DBRS Confirms Aéroports de Montréal at A (high), Stable Trend

DBRS has today confirmed the rating of the Revenue Bonds of Aéroports de Montréal (ADM or the Authority) at A (high). The trend remains Stable, supported by good though weakening traffic growth, a manageable debt level and a solid operating footing. In 2011, the Authority experienced traffic growth of 5.3%, which exceeded management’s forecast growth of 2.6%. Gains were strongest in the international segment, up 7.6% year over year. For the first time, international passenger levels at the airport exceeded domestic passenger levels, although the domestic and transborder segments both exhibited positive growth. For 2012, ADM expects traffic to continue the cooling trend seen in the later months of 2011, with growth in the 2.5% to 3.0% range. DBRS views the projections as potentially optimistic and notes that traffic levels may continue to fluctuate as a result of the disjointed nature of the global economic recovery.

Building on strong 2010 results, revenues in 2011 increased 9.7% with higher passenger levels and increased landing and terminal fees. Operating expenses increased by 8.2% as maintenance costs pressured spending while salary and benefit costs also increased, but to a lesser degree. Despite higher operating costs, EBITDA increased 11.8% over 2010 levels, leading to a strong debt service coverage ratio (DSCR) of 1.9 times, which was better than the 1.8 times forecast. On a net basis, which considers the Series A bonds as notionally paid down, debt declined slightly during 2011 as a result of the amortization of the Series B and E bonds. Coupled with strong passenger growth, debt on a per-enplaned passenger basis declined to a manageable $202.

As a result of better than expected traffic growth, the Authority has revisited its strategic plan and intends to bring forward a number of projects, with capital outlays now expected to be $135 million higher during the next five years than had been expected under the previous strategic plan. For 2012, board-approved capital investments (excluding maintenance capital and capitalized interest) are expected to total roughly $81 million. In addition, ADM has approximately $77 million of projects that may be undertaken during the year, contingent upon board approval and passenger demand. Work on the international jetty and the domestic/international check-in area will continue, and new projects getting underway include the expansion of the international luggage room, new commercial development on the international jetty and the expansion of some boarding gates.

The Authority expects that it will exhaust available cash balances in 2012 and anticipates borrowing against its credit facility to fund capital needs before issuing new debt of roughly $300 million in 2013. DSCR levels are forecast to remain strong across the medium term, as EBITDA is expected to trend upward until 2014 when potentially higher operating expenses might temporarily outpace revenue growth and cause the DSCR to dip below 1.5 times, although a sharp rebound is predicted for 2015 when operating costs are expected to normalize. The Authority expects debt per enplaned passenger of approximately $233 by 2016, a level which DBRS nevertheless considers appropriate at ADM’s current rating.

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.