City of Ottawa Green Debenture - Treasurer's Information Report 2020

City of Ottawa Green Debentures share the same characteristics as conventional debentures and are ranked concurrently and equally in respect of payment of principal and interest with all other debentures of the City.

The City of Ottawa has developed a Green Debenture Framework under which it issues Green Debentures. The Framework identifies eight eligible categories to which bond proceeds may be directed:

• renewable energy
• energy efficiency
• pollution prevention and control
• clean transportation
• sustainable water management
• sustainable management of natural resources
• climate change adaptation and resilience
• green buildings.

The net proceeds of each Green Debenture issued under the Framework will be used to finance, in whole or in part, capital projects that promote environmental sustainability across the City. Specific objectives for these projects will be to mitigate and adapt to the effects of climate change, reduce greenhouse gas (GHG) emissions, and promote the transition to a low-carbon economy.

The City has engaged Sustainalytics, an independent sustainability rating firm, to provide a second opinion on its Green Debenture Framework and the framework’s environmental credentials as it relates to Green Bond Principles.

Sustainalytics is of the view that the City of Ottawa’s Green Debenture Framework is aligned with the four pillars of the Green Bond Principles 2017, which addresses use of proceeds, process for project evaluation and selection, management of proceeds, and reporting. Based on the above considerations, Sustainalytics is of the view that the City of Ottawa’s Green Debenture Framework is robust and credible.

On November 2, 2017, the City of Ottawa successfully launched an initial 3.25% November 2047 Green Debenture issue to fund the Light Rail Transit (LRT) Stage 2 project in the amount of C$102 million. The issue was priced to yield 3.259% with a November 10, 2047 maturity.

• This was Ottawa’s inaugural Green Debenture issue and marked the first municipal Green Bond issue in the Canadian market.
• The issue was over-subscribed, with orders from 25 investors
• Strong participation from Asset Managers, Insurance Funds, Government Agencies and Pension Funds
• Investors with Green mandates and/or UN PRI signatories represented 96% of overall sales
• Demand was primarily concentrated in Canada with 99% placed domestically

2017 investor distribution

On July 22, 2019 City of Ottawa priced a successful C$200 million re-opening of its Green Debenture due November 10, 2047 to fund the LRT project:

• The re-opening marked the second Green Debenture from the City of Ottawa and the 5th Green Bond offering in Canadian municipal market
• Over-subscribed issue, with 33 investors participating
• Well-diversified order book with Asset Managers, Pension Funds, Insurance Funds and Government Agencies.
• Investors with Green mandates and/or UN PRI signatories represented 89% of overall sales
• International investors represented 10% of the final deal

2019 investor distribution

On May 4, 2020 the City of Ottawa completed its third Green Debenture offering with a C$300 million, 31-year transaction. The issue was priced to yield 2.525% with a May 11, 2051 maturity.

• The offering represented the first 31-year municipal deal in 2020 and the first CAD municipal Green Debenture in 2020.
• The issue was over-subscribed, with 32 investors participating.
• Strong interest from investors with Green mandates as well as those interested in highly rated municipal credit
• Investors who have demonstrated support for ESG, green investment practices and mandates, represented 96% of overall sales
• Demand was primarily concentrated in Canada with 90% placed domestically

2020 investor distribution

The net proceeds of 2017 Green Debenture were applied directly to the LRT Stage 2 project, as per By-Law 2017-355. As of October 31, 2018, 100% of proceeds had been disbursed.

The net proceeds of the 2019 Green Debenture were applied directly to LRT Stage 1 – Confederation Line project and Stage 2 LRT project, as per By-Law 2019-272. As of December 31, 2019, 100% of proceeds have been disbursed.

The net proceeds of the 2020 Green Debenture were applied directly to Stage 2 LRT project, as per By-Law 2020-110.   Reports on use and management of proceeds will be provided in subsequent updates.

Project overview

The City of Ottawa’s LRT Confederation Line - Stage 1 project is expected to provide a more accessible connection to the Central Area. The LRT Stage 2 expansion builds on the City’s Confederation Line investment by extending light rail an additional 30 kilometres, bringing 70% of residents to within 5 kilometres from an LRT station and connecting the City’s communities to the east, west, and south. In their unanimous approval of the 2013 Transportation Master Plan, Ottawa City Council prioritized the implementation of Stage 2. The LRT extension is not only part of an official, integrated land-use plan and the City’s Transportation Master Plan, it is also in line with Federal and Provincial commitments for transit expansion.

Estimated environmental benefits

The business case for this project identified the following benefits:

• Increased ridership: Total system ridership is expected to increase to 164 million trips per year as result of Stage 1 LRT. Stage 2 LRT is expected to increase ridership by additional 10 million plus trips per year by 2031
• Decreased congestion: majority of buses removed from downtown street; reduction of approximately one sixth of total vehicle kilometres travelled by 2031
• Improved mobility: travel time savings and improved access from extended areas of the City
• Vehicle operating cost savings: fuel and maintenance
• Public health: benefits associated with reduction in harmful emissions; reducing contributions to climate change; reducing the number of collisions; mobility options for those who rely on public transit for access to health care
• Land use: more compact urban form; increased clustering and accessibility
• Economic development: increased employment; GDP and tax contributions
• Environmental Benefits: reduction in the greenhouse gases (GHGs) and critical air contaminants (CACs), which have direct implications for the overall sustainability of urban growth and direct consequences on the health of residents. It is estimated that Stage 1 – Confederation Line would reduce GHG emissions by 94,000 tonnes and CAC by 4,600 tonnes by 2031; Stage 2 would reduce the GHG emissions by over 110,000 tonnes and CAC by over 3,000 tonnes by 2048.

Project status update

The City of Ottawa’s Rail Construction Program continues to closely monitor the COVID-19 pandemic in relation to both the maintenance and operation of the Stage 1 LRT and the delivery of the Stage 2 LRT projects. The various maintenance, design, and construction teams working on light rail in Ottawa are adhering to all guidance provided by Ottawa Public Health and the Province of Ontario. Construction continues in all geographic areas of the project and the City is monitoring the potential impacts on the projects closely. The City is working closely with the contractors to understand if there will be any long-term impacts to these projects as a result of the current environment.

Stage 1 LRT - The O-Train Confederation Line Light Rail Transit system opened in September 2019 providing high frequency train service between Blair and Tunney’s Pasture stations, and through downtown. City staff started collecting performance information from different service areas; however, data collection had been deferred because travel patterns are not typical during COVID. Transit ridership dropped to 10% of PRE-COVID level in April 2020, and has been recovering gradually, reaching 28% of usual volumes at end of November 2020. City staff monitor ridership continuously as more customers return to work and start using public transit.

Stage 2 LRT – Construction activities for Stage 2 commenced in 2019 and are currently well underway. Various construction activities are completed or currently ongoing, such as modifications to highways, interchange ramps and intersections; road detours; utilities relocations; new bridges construction; construction of new drainage work; construction of new parking lots at Park and Ride location. Despite supply chain impacts related to the COVID-19 pandemic, RTG completed and the City accepted four additional vehicles from the Stage 2 order. Stage 2 will extend the O-Train system farther south, east, and west, adding 44 kilometres of new rail and 24 new stations by 2025.

Future issuance plans

The Green Debenture Program will be an ongoing program of the City of Ottawa. Total issuance to date is $602 million. The City is planning to issue $280 million Green Debenture in 2021 and approximately $150 million in Green Debentures annually from 2022 to 2025.

Contact us

Finance Services Department
100 Constellation Crescent, 4th Floor West
Ottawa, ON K2G 6J8
Tel: 613-580-2424

• Mark Martin, Manager Treasury, ext. 21307
• Vera Torkot, Senior Investment Officer, ext. 28400
• Dan Bate, Senior Investment Officer, ext. 21310