DBRS Confirms Ottawa Macdonald-Cartier International Airport Authority at A (high), Stable

DBRS has today confirmed the rating of the Revenue Bonds issued by the Ottawa Macdonald-Cartier International Airport Authority (the Authority or YOW) at A (high) with a Stable trend. The rating confirmation and Stable trend reflect the traffic growth in 2011 and the first half of 2012 (H1 2012) and the Authority’s manageable debt levels and strong credit metrics. However, the rating is tempered by the softening of traffic levels seen in the recent months, continuing global economic uncertainty and DBRS’s anticipation that over the longer term, growth-related capital needs will lead to additional debt.

After rebounding nicely with growth of 5.7% in 2010, traffic continued to increase in 2011, albeit at a slower pace. For the year, traffic was up 3.4%, with 3.8% and 3.4% growth in the domestic and trans-border sectors, respectively, while international traffic was essentially flat. Higher passenger traffic, the full-year benefit of the $20 airport improvement fee and a 2.0% increase in landing and general terminal fees were the main drivers of revenue growth, which was up a sound 15.0% over 2010. Operating expenses increased, but to a lesser degree, up 7.4%, with higher ground rent and payments in lieu of taxes up 20% and 5%, respectively, while operating and maintenance expenses increased 5.8%. As a result, EBITDA growth on a year-over-year basis was very robust, up over 25%, and combined with lower debt levels, drove a sizeable increase in debt service coverage ratio to 2.1 times. Higher passenger levels contributed to an improvement in debt per enplaned passenger to $152. Net of depreciation and interest charges, the Authority swung to a recurring surplus of $5.7 million, as compared to a loss of just under $4 million in the year prior.

During H1 2012, traffic growth drove revenue increases of 6.8%. Operating and maintenance expenses increased by a larger margin, at 11.5%, and as such, slowed EBITDA growth to 3.0%. Interest expenses were up 6.3% and depreciation costs for the first half were slightly lower, leading to 5.8% growth in YOW’s recurring surplus as compared to H1 2011.

At the end of 2012, the Authority is estimating that it will be about $1.0 million better than budgeted results on a net basis as a result of marginally higher revenues and good cost controls.

The Authority is expected to continue to draw against its credit facility in support of its capital program, although drawings are not expected to materially exceed $15 million for the remainder of the year, which would still leave YOW with ample remaining liquidity. This would result in a debt burden of roughly $354 million at the end of 2012. On a per-enplaned passenger basis, debt is expected to be roughly $150 by the end of the year. Over the longer term, YOW intends to conduct phase 3 of the Airport Expansion Program, which could potentially drive-up debt per enplaned passenger to levels approaching $200, although this would still compare well to other airport authorities in the A (high) rating category. While the ultimate timing of phase 3 is dependent on several items, including passenger growth rates, and amounts of phase 3 are still to be determined, DBRS expects that the Authority would continue to make prudent use of debt and undertake projects that are logical and affordable.

The Authority adopted IFRS in 2011. While this has led to refinements in depreciation costs, asset values and pension liabilities, the switch has not impacted YOW’s business model or charging principles.

On September 14, 2012, DBRS assigned an Issuer Rating of A (high) with a Stable trend to the Authority. Further details can be found in our September 14, 2012, press release entitled “DBRS Assigns New Issuer Ratings,” located on our website under press releases.

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

The applicable methodology is Rating Canadian Airport Authorities (March 2011), which can be found on our website under Methodologies.