Glossary
A B C D E F G H I K L M N O P R S T U V W Y
A
Accumulated Deficit: The difference between liabilities and assets. It represents the total of all past annual deficits minus all past annual surpluses, including prior-period adjustments.
All-In Cost: The cost of issuing bonds, inclusive of all fees and commissions. If the debt is hedged, all-in cost will reflect the derivative transactions.
Amortization: The portion of an asset’s cost allocated to an accounting period as a result of writeoff over its estimated useful life.
Arbitrage: The simultaneous purchase and sale of financial instruments to take advantage of inefficiencies between international capital markets, thereby lowering the cost of funds.
B
Banker's Acceptance (BA): A draft drawn and accepted by banks that is based upon funds that will pay its face value at maturity. The BA is essentially short-term bank credit.
Basis Point: One one-hundredth of one per cent of yield. It is the smallest measure used in quoting yields on bonds and notes. For example, an addition of 40 basis points to a yield of 6.50 per cent would increase the yield to 6.90 per cent.
*Benchmark Bond: The specific issue outstanding within each class of bond maturity that is considered by the market to be the standard against which all other bonds issued in that class are evaluated.
Bond: A debt security with a term greater than one year when an issuer contracts to pay the owner a fixed principal amount on a stated future date. Typically, there are also interest payments over the term of the bond.
Bond Auction: A process in which participants can submit a bid to purchase a given amount of security at a specific price.
Broader Public Sector (BPS): Organizations receiving government transfer payments to provide services to the public. Such organizations include universities, colleges, school boards, hospitals, long-term care facilities, community care access centers and children’s aid societies.
C
**Callable: May be redeemed (called) with due notice by the security's issuer.
Canada Pension Plan Borrowing: The Province has the option of borrowing from the Canada Pension Plan Investment Board (CPPIB) as a source of long-term borrowing.
Canadian-Dollar Market: The market for bonds denominated in Canadian dollars including the domestic, Euro, and Global bond markets.
Capital Cost Allowance: The portion of the capital cost of an asset (e.g., a building, automobile or machine) that may be deducted for income tax purposes each year.
Capital Expenditure: An expenditure to acquire or upgrade physical assets including transportation infrastructure, land and buildings, information technology infrastructure and systems, vehicles, marine fleet and aircraft.
Capital Gain: The net profit arising from the sale or transfer of capital assets or investments; i.e., the proceeds or market value received less the net book value of the capital asset or investment.
Capital Tax: A tax levied on a corporation’s taxable capital comprising capital stock, surpluses, indebtedness and reserves.
Cash and Cash Equivalents: Cash or other short-term liquid low-risk instruments that are readily convertible to cash, typically within three months or less.
Commercial Paper (CP): Short-term note or draft typically issued by a government or corporation on a discount basis.
Consolidation: The inclusion of the financial results of government-controlled organizations in the Province’s consolidated financial statements.
Consumer Price Index (CPI): Is the most commonly used, measure of consumer price changes in Canada. The CPI is produced by Statistics Canada each month and measures consumer price changes by comparing though time, the cost of a basket of over 600 goods and services typically purchased by Canadian consumers. The CPI compares, in percentage terms, prices in any given time period to prices in the base period which is currently 2002=100.
**Coupon: A portion of a bond certificate entitling the holder to an interest payment of a specified amount after its due date.
D
**Debenture: A certificate of indebtedness of a government or company backed by the general credit of the issuer and unsecured against any specific asset.
Debt : An obligation resulting from the borrowing of money.
Debt Maturities: The total forecast amount of debt due for repayment on specific dates.
Debt Redemptions: The amount of bonds expected to be redeemed before maturity. Debt redemptions primarily relate to Ontario Savings Bonds.
Debt-to-GDP Ratio: A measurement of the government’s debt as a percentage of gross domestic product (GDP). It is a measure of the debt in relation to the economy and its capacity to carry and repay debt.
Debt Term: Remaining term to maturity of long-term debt.
Deficit: A negative fiscal balance.
Derivatives: Financial contracts that derive their value from other underlying instruments, such as bonds. The Province uses derivatives including swaps, forward exchange contracts, forward rate agreements, futures and options to reduce the risks associated with issuing bonds in different currencies and minimize interest costs.
Domestic Bonds: Debt securities issued in the domestic market, settling through the domestic clearing system.
**Duration: The weighted average of the present value of a bond's coupon payments and principal, expressed in years.
E
Euro-Bonds: Debt securities issued in the international markets and clearing through agencies such as Euroclear or Cedel. "Euro-Can" bonds are the Canadian dollar-pay version.
*Euro Medium-Term Notes (EMTNs): Debt issued outside the United States and Canada and structured to meet individual investor requirements. These notes are issued for terms ranging from two to 12 years.
**Exercised: The process whereby a holder of an option invokes his or her rights as outlined by the contract.
**Extendible (Bond or Debenture): Terms granting the option the right to extend the maturity date by a specified number of years.
F
Financial Assets: Assets that could be used to discharge existing liabilities of finance future operations and are not for use in the normal course of operations. Financial assets include cash; an asset that is convertible to cash; a contractual right to receive cash or another financial asset from another party; a temporary or portfolio investment; a financial claim on an outside organization or individual; and inventory.
Fiscal Plan: An outline of the government’s revenue and expense projections.
Fiscal Year: The time period used for budgeting and accounting. The Province of Ontario’s fiscal year runs from April 1 to March 31.
Floating Rate Notes (FRNs): Debt instruments with a variable rate of interest.
Forward Foreign Exchange Contract: An agreement between two parties to set exchange rates in advance.
Forward Rate Agreement: A forward contract in which one party pays a fixed interest rate and receives a floating interest rate.
Fund: A fiscal and accounting entity segregated for the purpose of carrying on specific activities, or attaining certain objectives in accordance with special regulations, restrictions or limitations.
Futures: An exchange-traded contract that confers an obligation to buy/sell a physical or financial commodity at a specified price and amount on a future date.
G
Global Bonds: Debt securities issued simultaneously in the international and domestic markets, settling through various worldwide clearing systems. These can be issued in a variety of currencies, including Canadian and U.S. dollars.
Gross Domestic Product (GDP): The total unduplicated value of the goods and services produced in the economy of a country or region during a given period of time such as a quarter or a year. Gross domestic product can be measured three ways: as total income earned in current production, as total final, expenditures, or as total net value added in current production.
H
Hedging: Making or entering into offsetting commitments to minimize the impact of market fluctuations on underlying exposures.
I
Increase/(Decrease) in Cash and Cash Equivalents: The change in cash or other short-term liquid low-risk instruments that are readily convertible to cash typically within three months or less.
Interest on Debt: The cost of borrowing incurred during the fiscal year for the Province's consolidated debt, which includes the all-in cost on total debt after deducting interest income on investments.
Interest on Debt Expense: The cost of borrowing money, excluding any amount of interest capitalized during the construction of capital assets.
Interest Rate Differential: The difference between yields in different currencies for the same maturity.
Investment in Capital Assets: The cost of acquiring or upgrading tangible capital assets owned by the Province and its consolidated organizations during the year, including land, buildings, highways and bridges, information technology infrastructure and systems, vehicles, marine fleet and aircraft.
Issuance Spread: The difference between yield required by investors on a given bond issue and the yield on a relevant benchmark bond.
K
Kangaroo Bonds: Australian dollar denominated bonds issued in the domestic Australian capital markets by a foreign issuer.
L
Liquid Reserves: Temporary investments arising from a time difference between borrowing activities and cash expenditures.
LIBOR (London Interbank Offered Rate): Daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or "interbank") money market.
**Long-Term Bond: A bond or debenture maturing in more than ten years.
M
Marginal Effective Tax Rate (METR): The tax rate that applies to an incremental dollar of income from new capital investment. It takes into account federal and provincial corporate income taxes, capital and sales taxes.
Mark-to-Market: The revaluing of a security, commodity or futures contract according to its current market value.
**Maturity: The date on which a loan, bond or a debenture comes due and is to be paid.
**Medium-Term Bond: A bond or debenture maturing in over three, but fewer than ten, years.
Medium-Term Notes (MTNs): Debt instruments offered under a program and structured to meet specific investor needs.
N
Net Debt: The difference between the Province’s total liabilities and financial assets.
Net Loans/Investments: The total amount of loans and investments made by the Province minus loan repayments received.
Nominal: An amount expressed in dollar terms without adjusting for changes in prices (inflation or deflation).
Non-Cash Adjustments: Adjustments required to determine the cash flows from operations and capital expenditures. Non-cash adjustments include changes in balances of accounts receivable; accounts payable; accrued pension and construction liabilities; and investments in government business enterprises. Amortization and imputed interest during construction on capital assets are also non-cash adjustments.
Non-Public Debt: Consists of debt instruments issued to public-sector pension funds in Ontario and the CPPIB. This debt is not marketable and cannot be traded.
Non-Tax Revenue (NTR): All revenues reported by the Province in its financial statements other than revenue from taxation. The three main categories of NTR are i) Government of Canada transfer payments, such as Canada Health Transfers and Canada Social Transfers; ii) Income from Government Business Enterprises, such as Ontario Power Generation Inc. and the Liquor Control Board of Ontario; and iii) various other Non-Tax Revenues, such as vehicle and driver registration fees, revenues from the sale of goods and services, reimbursement of provincial expenditures in delivering certain services and royalties of use of Crown resources.
Notional Value: The face value of outstanding contracts. It does not represent cash flows.
O
Ontario Savings Bonds: An investment that is backed 100 per cent by the Province of Ontario, including both principal and interest. They are available to retail and institutional investors through financial institutions, credit unions, caisses populaires and investment dealers.
Option: A contract that gives the purchaser the right, but not the obligation, to buy or sell a specific amount of a commodity, currency or security at a specific price, on a certain future date.
P
Private Placements: A bond issue that is negotiated with one or more investors rather than being offered to the general public.
Public Accounts: The Annual Report and Consolidated Financial Statements of the Province along with supporting statements and schedules as required by the Financial Administration Act.
Public Debt: Debt that is free to be publicly traded in a secondary market.
Public Service Body: As defined in the Excise Tax Act (Canada), a non-profit organization, charity, municipality, school authority, hospital authority, public college or university.
R
Real GDP: Gross domestic product measure to exclude the impact of changing prices.
Real Return Bonds (RRBs): Debt securities that pay investors a rate of return that is adjusted for inflation using the consumer price index (CPI).
Reserve: An amount included in the fiscal plan to protect the plan against adverse changes in the economic outlook, on in Provincial revenue and expense.
**Retractable: A feature which can be included in a new debt or preferred issue, granting the holder the option under specified conditions to redeem the security on a stated date, prior to maturity in the case of a bond.
S
Samurai Bonds: Japanese yen denominated bonds issued in the domestic Japanese capital markets by a foreign issuer.
**Settlement: The date on which a securities buyer must pay for a purchase or a seller must deliver the securities sold.
**Short-term Bond: A bond or debenture maturing within three years.
**Spread: The gap between bid and asked prices in the quotation for a security.
Structured Financing: A process whereby an entity issues and simultaneously enters into one or several swaps to transform the cash received to meet its obligations.
Surplus: A positive fiscal balance.
Swap: An exchange of payment streams between two counterparties.
Syndicated Bond Issue: Debt securities that are underwritten by a group of investment dealers.
T
Tangible Capital Assets: Physical assets including land, buildings, transportation infrastructure, information technology infrastructure and systems, vehicles, marine fleet and aircraft.
Total Debt: The Province’s total borrowings outstanding without taking into consideration any of the Province’s assets.
Total Expense: The sum of program expense and interest on debt expense.
Treasury Bills: Short-term debt instruments issued by governments on a discount basis.
U
U.S. Commercial Paper: Short-term debt typically issued in the United States by government or corporation on a discount basis. U.S. Commercial Paper is limited to terms of one to 270 days.
V
Value-Added Tax: A multi-stage tax on consumption that applies throughout the supply chain regardless of whether the purchase is for use by a business or consumer, but that allows most businesses to be reimbursed for the tax paid on their business inputs though the use of input tax credits.
W
Weighted-Average Interest Rate: The average cost of debt, taking into account the amount of debt at each rate of interest.
Y
Yankee Bonds: US dollar denominated bonds issued in the domestic US capital markets by a foreign issuer.
Yield: The effective rate of interest earned on a bond. Yield is the annual rate of return of any investment or debt and is expressed as a percentage.
Yield Curve: The relationship between market yields and bond maturities. It is often upward-sloping with maturity, due to investors' requirements for a greater yield when committing their funds for longer investment horizon.
*Terms and definitions reproduced with the permission of the Canadian Department of Finance.
**Terms and definitions reproduced with the permission of the Canadian Securities Institute.
