fiscal Update to Budget 2012, April 25, 2012

Medium-Term Fiscal Plan and Outlook

12

Interim Plan Outlook

($ Billions) 2011–12 2012–13 2013–14 2014–15

Total Revenue 109.3 112.6 116.6 121.6

Expense

Programs 114.2 115.8 117.0 117.9

Interest on Debt 10.1 10.6 11.2 12.3

Total Expense 124.3 126.4 128.2 130.3

Reserve – 1.0 1.2 1.5

Surplus / (Deficit) (15.0) (14.8) (12.8) (10.1)

Composition of Revenue – Plan 2012–13

13

• Highly diversified revenue

sources

• Growth of 3.0 per cent projected

for 2012-13

• Federal payments account for

19 per cent of total revenue

• Corporate taxes represent

10 per cent of revenue

Revenue $112.6 Billion



Other Taxes

$21.1B

19%

Sales Tax

$21.1B

19%

Corporations

Tax

$10.8B

10%

Other Non-

Tax Revenue

$7.6B

7%

Personal

Income Tax

$26.1B

22%

Federal

Payments

$21.8B

19%

Income from

Govt.

Enterprises

$ 4.1B

4%

Health Sector $48.3B

38%

Education Sector

$23.9B 19%

Other Programs $17.9B

14%

Children's and Social

Services Sector

$14.1B 11%

Interest on Debt

$10.6B 9%

Postsecondary and Training

Sector $7.5B

6%

Justice Sector $4.0B

3%

Composition of Total Expense – Plan 2012–13

14

Excludes Ontario Teachers’ Pension Plan



• Health and education remain the

largest expenses

• Government is taking action to

manage growth in expense to

overcome the fiscal challenge

facing the province

Total Expense $126.4 Billion

Strong Government Fiscal Position

15

135.2

102.3

84.2 83.7 83.2

54.1

39.4 35.4

0

20

40

60

80

100

120

140

160

Net Debt-to-GDP G7 Countries, 2012

(per cent)

Sources: IMF World Economic Outlook (April 2012) and Ontario Ministry of

Finance

10.0

8.1 8.0

4.6

2.4 2.2

1.2 0.8

0

1

2

3

4

5

6

7

8

9

10

11

12

(per cent)

Sources: IMF World Economic Outlook (April 2012), Ontario Ministry of

Finance (April 2012), Department of Finance Canada

Projected Deficit-to-GDP G7 Countries, 2012

Net Debt to GDP International Comparisons

16

30.1 29.1 27.8 28.2 27.3 28.4

27.4 26.8 28.9

33.3 35.0

37.2 39.4 40.8 41.3 41.0 40.2 39.0

10

20

30

40

50

60

70

80

90

100

(per cent)

Ontario

Germany

France

U.K.

U.S.

Actual Outlook

Canada’s and Ontario’s net debt-to-GDP ratios are forecast to be well below the G7 average

Sources: IMF World Economic Outlook (April 2012) and Ontario Ministry of Finance

Canada

Interest on Debt as a Share of Revenue

7.7

8.8

10.8

13.9

14.5

14.7

14.8

14.2

14.3

15.6

15.1

14.3

12.9

12.9

11.1 9.9

9.1

8.6

8.8

9.1

8.8

9.2

9.4

9.6

10.1

11.1

11.5

11.3

5

10

15

20

(per cent)

Outlook Actual

Sources: Ontario Financing Authority and Ontario Ministry of Finance, Fiscal Update to Budget 2012, April 25, 2012

17

Accelerating Ontario’s Plan to Balance the Budget

18

(19.3)

(14.0) (15.0) (14.8) (12.8)

(10.1)

(7.2)

(3.5)

(17.3)

(15.9)

(13.3)

(10.7)

(7.8)

(4.2)

0.0

(24.7)

(19.7)

-30

-25

-20

-15

-10

-5

0

5

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

Fiscal Balance ($ Billions)

0.5

Revised Outlook (April 25, 2012)

Budget 2012 Plan1

Fiscal Forecast 2

Medium-Term Outlook Extended Outlook Actual Interim Plan

1 For 2009–10 and 2010–11, actual results are presented

2 Forecast for 2009–10 from the 2009 Ontario Economic Outlook and Fiscal Review. Forecast for 2010–11 to 2012–13 based on the 2010 Budget.

Source: Ontario Ministry of Finance

Ontario’s Plan to Balance the Budget

19

The 2012 Budget proposes action to balance the budget by 2017–18,

including:

• Extending the pay freeze for MPPs, executives at hospitals, universities,

colleges, school boards and agencies for another two years

• No funding for incremental compensation increases for new collective

agreements

• Measures to make public sector pensions more affordable

• Capping the monthly Ontario Clean Energy Benefit at 3,000 kWh

• Indexing the Ontario Drug Benefit program to income level

• Freezing planned rate reductions to Corporate Income Tax and Business

Education Tax

The April 2012 Fiscal Update includes a surtax on incomes over $500,000.

20

Medium-Term Borrowing Outlook


Current Outlook Medium-Term Outlook

($ Billions) 2012–13 2013–14 2014–15

Deficit 14.8 12.8 10.1

Investment in Capital Assets 10.5 10.5 9.3

Non-Cash Adjustments (3.8) (4.0) (3.6)

Net Loans/Investments 1.1 1.6 0.8

Debt Maturities 17.3 23.7 21.8

Debt Redemptions 0.3 0.3 0.3

Total Funding Requirement 40.2 44.9 38.8

Canada Pension Plan Borrowing (0.8) –– ––

Decrease/(Increase) in Short-Term Borrowing (3.0) (3.0) ––

Increase/(Decrease) in Cash and Cash Equivalents (0.3) (0.7) (0.7)

Debt Buy-Backs (1.2) (2.0) ––

Total Long-Term Public Borrowing 34.9 39.1 38.1

Domestic and International Borrowing

21

Source: Ontario Financing Authority

• Plan to borrow at least 70 per cent in the domestic market in 2012–13

(borrowed 81 per cent in 2011–12)


19.0

14.2 15.4 18.8

21.4 23.5

28.3

39.1 38.1

4.8

4.5 2.6

9.7

22.4 16.4 6.5

23.8

18.7 18.0

28.6

43.8

39.9

34.9 34.9

0

5

10

15

20

25

30

35

40

45

Canadian dollar Foreign currencies($ Billions) Projected Total

2011–12 Domestic Borrowing Program

22



Syndicated Bonds $24.7B

71%

Floating Rate Notes $3.1B

9%

Ontario Savings Bonds

$0.6B 1%

International Bonds $6.5B 19%

Benchmark borrower in the Canadian bond

market issuing the following types:

• syndicated bonds

• floating rate notes

• medium-term notes

• auctions and Ontario Savings Bonds to

retail investors

• real return bonds

• Well-defined yield curve maintained through regular issuance

of 5-year, 10-year and 30-year issues, which are re-opened to

achieve benchmark size

• Large and diverse domestic underwriting syndicate makes

active markets in Ontario bonds

• Large Order Procedure set up to accommodate large investors

(five deals undertaken to date)

• Ontario bonds accounted for about 56 per cent of Canadian

provincial bond trading in 20111

1 Investment Industry Regulatory Organization of Canada, 12 months ending December

31, 2011

2011–12 U.S. Dollar Market

• Since 1991, core market with issues annually

• Increased benchmark size starting in 2009–10

• U.S. dollar investors diversified both geographically and by type

USD1 by Geography

United States 44%

Canada 24%

Asia 18%

Europe 5%

Middle East 5%

Other 4%

USD1 by Investor Type

Asset Managers

29%

Central Banks/

Sovereign Wealth Funds 23%

Banks/Trust Companies

21%

Insurance Companies/

Pension Funds 20%

Other 7%

1 Ontario U.S. dollar-denominated bonds issued in 2011–12


23


Pension Funds,

Insurance Companies

and Others 7%

Banks 26%

Asset Managers 33%

Central Banks and Official Institutions*

34%

Asia 11%

Europe, Middle East and Africa

14%

Americas 75%

2012 USD 3.5 Billion Global Benchmark Issue

Transaction summary

Issuer: Province of Ontario

Joint bookrunners: CIBC, Citi, Deutsche Bank and Morgan

Stanley

Size: USD 3.5 billion

Coupon: 0.95%

Settlement date: May 24, 2012

Maturity date: May 26, 2015

Re-offer spread: +21 bps over mid-swaps

+57 bps over U.S. Treasuries

Issuer highlights

• This issue marks Ontario’s first U.S. dollar Global deal since

September 2011, which remains a core market for the Province.

• Strong demand resulted in orders totaling over $4.5 billion.

• The final book was comprised of more than 130 investors,

primarily from North America, however, almost 25 per cent of

the order was filled outside of the region.

• The Province continues to expand its U.S. dollar Global investor

base, which has allowed it to increase its benchmark issue size

while still offering attractive spreads and the potential of positive

spread performance.

Investor demand by geographic region Investor demand by type


* May include government/public sector pension plans, government/public sector investment agencies/boards, and/or other.

25

U.S. Dollar Market

Source: Ontario Financing Authority, May 23, 2012

2010–11 U.S. dollar Issuance

Size Coupon Maturity

USD 3.5 billion 1.375% January 27, 2014

USD 1.25 billion 3.15% December 15, 2017

USD 1.25 billion 1.875% September 15, 2015

USD 2.5 billion 2.70% June 16, 2015

USD 0.5 billion(FRN) 3-month U.S. LIBOR +16 basis points May 7, 2013

USD 2.0 billion 4.40% April 14, 2020

• Ontario has been expanding its U.S. dollar global investor base which has allowed it to increase its

benchmark issue size while still offering attractive spreads and the potential of positive spread performance.

• Issues have tended to be oversubscribed, with some deals having more than 100 investors.

Size Coupon Maturity

USD 3.5 billion 0.95% May 26, 2015

USD 3.0 billion 2.3% May 10, 2016

USD 1.0 billion 3.0% July 16, 2018

USD 2.0 billion 1.6% September 21, 2016

USD 750 million (FRN) 3-month U.S. LIBOR +15 basis points April 1, 2015

2011–13 U.S. dollar Issuance

26

U.S. Dollar – Performance

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

70

9/30/11 10/27/11 11/23/11 12/20/11 1/16/12 2/12/12 3/10/12 4/6/12 5/3/12 5/30/12

ONT 2.3 05/10/16 EIB 2 1/4 03/15/16 KfW 2.625 02/16/16

Asset Swap Spread: 5-Year U.S. Dollar

Spread to ASW (bps)

Source: Bloomberg Analytics, May 30, 2012

27

Asset Swap Levels and Benchmark Size

Bond Spread to LIBOR (bps) Spread to TSY (bps)

ONT 4.1 per cent June 2014 7.7 45.0

ONT 4.5 per cent Feb. 2015 18.1 50.0

ONT 2.7 per cent June 2015 21.2 56.0

ONT 1.875 per cent Sept. 2015 21.5 60.0

ONT 4.75 per cent Jan. 2016 34.8 78.0

ONT 1.6 per cent Sept. 2016 29.1 51.0

ONT 4.95 per cent Nov. 2016 33.5 58.0

ONT 3.15 per cent Dec. 2017 41.2 85.0

ONT 3.0 per cent Jul 2018 47.4 65.0

ONT 4.4 per cent April 2020 66.5 109.0

Source: Dealer daily run, May 30, 2012

U.S. dollar Benchmark

(as at May 30, 2012)

Ontario Canada

5 yr (old) 3.2% September 8, 2016 $1.0B 2.0% June 1, 2016 $9.9B

5 yr (new) 1.90% September 8, 2017 $3.25B 4.0% June 1, 2017 $10.3B

10 yr (old) 4.0% June 2, 2021 $9.0B 3.25% June 1, 2021 $11.5B

10 yr (new) 3.15% June 2, 2022 $6.75B 2.75% June 1, 2022 $10.1B

Long (old) 4.65% June 2, 2041 $11.65B 4.0% June 1, 2041 $15.8B

Long (new) 3.5% June 2, 2043 $3.9B 3.5% December 1, 2045 $6.1B

Source: Bloomberg

Canadian dollar Benchmark

2010–11 Euro Market

• Provides good opportunity to diversify investor base in Europe and expand

tenor offerings

• Over the past year, it has been too expensive relative to other financing

options

• Uncertainty due to social and political unrest have created challenging

conditions


1 Ontario euro-denominated bonds issued in fiscal 2010–11

28

euro1 by Geography

Europe 86%

Asia 12%

Other 2%

Banks 46%

Asset

Managers/ Fund

Managers 35%

Insurance Companies/

Pension Funds 13%

Central Banks/Official

Institutions 6%

euro1 by Investor Type


Non Public Debt

$15.0B, 6%

Treasury Bills and U.S. Commercial

Paper $16.5B, 6%

Domestic Bonds

$160.7B, 62%

International Bonds

$65, 25%

Total Debt Composition

29

C$ 257.5 Billion (as at March 31, 2012)

Domestic Bonds

• Syndicated bonds

• Medium-term notes

• Floating rate notes

• Ontario Savings Bonds

• Bond auctions

• Real return bonds

Outstanding International Debt



U.S. dollar $46.8B

Euro $9.1B

Swiss franc $3.3B

Japanese yen $2.1B

U.K. Pound sterling $1.0B

Australian dollar $1.0B

Norwegian kroner $0.8B

New Zealand dollar $0.6B

Hong Kong dollar $0.5B

South African rand $0.1B

Maturity Profile of Outstanding Issues

30

12.9 19.8

19.8 19.1

14.4 15.6

6.3 2.1

14.8 14.1 12.3 12.8

16.1

40.3

0.5 2.7

3.9 2.7

2.0 3.0

1.6

0.3

1.0 1.1

3.0 1.0

0.8

0.8

0

5

10

15

20

25

30

35

40

45

Ontario OEFC(in $ Billions)


Risk Management

31

• Foreign exchange exposure of 1.0 per cent of outstanding debt as at

April 30, 2012. Policy limit is 5.0 per cent of debt

• Floating rate exposure of 8.8 per cent as at April 30, 2012

(i.e., net floating rate exposure plus debt maturing within one year).

Policy limit is 35.0 per cent of debt

• Monitor and manage debt maturity profile to limit refinancing risk

• Strict credit limits for financial and investment counterparties

• Developing collateralized swap agreements for swap counterparties

• Ontario treasury bills and U.S. commercial paper are very well

received in the money markets and provide additional borrowing

capacity if required.

Note: Excludes Ontario Electricity Financial Corporation debt

Rating Agencies

AA- (N)

Current Ratings

Long-Term

Current Ratings

Short-Term

• Ontario’s debt has a zero risk-weighting in Canada, U.S., Australia,

Singapore, U.K., France, Germany, Italy, Luxembourg, Belgium, Norway,

Finland, Denmark and Ireland

Credit Ratings

32

Aa2

AA (low)

A-1+

P-1

R-1 (mid)

Summary

33

• Current Ontario spreads represent value for investors

• A highly liquid market exists for Ontario bonds

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

• Ontario has a diverse economy with attractive demographics

• The government is taking action to manage growth in expense to

overcome the fiscal challenges facing the province

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

www.ofina.on.ca

To arrange a one-on-one meeting with our funding team, please visit our website to send a

message to the Investor Relations Manager

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

APPENDIX

34

• Expenditure responsibilities of federal and provincial governments are

described in the Constitution Act, 1867

• Provincial government responsible for: hospitals, health care, education

(including universities and colleges), highways, social programs and

municipal governments

• Provinces retain discretion over expense decisions and are free to modify

their expenses to meet policy objectives

• Provinces have ability to borrow, but do not control monetary policy

• Provincial governments do not require a vote or supermajority, as in

some American states, to raise revenues or cut expenses

35

Federal vs. Provincial Division of Powers

“Unfettered access to a broad range of tax bases and the ability to alter

expenditure programs provide Ontario, and all Canadian provinces, with a high

degree of fiscal policy flexibility that is more akin to that of sovereign governments

than to many of their international sub-sovereign peers.”

Moody’s Investors Services

Federal Transfers to the Provinces

36

• Federal transfers to the provinces support provincial program

spending

• All provinces receive health and social transfers from the federal

government; some provinces receive equalization payments

• Provinces have considerable flexibility in how transfer payments

are used, in contrast to U.S. states which receive conditional

transfers

Transfer Used for..

Canada Health Transfer Supporting health care spending in provinces and territories

Canada Social Transfer Supporting postsecondary education and social programs

Equalization Addressing fiscal disparities among provinces

Equalization

37

• Equalization is the federal government’s transfer program for

addressing fiscal disparities among provinces.

• Ontario will receive an Equalization payment of almost $3.3

billion in 2012–13. This is up from the $2.2-billion payment in

2011-12.

• Ontario’s entitlement is $249 per capita compared to an

average per capita entitlement of $1,605 among other

receiving provinces.

ONTARIO U.S.

Credit

Ratings

• Ontario is a strong investment grade credit and has a stable ratings

outlook.

• Moody’s credit rating relies 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

• Pressure on U.S. rating could negatively affect states. State and

local credit ratings under pressure.

• Moody’s - downgrade to upgrade ratio - highest in 3 years.

• Material differences in fiscal make-up are an important reason why

the two are not considered peers by credit rating agencies.

Financing

• Well developed access to international capital markets.

• Sophisticated debt management practices – fixed and floating rate

debt, public and private placement.

• All bonds issued by the province are General Obligation Bonds

• Bonds are often tied to certain revenue streams.

• 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 20 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 $148

billion at the end of 2010–11, increasing $20 billion last year.

• Joint trusteeship for Ontario Teachers’ Pension Plan and Ontario

Public Service Union. Sole sponsor of the Public Service Pension

Plans.

• Ontario's pension plans have net assets of $5.4 billion on a Public

Sector Accounting Board accounting basis. On a valuation basis,

they have a small unfunded liability with special payments being

made 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.

• Governments are raiding pension funds to meet budget pressures.

Ontario compared to U.S. States

38 38

ONTARIO U.S.

Spending

• Constitutional authority over health and education spending

which accounts for close to two-thirds 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 is 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.

• All U.S. states, except Vermont, 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

39 39

Canada Compared to U.S. – Housing Market

40

Source: CMHC

CANADA U.S.

Govern

ment A

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

• 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

• Roughly 29 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)

• Roughly 60 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

Canada’s Sound Pension System

41

• Canada has a well diversified, public and private

pension system.

• The proportion of Canada’s retirement incomes

coming from private pensions and other financial

assets is one of the highest among OECD countries.

• Canada is ranked highest for all G7 nations and 5th

overall in the latest Mercer Global Pension Index.

• The Canada Pension Plan is fully funded with total

assets of $152.8 billion as at December 31, 2011.

Mercer Global Pension Index

Source: Australian Centre for Financial Studies (2011), Melbourne Mercer Global Pension Index.

42

• Canada ranks fifth among countries surveyed in the 2011 Mercer Global

Pension Index Study.

Public Expenditure on Old-Age benefits

Source: Pensions at a Glance 2011: Retirement-Income Systems in Organization for Economic Cooperation & Development (OECD)Countries (2011).

43

Old-Age Income Poverty Rates In An Ageing Society

Source: Organization for Economic Co-operation & Development (OECD 2011), Pensions at a Glance: Retirement-Income Systems in OECD Countries.

44

Per cent of population over 65 years old with incomes below half of the population median

Sustaining Population Growth through Migration

45

Percentage change in population 1997 to 2009 and contribution of net migration

Source: Organization for Economic Co-operation & Development (OECD 2011). Factbook 2011: Economic, Environmental and Social Statistics

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.

Investor Relations


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San Francisco June 2012

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