ANNUAL REPORT - o Fina · OntarioFinancingAuthority – 2010 Annual Report 9 Debt maturities were...

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OntarioFinancingAuthority – 2010 Annual Report

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Mandate

The Ontario Financing Authority (OFA) was established by the Capital Investment Plan Act, 1993 (CIPA), and performs the following activities: • conductsborrowing,investmentandfinancialriskmanagementfortheProvinceofOntario(the

Province);• managestheProvince’sdebt;• providesfinancialandcentralizedcashmanagementservicesfortheProvincialgovernment;• advisesministries,Crownagenciesandotherpublicbodiesonfinancialpoliciesandprojects;• assistsCrownagenciesandotherpublicbodiesinborrowingandinvesting;• actsasanintermediaryfortheProvinceinlendingtocertainpublicbodies;and• investsonbehalfofsomepublicbodies. The OFA also provides a broad range of financial services to the Ontario Electricity Financial Corpo-ration(OEFC)andtoInfrastructureOntario(IO).

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Mandate 1

Statement from the Chair and Chief Executive Officer 4

Management’s Discussion and Analysis 5CapitalMarketsActivities

Borrowing ProgramInvestments

Borrowing and Debt ManagementPerformanceMarket RiskCredit RiskLiquidity RiskOperational RiskCredit Rating Agency RelationsCapital Markets and Borrowing & Debt Management Objectives for 2010–11

Financial ReportingFinancial Reporting Objectives for 2010–11

CashManagementandBankingServicesCash Management & Banking Services Objectives for 2010–11

Financial AdviceTransactionsProjectsFinancial Advice Objectives for 2010–11

Summary of Financial Results 14

Table of Contents


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Table of Contents

Financial Statements 15Responsibility for Financial Reporting Auditor’sReportBalanceSheetStatementofNetIncomeandRetainedEarningsCashFlowStatementNotestoFinancialStatements

Corporate Governance 31Corporate Governance

Accountability and ResponsibilitiesFinancial Reporting Requirement

Internal ControlsBoard of Directors

Risk Management Policies and Procedures 40Market Risk PolicyCredit Risk PolicyPolicy on the Use of Derivatives and Other Financial InstrumentsRisk Management Reporting PolicyOperational Risk

Appendices 42Ontario’sCreditRatings

Long-Term RatingsShort-Term Ratings

AdditionalSourcesofInformation

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Statement from the Chair and the Chief Executive OfficerOntario successfully completed its largest annual borrowing program in 2009–10 despite continuing challenges in globalfinancialmarkets.Wedidsomainlythroughgreaterdiversificationininternationalbondmarketsandbybeingresponsivetoourbondinvestors.

Weraised$43.8billiononbehalfoftheProvinceandOEFC,completingthelong-termborrowingrequirementsforthefiscalyear.Totalsavingsrelativetotheperformancebenchmarksforborrowing,moneymarketanddebtmanage-mentactivitieswere$80million.

In2009–10,theOFAassistedministriesinimplementingcost-savingmeasuresforprogrampayments.TheOFAalsosupportedthegovernment’sprioritiesbyprovidingfinancialadviceandservicestoanumberofpublicsectororgani-zations.TheOFAcontinuedthereviewofbusinesscasesforborrowingrequestsfrompublicbodies,suchascolleges,schoolboards andCrowncorporations.This resulted in30 loans topublicbodies totalling$554million.Wealsoprovided financial advice on government initiatives related to the electricity sector and a loan guarantee program to facilitateAboriginalparticipationinenergyprojects.

In 2010–11, the OFA will continue to provide cost-effective borrowing, debt management and other financial services fortheOntariogovernment.Thelong-termborrowingrequirement is forecastat$39.7billion.Tomeetourbor-rowingrequirements,wewillcontinuetobeflexible,monitoringdomesticandinternationalmarkets,issuingbondsindifferenttermsandcurrenciesandrespondingtoinvestorpreferences.Diversificationofborrowingsourceswillcontinuetobeaprimaryobjectivein2010–11.Dependingonmarketconditions,theOFAplanstoborrowatleast50percentinthedomesticmarket.

Wewillalsocontinuetoengageinpublic-sectorfinancinginitiativesandprovideadviceandsupportonfinancialas-pectsofelectricitysectordevelopments.

WewouldliketothanktheOFAstafffortheirhardworkandthemembersoftheBoardofDirectorsfortheiradviceandoversightduringthefiscalyear.WelookforwardtoworkingwithbothstaffandtheBoardin2010–11.

PeterWallace GadiMaymanChair Chief Executive Officer


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Management’s Discussion and Analysis

CapitalMarketsActivities

Borrowing and Debt Management

Financial Reporting

CashManagementandBankingServices

Financial Advice

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Management’s Discussion and AnalysisThis section detailsManagement’s discussion and analysis of theOFA’s results in 2009–10 and its objectives for2010–11.

Capital Markets Activities

Borrowing Program

The long-term borrowing program for 2009–10 was$43.8billion.

Ontario had steady access to the domestic and internationalbondmarkets in2009–10duetoinvestor confidence in Ontario credit and the li-quidityprovidedbyitsbenchmarkbondissues.

In 2009–10, 51 per cent of borrowing ($22.4billion)wascompleted in internationalcapitalmarkets.Bondsissuedinforeigncurren-cieswereGlobalbondsinU.S.dollarsandEuroMedium-TermNotes(EMTNs)ineuros,SwissfrancsandHongKongdollars.

About$21.4billionor49percentofborrowingwascompletedinthedomesticmarketthrougha number of instruments, including syndicated issues,floatingratenotes,OntarioSavingsBondsandrealreturnbonds.

Total: $21.4 billion

Borrowing – Domestic Market

Real Return Bonds$0.3B (1%)

Floating Rate Notes$3.4B (16%)

Syndicated Bonds $16.6B (78%)

Ontario Savings Bonds$1.1B (5%)

Borrowing – All Markets

Total: $43.8 billion

International Bonds$22.4B (51%)

Domestic Bonds$21.4B (49%)


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Investments

TheOFAmanagestheProvince’sliquidreserveportfoliotooptimizeinvestmentreturnsandtoensuresufficientfundsareavailabletomeetcashrequirements.Theaveragelevelofdailyliquidreservesin2009–10was$14.4billion,netofcollateral.Inthenormalcourseofbusiness,theProvincemaypledgeorreceivecollateralforderivativestransactionsandrepurchaseagreements.

The OFA also invests on behalf of certain public bodies to help increase their returns by streamlining investment pro-cessesandreducinginvestmentcosts.In2009–10,theOFAprovidedinvestmentservicestoanumberofagencies,boards, commissions and other public bodies, including IO, the Pension Benefits Guarantee Fund, Ontario Trillium Foundation,OntarioCapitalGrowthCorporation and theDeposit InsuranceCorporationofOntario.Total fundsmanagedwere$3.1billion. WithOntarioPowerGenerationInc.(OPG),theOFAcontinuedtomanagetheinvestmentactivitiesoftheUsedFuelSegregatedFundandtheDecommissioningSegregatedFundestablishedundertheOntarioNuclearFundsAgreement(ONFA).AsatMarch31,2010,thecombinedmarketvalueofthefundswas$10.5billioncomparedto$4.9billionwhenthefundswereformallyestablishedin2003.

Therearecurrently18externalinvestmentmanagersretainedtoinvestONFAfundsinbonds,equitiesandglobalinfrastructure.Forthe12monthsendedMarch31,2010,thefunds’rateofreturnwas20.5percent,inlinewiththemarketbenchmarkof20.5percent.Sinceinception,thefundshavereturned6.4percentannualized,outperformingthelong-termtargetannualizedrateofreturnof3.25percentplustherateofchangeintheOntarioConsumerPriceIndex,foratotalof4.93percentannualized.

Borrowing and Debt Management

The OFA manages the total debt of the Prov-inceandOEFC.Totaldebt,whichrepresentsall borrowing without offsetting financial assets,was$212.4billiononaconsolidatedbasis,interimasatMarch31,2010.

Startingin2009–10,thebroaderpublicsec-tor’s(BPS)netdebtisincludedintheProv-ince’s net debt because of the adoption ofarevisedpresentationofBPSrevenues,ex-penses,assetsandliabilitiesintheProvince’sconsolidated financial reports. BPSorgani-zationsincludehospitals,schoolboardsandcolleges.

Ontario’snetdebtwas$193.2billioninterimasatMarch31,2010.ThisfigureincludesBPSnetdebtof$11.6billion.AsatMarch31,2009,netdebtwas$165.9billion,including$10.6billionrelatedtotheBPSnetdebt.

Total Debt Composition$212.4 billion

Treasury Bills & U.S. Commercial Paper$17.0B (8%)

Domestic Bonds$126.7B (60%)

Non-Public Debt$17.0B (8%)

International Bonds$51.7B (24%)

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Prudentriskmanagementpoliciesandpracticesmitigatethefinancialrisksinherentinmanaginglargedebtandliq-uidreserveportfolios.Avarietyoffinancialinstruments,suchasswapsandoptions,areusedtomanageexposurestofluctuationsininterestratesandforeigncurrencyexchangerates.TheOFAusesderivativesexclusivelyforhedg-ingpurposestomanageitsforeignexchangeandinterestraterisks.TheProvince’sfinancialrisksaredealtwithonaminute-by-minutebasis,andtheseriskexposuresaremarked-to-marketdailyandauditedannually.

RiskmanagementpoliciesarereviewedannuallyandamendmentsareapprovedbytheOFABoardofDirectors(theBoard).

Performance

TheOFAmonitorsandmeasurestheperformanceoftheborrowing,debtmanagementandliquidreserveprograms.Total savings relative to theperformancebenchmarkswas$80million in2009–10, compared to$201million in2008–09.

Theborrowingprogram’sperformanceismeasuredbythedifferencebetweentheall-incostoftheactualborrowingprogram including only fixed-rate debt with terms of greater than two years, and the all-in cost of hypothetical do-mesticborrowingofthesametermandsizeimplementedevenlyoverthefiscalyear(even-pacebenchmark).Thecostdifferenceiscomparedtotheperformanceoffixedincomefundmanagersrelativetoacommonbondmarketindex.

For2009–10,thecostofborrowingfortheProvinceandOEFCwas$80.3millionlowerthantheeven-paceborrow-ingbenchmarkonapresentvaluebasiscomparedto$194.1millionin2008–09.

Thedebtmanagementprogram’sperformanceisevaluatedbasedonacomparisonofprogramsavingswitharisk-basedperformancetarget.In2009–10,thedebtmanagementprogramincurredlossesof$1.8million,comparedtolossesof$1.7millionin2008–09.

Theperformanceofliquidreserveinvestmentsismeasuredrelativetothereturnsofacustombenchmarkwithatermof45days.Theperformancedifferenceiscomparedtotheperformanceofapeergroupofmoneymarketmanagers,relativetoacommonmoneymarketindex.Moneymarketperformancewas$2.2millionbetterthanthebenchmarkfor2009–10.Theprogramreturned1.6basispointsmorethanthe45daybenchmark.

Market Risk

Marketriskistheriskoflossduetochangesininterestandforeignexchangerates.TheOFAaimsforabalanceddebtmaturityprofiletomitigatetheinterestrateriskinherentinrefinancingmaturingdebtandthefloating-ratedebt.

TheProvincelimitsitselftoamaximumnetinterestrateresettingexposureof35percentofdebtissuedforProvincialpurposesandamaximumforeign-exchangeexposureof5percentofdebtissuedforProvincialpurposes.

Theinterimpercentageof interestrateresettingexposure(netof liquidreserves)was11.6percentofdebtasatMarch31,2010.Theinterimforeignexchangeexposurewas0.1percentofdebtasatMarch31,2010.


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Debtmaturitieswere$14.6billion,whiledebtredemptionswere$0.4billionin2009–10.In2008–09,debtmaturi-tieswereapproximately$20.3billion,whiledebtredemptionswere$0.5billion.

AllexposureswerewellwithintheProvince’sapprovedpolicylimitsduring2009–10.

Credit Risk

Creditriskistheriskoflossduetodefaultofbondissuersorcounterpartiesofderivativesorotherfinancialtrans-actions.ThelowestacceptablecreditratingofcounterpartiesforOntariois“Aminus”.However,Ontariotypicallyentersintoswaptransactionswithnewcounterpartiesrated“AAminus”orhigher.

TheProvince’s interimnetcreditriskexposureassociatedwiththederivativeportfolioasatMarch31,2010was $411million,comparedto$951millionasatMarch31,2009.NetcreditriskexposurerepresentsthelossthattheProvincewouldincurifeverycounterpartytowhichtheProvincehadcreditriskexposureweretodefaultatthesametimelessthemitigatingimpactofnettingprovisionsasprescribedincontractualmasteragreements.

AsatMarch31,2010,91percentofOntario’screditexposurewastocounterpartiesrated“AAminus”orbetter,comparedto90percentasatMarch31,2009.

Liquidity Risk

LiquidityriskistheriskliquidreserveswillnotbesufficienttomeettheProvince’scashrequirements.Thisriskiscontrolled through the management of operational cash flows, liquid reserve levels and the short-term borrowing program.

The Province’sTreasury Bill and U.S. Commercial Paper programs have authorized limits of $25.5 billion and $5billion,respectively.AsofMarch31,2010,theProvince’sTreasuryBillandU.S.CommercialPaperprogramsstoodat$13.7billionand$3.1billionrespectively.

Operational Risk

Operationalriskistheriskoflossresultingfrominadequateorfailedinternalprocesses,people,systemsorexternalevents.TheOFAmanagesoperationalrisksthroughdivisionalproceduresandcontingencyplansaswellasappropri-atestaffingandtraining,allofwhicharereviewedonanongoingbasis.TheBusinessContinuityPlanensurescriticaloperationsarecompletedinatimelymannerintheeventofabusinessdisruption.

The reliability of information technology and computing systems is crucial to ensure the OFA carries out its mandate efficientlyandeffectively.Systemsweremaintainedatahighlevelduring2009–10.

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Credit Rating Agency Relations

TheProvincerequiresratingsfromrecognizedcreditratingagenciestoissuedebtinthecapitalmarkets.TheOFAensures credit rating agencies understand government policies and budget direction as well as economic and fiscal performance,andproperlyreflecttheseintheirreportsanddecisions.ThroughtheOFA,theProvincemaintainsaone-windowcontactwiththeagenciestoensureinformationprovidedtothemisconsistentandcoordinated.

Followingtheirreviewofthe2010Budget,allthreeratingagenciesconfirmedtheProvince’sratings.Moody’scon-firmedits“Aa1”ratingonApril19,2010,DBRSconfirmedits“AA(low)”onMay20,2010andStandardandPoor’s(S&P)confirmedits“AAminus”onJune16,2010.

Capital Markets and Borrowing & Debt Management Objectives for 2010–11

Thetotallong-termborrowingrequirementfor2010–11isforecastat$39.7billionduetotheProvince’sdeficit,debtmaturitiesandcapitalinvestments.

Since2002–03,theproportionofdomesticCanadiandollarissuancehasremainedstableandgoingforward,thedo-mesticmarketisexpectedtobetheProvince’smainfundingsource.

The OFA will continue to diversify its domestic borrowing program using a combination of syndicated issues, bond auctions,floating-ratenotes,medium-termnotesandOntarioSavingsBonds.

Inaddition,itisexpectedthatupto50percentoftheprogramwillbeborrowedininternationalmarkets.Investorrelationswillremainapriority,withroadshowsplannedforEurope,Asia,CanadaandtheUnitedStates.


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Cost-effectiveandprudentdebtmanagementstrategieswillcontinuetobekeyobjectivesin2010–11.TheOFAwillcomplywithriskmanagementpoliciesandportfolioprogramlimitsapprovedbytheBoardsofDirectorsoftheOFAandOEFC.Riskmanagementpolicieswillbereviewedandrevisedasrequiredinresponsetoanevolvingregulatoryandcapitalmarketsenvironment.

TheOFAwillalsomanagetheProvince’sliquidreservesconservatively.WithOPG,theOFAwillcontinuetoadminis-terONFAinvestmentsconsistentwithitsobjectivessotheProvince’scontingentliabilitiesunderONFAareprudentlymanaged.Aswell,theOFAwillinvestonbehalfofcertainpublicbodies.

Financial Reporting

The OFA continued to be actively involved in discussions with the accounting community regarding developments thatcouldhaveafutureimpactonthereportingoftheProvince’sdebtandinterestondebt(IOD).

Financial Reporting Objectives for 2010–11

TheOFAwillcontinuetoworkwiththeOfficeoftheProvincialControllerandthebroaderaccountingcommunitytoensuretheProvince’sneedfortransparencyandaccountabilityareappropriatelyreflectedwhenanyaccountingchangesareconsideredbythePublicSectorAccountingBoard(PSAB).

The OFA will also continue to maintain a leading edge Business Continuity Plan to ensure that timely payments are madetotheBPS(includinghospitals,municipalitiesandschoolboards),tomanagetheProvince’sfinancialrisksinrealtime,andtoensurealloftheProvince’smultibilliondollarfinancialtransactionsaresettledandprocessedwhendueregardlessofpotentialinterruptions.

Cash Management and Banking Services

TheOFAprovidescentralizedcashmanagementservicesthatminimizeIODcosts.Itisalsoresponsiblefortheprovi-sionofbankingservicestothegovernment,includingtheefficientmanagementofbankingrelationshipstoensurevalueformoney.

In2009–10,theOFAprovidedguidancetotheMinistryofCommunityandSocialServicesonconvertingcheque-basedsupportpaymentstoelectronicfundstransfers,resultingincostefficienciesofatleast$4millionperannum.

TheOFA,with theProvince’s credit card serviceprovider, launchedapilotproject forServiceOntario toenableOntarianstopurchasegovernmentgoodsandservicesonlineusingadebitcard.TheOFAalsoeffectivelymanagedthecashflowsrelatedtothetransferoftheadministrationoftheProvince’sCorporateTaxestotheCanadaRevenueAgency.

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Cash Management & Banking Services Objectives for 2010–11

TheOFAwilltenderandimplementresultsoftendersforbanking,debit/creditcardacceptanceservicesandcusto-dialservices.

The OFA will also develop and implement technologies that better serve both ministries and various client groups oftheProvince.Examplesincludeidentificationandimplementationofappropriateelectronicpaymentchannelsandimplementationofmandatorycreditcardindustrysecurityrequirements.

Financial Advice

The OFA was active in providing financial advice and implementation assistance to ministries, Crown agencies and otherpublicbodiesoncorporateandelectricityfinancepoliciesandinitiatives.

Transactions

Ongoinganalysis,adviceandsupportwerealsoprovidedonthesuccessfulbidforthe2015PanAmGamesanddeliv-eryofOntario’sshareoffinancialassistancetotheautomotivemanufacturingindustry.

The OFA has been involved in providing financial advice to the government on the review of government business enterprisesaswellasstrategicadviceonfinancialandinvestmentpolicyissuesassociatedwiththeautosector.

InBudget2010,theProvinceannouncedthatitwasreviewingwaystomaximizethereturnsonitsmajorgovernmentbusinessenterprises.TheOFAhasandwillcontinuetoassisttheProvinceinthisreviewbyprovidingfinancialanalysisandadvicewithrespecttopotentialopportunitiestomaximizethereturnsonitsgovernmentbusinessenterprisesandotherassets.

Projects

TheOFA’sframeworkforfinancingpublicbodiesmandatestheOFAtoprovidelong-termfinancingtoschoolboards,colleges,hospitalsandProvincialcorporations,boardsandcommissions.Underthisframework,theOFAprovidedloans to a number of public bodies, including Ontario colleges, school boards and Crown corporations totalling $554millionin2009–10.

The OFA provided business case analysis and advice to ministries, Crown agencies and other public bodies on a wide varietyofpoliciesandprojects.

TheOFAalsoevaluatedforestrysectorapplicationsforgrantsandloanguaranteesunderthegovernment’sforestsec-torsupportprograms.

TheOFAreviewedandprovidedadviceonapplicationsreceivedunderthegovernment’sNextGenerationofJobsFundprogram,aswellasontheduediligenceprocessrelatingtotheprogram.

TheOFAcontinuedtoprovideanalysisandadviceinrespectofanumberofIO’sprojects.


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TheOFA,onbehalfoftheProvince,announcedthelaunchofa$250millionloanguaranteeprograminSeptember2009tofacilitateAboriginalparticipationinrenewablegenerationandtransmissionprojects.EachapplicationwillbesubjecttoarigorousduediligenceprocessandwillrequireapprovalbytheMinisterofFinance.

The OFA provided services to OEFC, including facilitating loan agreements between OEFC and OPG to refinance existingmaturitieswithOEFCandtofinancenewelectricitysupplyprojects.

TheOFAassistedinthecontinuedimplementationofONFA.ItreviewedOPG’sannualbudgetforeligibleexpendi-turesunderONFAfornuclearwastemanagementandthePickeringUnits2and3safestorageproject,andtheOFAcontinuedtomonitorandprovideduediligenceontheProvincialGuaranteetotheCanadianNuclearSafetyCom-mission(CNSC).TheProvinceprovidesaguaranteetotheCNSCinpartialsatisfactionofOPG’sfinancialguaranteerequirementstotheCNSConitsdecommissioningandnuclearwasteobligations.AsatMarch31,2010,theamountofthecurrentdirectProvincialguaranteetotheCNSCwas$1.5billion,effectiveMarch1,2010.TheOFAcontinuestomonitortherequirementforadirectProvincialGuarantee,workingwithOPGandtheCNSCasrequired.

Financial Advice Objectives for 2010–11

In 2010–11, the OFA will continue to provide financial advice and assistance to the Minister of Finance, ministries, Crownagenciesandotherpublicbodiesonfinancialpoliciesandinitiatives.

Activities will include advising ministries and agencies on cost-effective financing policies and structures, comprehen-sive advice on structuring and implementing financial transactions and accurate determination of value-for-money benchmarks.

Particularattentionwillbegiventopublicinfrastructurefinancinginitiatives,includingprojectspertainingtopub-lictransitandpooledcapitalprocurementfortheschoolrenewalfundingformula.OFAstaffwillparticipateinthereviewofhospitalworkingcapitalthatwasannouncedinthe2010Budget.TheOFAwillalsoprovideadviceonmea-surestosupportgovernmentinitiativesandtofacilitatecost-effectiveborrowingbypublicsectororganizations.

Financial analysis and advice will be provided to the Minister of Finance on the electricity sector and the impact of relatedpolicyinitiativesontheProvince’sfinances(includingthoseofOEFC)andtheeconomy.Inaddition,ongoingsupportwillbeprovidedfortheimplementationofONFA.Asrequired,theOFAwilladviseonelectricitysupplyinitiatives,includingfacilitatingpotentialfinancingtoOPGfornewsupplyinitiatives.

The OFA will provide analysis and advice to the Minister of Finance on applications for the Aboriginal loan guarantee program.

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TheOFAmanagestheProvince’sdebtandinvestmentofliquidreserves,andrecoversitscostsfromtheProvincefortheseservices.TheOFAalsoprovidesfinancialservicestoCrownagenciesandotherpublicbodies,andrecoverscostsonafee-for-servicebasis. TheOFAalsoadministerstheassetsandliabilitiesoftheformerOntarioMunicipalImprovementCorporation(OMIC).OMICmadeloansof$79milliontovariousschoolboardsduein2010–2012,andfinancedtheloansthroughdirectborrowingfromtheCanadaPensionPlan.MoredetailsareprovidedinNote2intheOFA’sFinancialStatements.

TheoutstandingbalanceoftheloanstopublicbodiesatMarch31,2010amountsto$4,575million,anincreaseof$1,681millionfrom$2,894millioninMarch2009(Note6).Theincreaseislargelyduetoadditionalloansto:theGovernmentofCanada–AutoSectorof$1,313million;SchoolBoardsof$307million;OntarioPowerAuthorityof$90million;Collegesof$45million;andtheNiagaraParksCommissionof$6.5million.ThisincreaseispartiallyoffsetbynetrepaymentsfromtheOntarioLotteryandGamingCorporationof$69million,RoyalOntarioMuseumof$8million;OntarioNorthlandTransportationCommissionof$3millionandCorporationofCityofWindsorof$1million. The OFA continued to provide investment management services to other public bodies in the aggregate amount of $3.1billion(March2009–$2.5billion)(FinancialStatementsNote7).

The OFA recovered operating costs from agencies and related parties amounting to $4.9 million (2009 - $4.9million)(Note8).TheOFA’snetincomefromoperationsfortheyearendedMarch31,2010was$1,402,000(2009–$889,000).TheincreaseismainlyduetotheinterestratespreadonloanstopublicbodiesadvancedafterMarch2009.

The OFA has been involved in providing financial advice to the government on the review of government business enterprisesaswellasstrategicadviceonfinancialandinvestmentpolicyissuesassociatedwithelectricitysector.

Summary of Financial Results


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Financial Statements

Responsibility for Financial Reporting

Auditor’sReport

BalanceSheet

StatementofNetIncomeandRetainedEarnings

CashFlowStatement

NotestoFinancialStatements

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TheaccompanyingFinancialStatementsoftheOFAhavebeenpreparedinaccordancewiththerecommendationsofthePublicSectorAccountingBoard(PSAB)oftheCanadianInstituteofCharteredAccountantsandaretheresponsi-bilityofManagement.ThepreparationoftheFinancialStatementsnecessarilyinvolvestheuseofestimatesbasedonManagement’sjudgment,particularlywhentransactionsaffectingthecurrentaccountingperiodcannotbefinalizedwithcertaintyuntilfutureperiods.TheFinancialStatementshavebeenproperlypreparedwithinreasonablelimitsofmaterialityandinlightofinformationavailableuptoJune4,2010.

Management maintains a system of internal controls designed to provide reasonable assurance that assets are safe-guardedandthatreliablefinancialinformationisavailableonatimelybasis.Thesystemincludesformalpoliciesandproceduresandanorganizationalstructurethatprovidesforappropriatedelegationofauthorityandsegregationofresponsibilities.AninternalauditfunctionindependentlyevaluatestheeffectivenessoftheseinternalcontrolsonanongoingbasisandreportsitsfindingstoManagementandtheAudit&RiskManagementCommitteeoftheBoard.

TheBoard, through theAudit&RiskManagementCommittee, is responsible forensuringManagement fulfils itsresponsibilitiesforfinancialreportingandinternalcontrols.TheAudit&RiskManagementCommitteemeetsperiodi-cally with Management, the internal auditors and the external auditor to deal with issues raised by them and to review thefinancialstatementsbeforerecommendingapprovalbytheBoard.

TheFinancialStatementshavebeenauditedbytheAuditorGeneralofOntario.TheAuditorGeneral’sresponsibilityistoexpressanopiniononwhethertheFinancialStatementsarefairlypresentedinaccordancewiththerecommenda-tionsofPSABoftheCanadianInstituteofCharteredAccountants.TheAuditor’sReport,whichappearsonthefollow-ingpage,outlinesthescopeoftheAuditor’sexaminationandopinion.

On behalf of Management:

Gadi MaymanChief Executive Officer

Responsibility for Financial Reporting

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Auditor’s Report


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Ontario Financing AuthorityBalance Sheet

As at March 31, 2010

(in thousands of dollars) 2010 2009

ASSETS

Current assetsCash $2,156 $965Interestreceivable–OMIC(Note2) 2,029 2,029Duefromagenciesandrelatedparties(Note8) 1,674 1,491DuefromtheProvince 1,763 1,589Currentportionofloansreceivable 5,156 –

Total current assets 12,778 6,074Fixed assets(Note3) 3,053 2,790Loans receivable(Note2) 73,865 79,021

Total assets $ 89,696 $ 87,885

LIABILITIES AND RETAINED EARNINGS Current liabilities

Accountspayable $1,722 $1,530Interestpayable–OMIC(Note2) 2,029 2,029DuetotheProvince-Recoveries 1,254 1,282Currentportionoflongtermdebt 5,156 –

Total current liabilities 10,161 4,841Long term debt (Note2) 73,865 79,021Deferred revenue(Note4) 3,094 2,849Retained earnings 2,576 1,174

Total liabilities and retained earnings $ 89,696 $ 87,885

See accompanying notes to financial statements.

Approved on behalf of the Board:

PeterWallace GadiMaymanChair Chief Executive Officer

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Ontario Financing AuthorityStatement of Net Income and Retained Earnings

For the year ended March 31, 2010


REVENUE CostrecoveryfromtheProvince(Note5) $19,714 $18,105 Interestrevenue(Note2) 8,996 8,482

Total revenue 28,710 26,587

EXPENSES Salaries,wagesandbenefits 18,160 16,662 Interestonlongtermdebt(Note2) 7,593 7,594 Administrativeandgeneral 5,416 5,540 Amortizationoffixedassets(Note4) 1,016 820

Sub Total 32,185 30,616Less:costrecoveryfromagencies&relatedparties(Note8) (4,877) (4,918)

Total expenses 27,308 25,698

Netincome 1,402 889Retainedearnings,beginningofperiod 1,174 285

Retainedearnings,endofperiod $ 2,576 $ 1,174



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Ontario Financing AuthorityCash Flow Statement



Cash flows from operating activities Netincome $1,402 $889 Adjustmentforamortizationoffixedassets 1,016 820 Decreaseinnetinterestreceivable/payable – 19 (Increase)induefromagencies&relatedparties (183) (437) DecreaseinduefromtheProvince(netofaccountspayable) 18 18 Increase/(decrease)inrecoveriesduetotheProvince (28) 273 Increaseindeferredrevenue 245 1,463

Cashflowsfromoperatingactivities 2,470 3,045

Cash flows from investing activities Purchaseofcapitalassets (1,279) (2,301)

Cashflowsusedininvestingactivities (1,279) (2,301)

Increaseincash 1,191 744Cash,beginningofyear 965 221

Cash, end of year $ 2,156 $ 965


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BACKGROUND

TheOntarioFinancingAuthority(the“OFA”)wasestablishedasanagencyoftheCrownonNovember15,1993bythe Capital Investment Plan Act, 1993(the“Act”).InaccordancewiththeAct,theOFA:

• conductsborrowing,investmentandfinancialriskmanagementfortheProvinceofOntario(the“Province”);• managestheProvincialdebt;• providesfinancialandcentralizedcashmanagementservicesfortheProvince;• advisesministries,Crownagenciesandotherpublicbodiesonfinancialpoliciesandprojects;• assistsCrownagenciesandotherpublicbodiestoborrowandinvestmoney;• actsatthedirectionoftheProvinceinlendingtocertainpublicbodies;• investsonbehalfofsomepublicbodies.

Inaddition,theOFA’sobjectsinclude:• providingsuchotherfinancialservicesasareconsideredadvantageoustotheProvinceoranypublicbody;and• anyadditionalobjectsasdirectedbytheLieutenantGovernorinCouncil.

TheOFAisacorporationestablishedunderthelawsofOntario.TheOFAisexemptfromfederalandprovincialin-cometaxesunderparagraph149(1)(d)oftheIncome Tax Act(Canada).

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting: BecausetheOFAisagovernmentorganization,thesefinancialstatementsarepreparedinaccordancewiththerecommendationsofthePublicSectorAccountingBoard(PSAB)oftheCanadianInstituteofCharteredAccountants.

Cash: Cashincludescashondepositandhighlyliquidinvestmentswithmaturitiesoflessthanninemonths.Theyarerecordedatcost,whichapproximatescurrentmarketvalue.

Fixed assets: Fixedassetsarestatedatcost.Amortizationisprovidedusingthestraight-linemethodovertheestimatedusefullifeoftheasset,aslistedbelow.

Furnitureandequipment 5yearsComputerhardware 3yearsLeasehold improvements Term of lease plus one renewal period

Funding received from the Province and the agencies for the acquisition of fixed assets is recorded as deferred revenueandamortizedtocostrecoveryonthesamebasisasthefixedassets.

Ontario Financing AuthorityNotes to Financial Statements


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Measurement uncertainty: Thepreparationofthesefinancialstatementsrequiresmanagementtomakees-timates that are based on the best information available at the time of preparation of the financial statements and willbeupdatedannuallytoreflectnewinformationasitbecomesavailable.

2. LONG-TERM DEBT AND RELATED INTEREST

In accordance with the Act, the Ontario Municipal Improvement Corporation (OMIC) assets and liabilities were transferred to theOFAonNovember15,1993.OMICreceived loans fromtheCanadaPensionPlan (CPP)whichwereusedtomakeloanstomunicipalitiesandschoolboardsundersimilartermsasitsdebt.

The maturities and average interest rates on both the outstanding loans receivable and outstanding debt are set out below:

(in thousands of dollars)

Maturing in: Principal Maturing Average Interest Rate (%)2010 $5,156 10.862011 29,630 9.972012 44,235 9.22Total $ 79,021 9.61Less current portion 5,156 $ 73,865

InterestpayabletoCPPof$2,029isequaltotheinterestreceivablefromthemunicipalitiesandschoolboards.

The$8,996ofinterestrevenueequalsthe$7,593interestexpenseontheCPPborrowings,plus$1,397interestratespreadchargedonloanstorelatedpartiesasexplainedinNote6plusinterestearnedonthebalanceofcash.

3. FIXED ASSETS

Thenetbookvalue(NBV)offixedassetsisasfollows: (in thousands of dollars)

NBV NBV Accumulated March 31, March 31, Cost Amortization 2010 2009

Furniture and equipment $1,030 $398 $632 $729Computer hardware 10,883 9,519 1,364 932Leasehold improvements 1,686 629 1,057 1,129Total $ 13,599 $ 10,546 $ 3,053 $ 2,790

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4. DEFERRED REVENUE

DeferredrevenuerepresentstheunamortizedportionofthecostrecoveredfromtheProvinceandtheagenciesfortheacquisitionoffixedassetsandtheamountofleaseinducementtobeamortizedtooperationsoverthreeyears.

(in thousands of dollars) Lease Fixed Assets Inducement TotalBalance, beginning of year $2,790 $59 $2,849Additions 1,279 – 1,279Amortization (1,016) (18) (1,034)Balance, end of year $ 3,053 $ 41 $ 3,094

The$1.0millionamortizationofdeferredfixedassetsrevenueisincludedinthecostrecoveryfromtheProvinceontheStatementofNetIncomeandRetainedEarnings,whilethe$18,000amortizationofdeferredleaseinducementisnettedagainstadministrativeandgeneralexpense.

5. DEBT MANAGEMENT FOR THE PROVINCE

TheOFAmanagesdebtandinvestmentonbehalfoftheProvince,includingthejointmanagementoffundsownedbyOntarioPowerGeneration Inc. (OPG)under theOntario Nuclear Funds Agreement.TheProvince,OPGandcertain OPG subsidiaries entered into the agreement in March 2002 to set aside funds necessary to dispose of nuclearwasteandusedfuelandtodecommissionnuclearpowerstations.TheagreementcameintoforceonJuly24,2003.

Cost recovery from the Province for all debt management and investment activities for the year ended March 31,2010was$19.7million (2009–$18.1million).The increaseof $1.6million is due to greaterdemandsontheOFAresultinginincreasedstaffingandsupportcosts(legalfeesandITsupport)intheCapitalMarketsDivision for higher borrowing requirements and loans to public bodies, and increased staffing and accommodation costs for the Corporate and Electricity Finance Division, including the costs of advisory services related to asset managementactivities.

6. TRANSACTIONS WITH PUBLIC BODIES

TheOFAprovidesfinancingtovariouspublicbodiesondirectionfromtheProvince.AstheOFAisdirectedbytheProvincetomaketheseloansinfurtheranceofstatedProvincialinitiatives,andtheseloansareincludedintheProvince’sconsolidatedfinancialstatements,thesetransactionsarenotreflectedinthesefinancialstatements.FundsfortheseloansareadvancedtotheOFAbytheProvinceundercreditfacilitiesaggregating$14.5billionexpiringfrom2027to2037.PrincipalrepaymentsreceivedfrompublicbodiesbytheOFAareforwardedtotheProvince.The interestrateschargedtopublicbodieswillbeslightlyhigher thantheratechargedontheadvancesfromtheProvincetofundtheloans(“thespread”).TheOFAwillgenerallyretainthespreadinordertorecovertheadministrativecostsofmanagingtheseloans.Insomecasestheratechargedtotheborrowerwillbe similar to the rate that would be charged on the loan by a commercial lender which would reflect the relative riskassociatedwiththeloan.


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Funds are generally advanced by the OFA to public bodies under interim financing arrangements consisting of a numberofpromissorynotesfortermsnotexceedingoneyear.Thepromissorynotesarelaterconvertedtotermdebtandrepaymenttermsarefinalized.AsofMarch31,2010,theprincipalamountsreceivablebytheOFAonbehalfoftheProvincerepresentdebentures,shorttermloansandlinesofcredit.Inadditiontotheoutstandingloansbelow,interestaccruedontheseloansamountedto$53.4million(March2009–$38.8million).

Thesearerelatedpartytransactions,withtheexceptionofthosewiththeCorporationoftheCityofWindsorandtheGovernmentofCanada-AutoSector.

(in thousands of dollars) March 31, 2010 March 31, 2009

CentennialCentreofScienceandTechnology $3,500 $4,000CollegesofAppliedArtandTechnologies 70,677 24,827CorporationoftheCityofWindsor 18,386 19,516GovernmentofCanada-AutoSector 1,396,252 83,333NiagaraParksCommission 6,500 —OntarioInfrastructureProjectsCorporation 100,000 100,000OntarioLotteryandGamingCorporation 187,840 256,372OntarioNorthlandTransportationCommission 30,646 33,821OntarioPowerAuthority 90,000 —RoyalOntarioMuseum 48,840 56,840SchoolBoards 2,622,292 2,315,104Total $ 4,574,933 $ 2,893,813

Loans to Public Bodies:

TheCentennialCentreofScienceandTechnologyisaCrownagencyoftheProvinceundertheCentennial Centre of Science and Technology Act, 1990.TheloanwasmadetofundtheconstructionoftheAgentsofChangeprojectandbearsinterestat4.346percentandmaturesinMarch2017.

CollegesofAppliedArtsandTechnologyhavebeenloaned$71million(2009–$25million)forvariouscampusprojectsincludingnewandexpandedstudentresidences,computerequipment,parkingfacilities,andanenergysaving capital project.These loansbear interest ranging from0.6 to6.37per cent andmature from2011 to2040.

TheCorporationoftheCityofWindsorisamunicipalitywithinthemeaningofthe MunicipalAct.Thefinancingprovidedisfortheacquisition,designandconstructionoftheWindsorJusticeFacility,consistingofaprovincialdivisioncourthouseandcitypoliceheadquarters.Thisisa20yearloanbearinginterestat6.41percentandma-turinginMarch2021.Theoutstandingbalanceis$18.4million(March2009–$19.5million).

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TheGovernmentofCanadaborrowedatotalof$4,577million(March2009–$83million)toassistinprovidingfundingtotheCanadianautosector.InJuly,loansof$3,047millionwereexchangedforequityandonDecember18,2009andMarch31,2010,loansof$134millionwererepaid,leaving$1,396millioninloansoutstandingbearingfloatinginterestratesrangingfrom5to7percent.Interestof$61milliononoutstandingloanswasre-ceivedasofMarch31,2010.Oftheoutstandingloans,$535millionisscheduledtomatureonJune12,2017,$365millionisscheduledtomatureonJuly10,2015and$69millionisscheduledtomatureonJuly10,2010.Loansof$427millionwhichmaturedonJune29,2009remainoutstanding.FurtherinformationwillbereceivedfromtheGovernmentofCanadaregardingthematuredloans.Subsequenttotheyear-end,onApril20,2010,additionalloansof$365millionwererepaid.

TheNiagaraParksCommission,aCrownagencyof theProvince,operatingunderNiagara Parks Act 1990, bo-rrowed$6.5million(March2009–Nil)tofinanceadditionalcapitalcosts incurredfortheredevelopmentofphaseIofTableRockHouseinQueenVictoriaPark,NiagaraFalls.Thisisaseventeenyearamortizationloan,bearsinterestat5.07percentandmaturesinNovember2026.

TheIOhasbeenprovideda10-yearRevolvingCreditFacilitytoamaximumamountof$200million.IOhasdrawn$100million(March2009–$100million)bearinginterestatratesrangingfrom2.12to4.63percent.

The Ontario Lottery and Gaming Corporation (OLG) is a Crown agency of the Province under the Ontario Lottery and Gaming Corporation Act, 1999,andhasbeenprovidedaloantotaling$188million(2009-$256million)tofundseveralprojectsandbearsinterestat2.4percentandmaturesinFebruary2015.

TheOntarioNorthlandTransportationCommission(ONTC)isaCrownagencyoftheProvinceundertheOntario Northland Transportation Commission Act, 1990.TheONTCtotalborrowingiscomprisedofamortizationloansandanoperatinglineofcreditaggregatingto$31million(March2009–$34million).Loansof$18millionmaturefrom2010to2031andbearinterestratesrangingfrom4.717to6.37percent.Theoperatinglineofcreditof $13millionbearsfloatinginterestraterangingfrom0.24to0.56percent.

TheOntarioPowerAuthoritywasprovidedamaximum$975millioncreditfacilitytofundtheRegulatedPricePlanvarianceaccount.ThecreditfacilityexpiresonDecember31,2010.Ithaddrawn$90millionagainstthiscreditfacilityatinterestratesrangingfrom0.42percentto0.50percentbyMarch31,2010.

The Royal Ontario Museum (ROM) has borrowed $49 million (March 2009 – $57 million) comprised of $40million at fixed rates ranging from 5.04 to 5.12 per cent and $9million at a floating rate currently at 0.59percent.AlloutstandingloansarescheduledtoberepaidbyMarch2016.

Schoolboardshavebeenprovidedloansundervariousprogramsbeginningin2006.DuringtheyearendedMarch31,2010,schoolboardswereprovidedwithadditional loansandmadetwosemi-annualblendedpaymentsofprincipalandinterest,leavingthetotaloutstandingamountat$2,622million(March2009–$2,315million).Theseloansbearinterestrangingfrom3.59to5.384percentandmaturefrom2031to2034.


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Committed Credit Facilities:

At the direction of the Province, the OFA has committed to finance a number of public bodies for which funds havenotyetbeenadvanced.Thedetailsareasfollows:

The Canadore College of Applied Arts and Technology, a Crown agency established under the Ontario Colleges of Applied Arts and Technology Act, 2002,wasprovidedanon-revolvingloancreditfacilityexpiringonMarch31,2011tofinancetherenovationofaStudentCentretoamaximumof$9millionduringtheconstructionperiod.TherepaymentdateistobenolaterthanMarch31,2011.

TheDepositInsuranceCorporationofOntario(DICO)wasprovidedamaximum$250millionrevolvingcreditfacilityexpiringonOctober31,2013toensureDICO’scapacity toaddress systemicdifficulties in thecreditunion system or the failure of large institutions that require resources above those in the Deposit Insurance Re-serveFundwhichiscurrentlyvaluedatapproximately$97million.AllprincipalandinterestisrequiredtoberepaidbyDecember31,2024.

7. INVESTMENT AND DEBT MANAGEMENT FOR AGENCIES AND RELATED PARTIES

The OFA provides services to agencies, related parties and other public bodies including investment manage-mentservicesaslistedbelowonacostrecoverybasisamountingto$183,000fortheyearendedMarch31,2010(March2009–$153,000).Fundsmanagedonbehalfoftheseotherpublicbodieswere$3.1billionatMarch31,2010(March2009–$2.5billion).

Algonquin Forestry Authority Ontario Immigrant Investor CorporationDeposit Insurance Corporation of Ontario Ontario Realty CorporationInfrastructureOntario OntarioSecuritiesCommissionNorthernOntarioHeritageFundCorporation OntarioTrilliumFoundationOntario Capital Growth Corporation Pension Benefits Guarantee Fund

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8. DEBT MANAGEMENT FOR AGENCIES AND RELATED PARTIES

The OFA provides debt management services on a cost recovery basis to agencies and related parties as set out below:

Agencies:

Ontario Electricity Financial Corporation (OEFC)OEFC is responsible for servicing and retiring the debt and certain other liabilities of the former Ontario Hydro.TheOFAprovidesfinancialservicesandadvicetoOEFCandmanagesitsdebtportfolioofapproxi-mately$27.4billion.

Infrastructure Ontario (IO)TheOFAprovidesfinancialservicesandadvicetoIOandmanagesitsdebtof$2billionincludingloansfromtheProvince,aprovincialagencyandthirdparties.

TotalcostsrecoveredandamountsoutstandingatMarch31,2010fromOEFC,IOandotherrelatedpartiesareset out in the table below:

(in thousands of dollars)

March 31, 2010 March 31, 2009Costs Recovered:

Agencies: OEFC $3,621 $3,520IO 1,073 1,245Other(Note7) 183 153

Total $4,877 $4,918

Receivables:Agencies: OEFC $905 $879IO 268 311Other(Note7) 81 32

Relatedparties–Interest(Notes2and6) 420 269 Total $1,674 $1,491


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9. FUTURE EMPLOYEE BENEFITS

TheOFAprovidespensionbenefitstoitsfull-timeemployeesthroughparticipationinthePublicServicePensionPlan,whichisamulti-employerdefinedbenefitpensionplanestablishedbytheProvince.TheMinistryofGovern-mentServices(MGS)isresponsibleforfundingtheemployer’scontributiontothePensionFundandaccordingly,theOFAhasnoadditionalliabilityforthesefuturecosts.Inaddition,thecostofpost-retirement,non-pensionbenefitsispaidbyMGSandisnotreportedinthesefinancialstatements.

10. CONTINGENCIES AND COMMITMENTS

AtMarch31,2010,therewerenoclaimsunderwhichtheOFAwouldbefinanciallyliable.TheProvincecontin-uestoguaranteethetermdepositsissuedbytheProvinceSavingsOfficepriorto2003.

11. COMPARATIVE FIGURES

Certainoftheprioryear’scomparativefigureshavebeenreclassifiedtoconformtothefinancialstatementpre-sentationadoptedforthe2009–10fiscalyear.

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31

Corporate Governance


Financial Reporting Requirements

Board of Directors

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TheOFAisanagentoftheCrownandisclassifiedasanoperationalenterpriseagency.

CorporategovernanceinvolvesprocessesthatpermittheeffectivesupervisionandmanagementoftheOFA’sactivi-tiesbyseniormanagement,theBoardandtheMinisterofFinance.Itincludesidentifyingindividualsandgroupsre-sponsibleforactivitiesandspecifyingtheirroles.TheOFA’sgovernanceframeworkisfullydescribedinitscorporategovernancepolicy.

Accountability and Responsibilities

TheOFA’saccountabilitystructureflowsfromitsgoverningstatute,CIPA.TheMinisterofFinanceistheministerresponsiblefortheadministrationofCIPAwithrespecttotheOFA.CIPA,togetherwithdirectivesissuedbyManage-mentBoardofCabinet(MBC)relatingtoCrownagencies,formaframeworkunderwhichtheOFAisgoverned.

Each year, the Minister is required to submit the Annual Report to the Lieutenant Governor in Council and then table thereportintheLegislature.Inaddition,theMinisterreviewsandapprovestheannualbusinessplanandrecommendstheplanforapprovaltoMBCeverythreeyearsorasotherwiserequiredbygovernmentdirectives.TheMinisteralsomaintains communications with the OFA through the Chair of the Board regarding government policies and expecta-tionsrelevanttotheOFA.

TheChairisaccountabletotheMinisterofFinancefortheperformanceoftheOFAinfulfillingitsmandate.CIPArequirestheDeputyMinisterofFinancebetheChairoftheOFA.TheChairisresponsibleforprovidingadviceandinformationtotheMinisterwithregardtotheoperationandaffairsoftheOFA.Inaddition,theChairprovideslead-ership and direction to the Board and the Chief Executive Officer (CEO), and ensures the OFA complies with gov-ernmentalpoliciesanddirectives.

TheBoardisappointedbytheLieutenantGovernorinCouncilandreportstotheMinisterthroughtheChair.TheOFABoardperforms a supervisory role. Itoversees themanagementof theOFAandhelps to ensure theOFA’smandate,asdeterminedbytheProvince,isimplementedeffectively.TheBoardmeetsatleastquarterlyandreceivesregular reports from the CEO and OFA staff concerning the operations of the OFA and its compliance with applicable lawsandpolicies.StandardsofconductforBoardmembersaresetoutinaBoardapprovedCodeofConduct.

TherearealsotwocommitteesoftheBoardtoassistitinsupervisingthemanagementoftheOFA.TheAudit&RiskManagementCommitteeapprovesanannualinternalauditplanandliaiseswiththeOFA’sinternalauditorsandtheAuditorGeneralofOntarioregardingfinancialreportingandcontrols.ItalsoreviewsfinancialpoliciesandfinancialstatementsandrecommendsthemtotheBoard.AnotherfunctionoftheAudit&RiskManagementCommitteeisthereviewoftheOFA’smajorrisksandmitigationstrategies.TheHumanResourcesCommitteewascreatedin2006–07to assist the Board in ensuring appropriate measures are in place to recruit, develop and retain qualified staff in critical areas.


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TheCEOisappointedbytheLieutenantGovernorinCouncilontherecommendationoftheMinister.TheCEOisaccountable to the Chair for the day-to-day management of the OFA and for the performance of any other functions assignedbytheBoard.TheCEOisresponsibleformanagingtheongoingactivitiesoftheOFA,includingthesupervi-sionofstaff.Inaddition,theCEOensuresthattheOFA’spoliciesandproceduresremainrelevantandeffective.

TheOFA’semployeesareappointedpursuanttothePublic Service of Ontario Act, 2006.

Financial Reporting Requirements

TheOFApreparesannualfinancialstatementsinaccordancewiththerecommendationsofthePSABoftheCanadianInstituteofCharteredAccountants.TheyarereviewedandrecommendedbytheAudit&RiskManagementCommit-teeandapprovedbytheBoard.UnauditedfinancialstatementsarepreparedquarterlyandpresentedtotheAudit&RiskManagementCommitteeandtheBoard.TheannualfinancialstatementsareauditedbytheAuditorGeneralwhoexpresses an opinion on whether they present the financial results fairly and in accordance with Canadian generally acceptedaccountingprinciples.ThefindingsarereviewedbytheAudit&RiskManagementCommitteeandtheBoard.These audited financial statements are tabled in the Ontario Legislature as part of the Annual Report and are included asascheduletothePublicAccountsoftheProvince.

Internal Controls

Management is responsible for establishing and maintaining internal controls to provide reasonable assurance regard-ingthereliabilityoffinancialreporting,tosafeguardtheOFA’sassetsandtocontrolitsliabilities.

In meeting its responsibility for the reliability and timeliness of financial information, the OFA uses a comprehen-sive systemof internalcontrols, includingorganizational andprocedural controls.The systemof internalcontrolsincludes:

• comprehensivebusinessplanning;• writtencommunicationofpoliciesandproceduresgoverningcorporateconductandriskmanagement;• segregationofduties;• maintenanceandretentionofdetailedrecords;• responsibledelegationofauthorityandpersonalaccountability;• carefulselectionandtrainingofpersonnel;and• regularlyupdatedaccountingpolicies.

Aspartofitsannualbusinessplan,theOFAconductsanassessmentofcorporate-widerisksanddevelopsappropriatemitigationstrategies.

The Ontario Internal Audit Division of the Ministry of Finance develops an annual internal audit plan based on its riskassessmentandinputfromtheOFAAudit&RiskManagementCommitteeandManagement.TheinternalauditplanisapprovedbytheOFAAudit&RiskManagementCommittee.TheInternalAuditDivisionreportstotheOFAAudit&RiskManagementCommitteeontheresultsofitsauditworkintheOFA.In2009–10,theInternalAuditDivisioncompleted500auditdaysattheOFA,and298daysatOEFCforfunctionsexecutedbyOFAstaffonbehalfofOEFC.

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Board of Directors

The following individuals were members of the Board in 2009–10:

PeterWallacewasappointedDeputyMinisterofFinanceandSecretarytoTreasuryBoardeffectiveSeptember15,2008.Beforethat,PeterwasDeputyMinisterofEnergy,start-inginJanuary,2007.Earlier,asDeputyMinisterandAssociateSecretaryoftheCabinet,Policy,heplayedakeyroleinimplementinggovernmentpolicyandlegislation.

FromFebruary2001 toFebruary2004,Peter served asAssistantDeputyMinister ofNaturalResourceManagementwiththeMinistryofNaturalResources.Priorpositions

includeAssistantDeputyMinister,PolicyandStrategicPlanning,CabinetOffice;AssistantDeputyMinister,Pro-gramManagementandEstimatesDivision,ManagementBoardSecretariat;andDirector,ExpenditureManage-mentandReporting,MinistryofFinance.

Peterbeganhispublicservicecareerin1981aftercompletingaBA(Honours)inPoliticalEconomyandaMasterofPublicAdministrationfromtheUniversityofToronto.

Peter WallaceChair, OFA BoardDeputyMinisterofFinanceandSecretaryofTreasuryBoard


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RobertisapastChairandCEOofPriceWaterhouse(nowPricewaterhouseCoopers).

He has served as Chair of the Canadian Tax Foundation and the Canadian Institute of CharteredAccountants.Robert has an extensivebackground in tax, fiscal and gover-nanceissues.HewasamemberoftheTorontoStockExchangeCommitteeonCorporateGovernance.RobertalsoservedatermastheCliffordClarkVisitingEconomisttotheDepartment of Finance, providing advice to the Department and the Minister on fiscal,

taxandeconomicpolicyissues.Morerecently,RobertservedasCo-Chairofafederalcommitteetoreviewtaxassistanceforthedisabled.HehasservedasadirectorofotherpublicCanadiancompanies. RobertservedinanumberofvolunteerpositionsandisaPastChairoftheC.D.HoweInstituteandafrequentspeakerandwriteroneconomicandtaxpolicyissues.HeisaPastDirectoroftheInstituteofCorporateDirec-tors. RobertisagraduateoftheUniversityofToronto(BCom)andoftheUniversityofChicago(MA,Economics).

Robert Brown, FCAVice-Chair,OFABoard

AsCEOoftheOFA,GadiMaymanisresponsiblefortheProvince’sborrowinganddebtmanagementstrategy,anditsbankingandcapitalmarketsrelationships.HeisalsoCEOofOEFC.

Prior to joining theOntarioMinistryofFinance,Gadiworked at theExportDeve-lopmentCorporationinOttawaandintheInternationalDivisionoftheTDBank.HereceivedaBASc.inIndustrialEngineeringfromtheUniversityofTorontoin1981,and

anMBAfromtheUniversityofWesternOntarioin1988.

GadiisontheboardsofIOandtheOntarioCapitalGrowthCorporation,andisCo-ChairoftheJointNuclearFundsInvestmentCommittee,ajointOFAandOPGCommittee.

Gadi MaymanChief Executive Officer, OFA

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InadditiontoherOFAboardappointment,Ms.BellisalsoaTrustee,ChairoftheAu-ditCommitteeandmemberoftheGovernanceCommitteeforBrookfieldRealEstateServicesFund.Ms.Bellhasmanyyearsofexperienceincapitalmarketsinparticular,derivatives.ShewasaVice-PresidentandDirectorwithGeneralReFinancialProductsCanada(GRFP),aderivativesorganization.PriortojoiningGRFP,sheworkedasafi-nancial consultant, and was at a number of corporations including Prudential Global

FundingandCitibankCanada.BeforeCitibankCanada,LorrainewaswithToucheRoss&Co(nowDeloitte&Touche)asamemberoftheauditgroupandsheobtainedherCAdesignationatthattime.

SheisanactivevolunteerandpastBoardmemberofanumberofcharitableorganizationsinOntario.Lorraineis also a member of the Institute of Corporate Directors and a Director of the Associates of the University of Toronto,Inc.

Lorraine Bell, CACommittees: Audit&RiskManagementCommittee,Vice-Chair Human Resources Committee, Member

Before his appointment to the OFA Board, Mario was Managing Director and Head of theGovernmentFinanceGroupatScotiaCapitalinToronto.TheGroupprovidedawiderangeoffinancialadviceandexecutedfinancingtransactionsforthefirm’sgovernmentandgovernment-relatedclients.

Mario’sinvestmentmanagementexperienceincludesseniorpositionsintheprivateandpublicsector.AsVice-President,InvestmentsatE-LFinancialCorporation,hewasheadof the investment group with direct responsibility for managing the fixed-income portfo-

liosofthecompany’slifeandcasualtyinsurancesubsidiaries.PriortojoiningE-LFinancial,Mariospent12yearsat Ontario Hydro in a number of finance-related positions including portfolio manager of the fixed-income assets oftheOntarioHydroPensionPlan.LateratOntarioHydro,hewasAssistantTreasurer-Corporatewithresponsi-bilityformanagement,developmentandexecutionoffundingplans,investorrelationsandcorporateinsurance.

MarioholdsaBComandMBAfromMcMasterUniversity.

Mario FerraraCommittee: Audit&RiskManagementCommittee,Chair


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PhilHowellwasappointedtheChiefExecutiveOfficerandSuperintendent,FinancialSer-vicesCommissionofOntarioeffectiveAugust19,2009.

Previously,Mr.HowellservedastheDeputyMinisterofEconomicDevelopmentfortheOntariogovernment.Priortothatappointment,hewastheDeputyMinisterofTourism.He moved to Tourism from the Ministry of Finance where he was the Associate Deputy MinisterofFinance,responsibleforTreasuryBoard.

TrainedasaneconomistwithpostgraduatetrainingfromtheLondonSchoolofEconomicsandtheUniversityofToronto,Phil’scareerhasspannedoverthirtyyearsinboththepublicandprivatesectorsbeginningwiththeBankofCanada.HisOPScareerbeganintheEconomicPolicyBranchintheformerMinistryofTreasury,EconomicsandIntergovernmentalAffairs.

HelefttheOPSinthemid1980sandduringthefollowingseveralyearsworkedwithamajorCanadianbrokeragehouse,theConferenceBoardofCanadaandacharteredbank.PhilreturnedtotheOPSasdirectoroftheIndustrialPolicy Branch, Ministry of Industry, Trade and Technology where he spent several interesting and challenging years beforereturningtotheMinistryofFinanceasdirectorof theTaxationPolicyBranch in1999.Subsequently,heservedastheADMoftheOfficeofEconomicPolicyandtheChiefEconomistfortheProvince.

Phil HowellCommittee: Audit&RiskManagementCommittee,Member

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RichardisaformerDeputyChairofTDSecuritieswith35yearsofexperienceintheinvestmentindustry.Inthatrole,hewasresponsibleforseniorcapitalmarketscoveragerelated to a wide variety of government, infrastructure and corporate financing assign-ments.

Overthecourseofhiscareer,Richard’sseniormanagementresponsibilitieshaveincludedfixedincomesalesandtrading,derivativemarketingandequityanddebtcapitalmarketsorigination.InadditiontoTDSecurities,RichardhasheldseniorpositionsatRBCDo-

minionSecurities(Director),GordonCapital(Partner),PembertonSecurities(SeniorVice-President)andMidlandDoherty(Vice-President).HestartedhiscareeratCanadaLifeAssuranceCompanyasaJuniorFixedIncomeTraderin1972.

Richard is currently the principal of Templar Investments Limited, a consulting and advisory firm located in To-ronto.

RichardgraduatedfromYorkUniversityin1972(BAEconomics).

Richard J. Kostoff Committee: Human Resources Committee, Member

PatrickisChairmanandChiefExecutiveOfficerofhisownstrategicmanagementcon-sultingfirmestablishedin1991.UntilMarchof2002,PatrickwasChairmanandCEOofUniqueBroadbandSystemsInc.HeisaPastChairmanofExportDevelopmentCanadaandalsoserveda3yeartermasChairmanoftheBoardoftheBusinessDevelopmentBankofCanada.Priortoestablishinghisownfirm,PatrickwasVice-President,Corpo-rateDevelopment,MagnaInternationalInc.

In1985,PatrickwasappointedDeputyMinisterofIndustryTradeandTechnologyfortheProvince.Atthesametime,hewastheFirstSecretaryofthePremier’sCouncilwhichproducedaneconomicblueprintfortheOntarioeconomy.PatrickalsoservedasanExecutiveAssistanttotheFederalMinisterofLabourandHealthandWelfare,andAgentGeneralfortheGovernmentofOntarioinParis,France.PatrickisthepastPresidentandCEOoftheAutomotivePartsManufacturers’AssociationofCanada.

PatrickisadirectorofanumberofpublicandprivateCanadianandU.S.companies.HeisamemberoftheAdvisoryBoardoftheInternationalMBAprogramatYorkUniversity.

Patrick LavelleCommittees: Human Resources Committee, Chair Audit&RiskManagementCommittee,Member


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Dagmarisalawyerandcharteredaccountant.Shehasextensivetaxlawexperiencehav-ingpracticedwithalargeaccountingfirm.

Dagmarhasbeenanindependentconsultantsince1988.Sheworksextensivelywiththeprivate sector, various levels of government and foreign clients to solve real-estate based problemsandcoordinatedevelopmentprojects.

DagmarhasaBachelorofSciencedegree fromtheUniversityofTorontoandhasau-thoredandco-authorednumerouspublicationsondomesticandinternationaltaxlaw.ShelecturesextensivelyontaxmattersatCanadianuniversities.

Dagmarisactivelyinvolvedinvariouscharitableinstitutions.

Dagmar TeubnerCommittee: Audit&RiskManagementCommittee,Member

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Risk Management Policies and ProceduresOFAriskmanagementpoliciesandproceduresprovideforthemanagementofriskexposurescreatedbycapitalmar-ketsactivities.Currentpoliciesandproceduresaddressmarket,creditandoperationalriskexposuresastheypertaintotheProvince’sdebtandderivativesportfoliosandcapitalmarketstransactions.

The policies were developed following the guidelines and directives of regulatory bodies, such as the Office of the SuperintendentofFinancialInstitutionsofCanada,theBankforInternationalSettlementsandinconsultationwithCanadianbankrepresentativesontheirriskmanagementpractices.

TheBoardapprovesriskmanagementpoliciesandmonitorstheperformanceofcapitalmarketsactivities.

Market Risk Policy

Marketriskistheriskoffinanciallossattributedtochangesininterestratesandforeignexchangerates.Thispolicyprovidesaframeworkforborrowingactivitiesandintegratesseveralaspectsdealingwiththemanagementofmarketrisk.Thepolicyincludesseverallimits:

• ForeignExchangeLimit:unhedgedforeigncurrencyexposureislimitedto5percentofdebtissuedforprovincialpurposes.UnhedgedforeignexchangeexposuresarelimitedtoGroupofSevencurrenciesandtheSwissfranc.

• NetInterestRateResettingLimit:theinterestrateresettingriskexposureisthesumofmaturitiesandfloating-ratedebt(netofliquidreserves)overthenext12months,andislimitedtoamaximumof35percentofdebtissuedforprovincialpurposes.

• IODLossLimit:thetotalamountoffinanciallossesresultingfrommarketriskcannotexceed3percentofbud-getedIODforafiscalyear.Inaddition,theCEOestablishesatriggerleveltoensurelossesfrommarketactivitieswillnotreachthedebtcostlosslimit.ThetriggerlevelisincludedintheAnnualFinancing,DebtandElectricityManagementPlan.

TheOFAidentifiesandquantifiescurrentandpotentialexposurestomarketriskandensuresriskexposuresandlossesremainwithinapprovedexposureandlosslimits.Exposuretomarketriskismeasuredandreporteddaily.

Credit Risk Policy

Creditriskistheriskoflossinwhichacounterpartydoesnotmeetordefaultsonitsobligations.CreditriskariseswhentheOFAundertakesfinancialandderivativetransactions.Theminimumcreditratingofacounterpartyforanewswaptransactionistypically“AAminus”,and“R1-mid”(and“A-1”or“P-1”)formoneymarketinvestments.Theresultingexposureiscappedatmark-to-marketlimitsdependingonthecounterparty’screditratingandcapitalbase.Concentrationlimitsarealsoinplacetolimitexposure.Creditexposureismeasuredandreporteddaily.


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Policy on the Use of Derivatives and Other Financial Instruments

UseofderivativesandotherfinancialinstrumentsisrestrictedtothosewhichtheOFAcanpriceandwhoseriskexpo-surescanbemeasuredbytheOFA.Derivativesareusedtomanageexposuresarisingfromexistingandplanneddebtissues in a sound and cost-effective manner consistent with the Annual Financing, Debt and Electricity Management Plan.Risksarisingfromtheuseofderivativesaremonitoredandmanagedprudently.

Risk Management Reporting Policy

Atitsregularquarterlymeetings,theBoardiskeptinformedoftheOFA’sactivities:

• TheCEOprovidestheBoardwithaprogressreportontheimplementationoftheAnnualFinancing,DebtandElectricityManagementPlan,staffingandotheradministrativeandoperationalmatters.TheCEOalsoreportsontheOFA’scompliancewithapplicablegovernmentdirectives.

• TheDirectorofRiskControlreportsonprogramexposuresandperformanceaswellasexceptionstopolicies.

• ManagementiskeptinformedofOFA’sriskexposuresandpositionsonadailybasis.

Operational Risk

Operationalriskistheriskoflossresultingfrominadequateorfailedinternalprocesses,peopleorsystemsorexternalevents.Eachdivisionmanagesoperationalriskthroughreviewsandimprovementsofworkprocesses,documentedpoliciesandprocedures,dataprocessingsystems,contingencyplansandstafftraining.

TheOFAmaintainsaBusinessContinuityPlan(whichcoversOEFC’soperations)thatisregularlyupdatedtofacilitatethecontinuationofessentialoperationalfunctionswithaminimumofdisruptionintheeventofanemergency.

42


Appendices

Ontario’sCreditRatings

AdditionalSourcesofInformation


43

Ontario’s Credit Ratings

Acreditratingisacurrentassessmentofthecreditworthinessofaborrowerwithrespecttoaspecifiedobligation.Itindicatesthecapacityandwillingnessofaborrowertopayinterestandprincipalinatimelymanner.

Long-Term Ratings

Long-term ratings are assigned a letter grade ranging from investment grade, to speculative grade, to highly specula-tiveordefault.Ratingswithineachcategorymayincludea“plus”or“minus”(orahighorlow)toindicatetherelativestrengthofratingwithinthatcategory.Thecurrentlong-termratingsoftheProvinceareasfollows:

• Moody’sInvestorsService Aa1• Standard&Poor’s AAminus• DBRS AA(low)

Short-Term Ratings

Short-termratingsarefordebtmaturitiesoflessthanoneyear.Ratingsaregradedintoseveralcategories,rangingfromthehighest-qualityobligationstodefault.Thecurrentshort-termratingsoftheProvinceareasfollows:

• Moody’sInvestorsService P-1• Standard&Poor’s A-1+• DBRS R-1(mid)

44


Additional Sources of Information

www.ofina.on.ca

Thewebsiteprovides informationonOntario’s borrowingprogramanddebt, and containspublications from theOFA.

Ontario Budget

TheBorrowingandDebtManagementchapterdiscussestheProvince’sborrowinganddebtmanagementactivitiesforthefiscalyearended,andoutlinestheoutlookfortheupcomingfiscalyear.

Quarterly Finances – OFA Bulletin

TheOFABulletinprovidesquarterlyupdatesofthegovernment’sannualbudgetforecast.ThefullsetofquarterlyfinancesinformationisalsoavailableontheMinistryofFinancewebsite,www.fin.gov.on.ca.

Form 18-k

ThisistheProvince’sannualreporttotheU.S.SecuritiesandExchangeCommission(SEC).

Contact Information

Investor RelationsOntario Financing Authority1DundasStreetWest,Suite1400Toronto, Ontario, CanadaM7A1Y7Telephone: (416)325-8000Email: [email protected]

1 Dundas Street West, Suite 1400Toronto, Ontario

M7A 1Y7Canada

Telephone: (416) 325-8000

[email protected]

© Queen’s Printer for OntarioISSN 1492-854X

This Annual Report is also available in French

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