DBRS Confirms Edmonton Regional Airports Authority at A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating of Edmonton Regional Airports Authority (ERRA or the Authority) and the rating on the Revenue Bonds issued by the Authority, both at A (high) with Stable trends. The ratings confirmation is based on the near completion of the Expansion 2012 capital program at a cost notably below budget, recovering activity at Edmonton International Airport and a positive economic outlook for the Edmonton region. However, the ratings are tempered by the significant borrowing undertaken to complete the capital program over the last few years, which has eroded credit metrics for the near term.

Solid regional economic activity led to rebounding passenger growth of 3.1% in fiscal 2011, following challenging results in 2009 and 2010 as performance lagged behind overall economic recovery. The traffic momentum has continued so far in 2012, with passenger growth reported at 6.6% at the end of the third quarter. Effective January 1, 2012, aeronautical fees were raised by 3.5% and the airport improvement fee was increased by $5 to $25, providing a boost to EBITDA, and thus offsetting some of the impact of underperforming passenger growth in previous years.

Several Expansion 2012 projects have been completed, including the opening of the new Central Hall retail area in December 2011, and the subsequent opening of the expanded transborder and domestic/international terminals during fiscal 2012. The total cost of the project was originally budgeted at almost $1 billion, but the Authority’s effective cost management strategies and a somewhat softer labour market have resulted in a 25% projected reduction in expenditures.

DBRS considers a ceiling of approximately $300 of debt per enplaned passenger and a debt service coverage ratio (DSCR) of no lower than 1.25 times as key metrics for the A (high) rating category. By year-end 2012, debt per enplaned passenger is projected to reach $292 and the DSCR is expected to fall to nearly 1.25 times. The metrics should improve thereafter as long as passenger growth persists at a moderate pace and a 3% increase in aeronautical fees is implemented in 2013 as planned. Although DBRS expects that the Authority’s metrics will improve, it should be noted that a prolonged period of weaker metrics could have rating implications.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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