DBRS Confirms GTAA at “A”, Trend Stable

DBRS has today confirmed the ratings of the Greater Toronto Airports Authority’s (GTAA or the Authority) Revenue Bonds and Medium-Term Notes at “A”, with a Stable trend. Despite the weakening growth momentum of the global economy, Canada’s largest airport continues to perform well, owing to management prudence and robust passenger traffic. Furthermore, large capital projects have been postponed for some time due to the relief to capacity constraint provided by the recent downturn, which will temporarily benefit credit metrics and provide sufficient flexibility to weather potentially softer operating conditions over the next 12 to 18 months.

The GTAA continued to reduce airline fees in 2010 although solid growth of 4.9% in passenger traffic and 2.5% in aircraft movements, combined with tight cost control and a milder winter, still managed to drive EBITDA higher. Capital expenditures were modest during the year, which allowed the Authority to use some of its cash and reserve balances to reduce debt by 7.4%. Rising traffic compounded improvement in the debt per enplaned passenger ratio, which ended the year down 11.7% at $460, its lowest level since 2004. Global economic forecasts have been subject to multiple downward revisions in recent months but volumes at Canada’s large airports generally remain sound. At Pearson, passenger traffic was up 5.4% eight months into 2011 and is expected to be the primary driver of revenues this year as overall aeronautical fees have been held steady. Nonetheless, this will not be sufficient to fully cover salary increases and the resumption of initiatives deferred in recent years due to the volatile operating environment, likely resulting in a modest decline in EBITDA.

DBRS foresees little improvement in EBITDA over the years to come, as airline fee reductions will remain a priority, when affordable, in order to improve the competitiveness of the airport. As a case in point, the Authority recently announced an overall reduction of 2.5% in fees charged to airlines effective January 1, 2012. However, traffic growth should continue to provide support to the Airport Improvement Fee and concession revenues to offset operating expenditure pressure. With the construction of Pier G on hold until probably late 2014, total debt should remain fairly stable, except for temporary pre-financing needs, although sustained discounting of aeronautical fees will likely prevent any material improvement in interest coverage.

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.