DBRS Confirms Aéroports de Montréal at A (high)

DBRS has today confirmed the long-term rating of Aéroports de Montréal (ADM or the Authority) at A (high). The trend remains Stable, reflective of the strong rebound in passenger traffic levels in 2010 and ADM’s solid operating footing and manageable debt levels. The 6.1% growth in passenger traffic was the largest of any DBRS-rated Canadian airport authority and far exceeded the 1% growth budgeted by ADM for the year, led by 10.0% and 6.3% growth in its transborder and international segments, respectively. For 2011, ADM expects traffic to increase by approximately 2.7%, although DBRS notes that traffic levels may continue to fluctuate as a result of the disjointed nature of global economic recovery.

Coming off a relatively weak 2009, revenues increased 12.0% as a result of higher passenger traffic, the airport improvement fee (AIF) increase to $25 as of May 1, 2010, as well as moderate terminal and landing fee increases, as ADM continues to implement its full cost recovery methodology. However, operating expenses increased by 14.3%, primarily attributable to a $15.2 million rise in ground rent payable to Transport Canada as a result of the implementation of the new rent formula in 2010. The increase was also reflective of a full year of operating expenses for the transborder terminal, which opened in Q3 2009, as well as the return of operating expenses to more steady-state levels as austerity measures implemented during the economic downturn were rescinded. Nevertheless, EBITDA as calculated by DBRS increased 9.1% over 2009 levels, resulting in a relatively sound debt service coverage ratio as calculated by DBRS of 1.7 times, an improvement over the 1.6 times predicted by the Authority in its last forecast.

The Authority’s liquidity position remains sound, with $143.7 million in cash and short-term investments as of December 31, 2010, and full availability of its revolving credit facility, save for a $45 million allocation which includes amounts to satisfy its operations and maintenance reserve requirement and a letter of credit in support of its pension obligations. Effective April 4, 2011, ADM will increase the borrowing limit of its committed credit facility to $150 million and extended its term to a three-year revolving facility, renewable annually, which DBRS views as favourable as it provides greater flexibility and liquidity, should the need arise. ADM has a favourable debt profile, with no maturities prior to April 2012, when its $150 million Series A bonds will mature. However, on April 6, 2010, the Authority issued the $150 million Series J bonds and placed the proceeds into an escrow account where they are invested in provincial government bonds to repay the principal of the Series A maturity. Additional debt of $250 million is planned for 2014, as the Authority’s latest forecast envisions cash balances to be drawn down by the end of 2011 and some drawings on the revolving facility in support of its capital program.

On March 7, 2011, a three-week strike by an air carrier’s baggage handling unit ended, without material impact on ADM’s operations. For 2011, the Authority’s base case forecast calls for a 2.7% increase in passenger traffic, with modest landing and terminal fee increases, although no AIF increases are planned.

The Authority will be adopting International Financial Reporting Standards (IFRS) accounting in 2011 and henceforth will report quarterly and annually in accordance with IFRS GAAP. DBRS does not expect that ADM’s IFRS adoption will result in any rating actions.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Airport Authorities, which can be found on our website under Methodologies.