DBRS Confirms Greater Toronto Airports Authority at “A”, Stable Trend

DBRS has today confirmed the Issuer Rating and ratings of the Revenue Bonds and Medium-Term Notes of the Greater Toronto Airports Authority (GTAA or the Authority) at “A”, with a Stable trend. Weakening global economic prospects are dampening the traffic growth momentum, introducing some uncertainty into the sector’s outlook for 2013. However, GTAA continues to exhibit prudence, as highlighted by the decision to address capacity needs over the medium term by improving passenger processing, rather than building new space. As a result, the borrowing and debt outlooks have improved markedly, which may have positive implications for the rating going forward.

Despite volatile economic conditions, GTAA posted another good performance in 2011, helped by a 4.7% increase in enplaned passenger traffic and 2.4% growth in aircraft movement. This led to a 5.6% jump in recurring EBITDA. DBRS notes that traffic growth has been losing momentum at most major Canadian airports in recent months, although passenger volumes were still up by a healthy 4.2% at Pearson nine months through the year. However, the impact of higher traffic on revenue and EBITDA will be largely neutralized by a reduction of 2.5% in overall aeronautical fees implemented at the beginning of the year.

Capital investments remained subdued in 2011, but total debt notably rebounded to $7.7 billion, as the Authority chose to pre-finance its upcoming January 2012 maturity. Nonetheless, solid operating results maintained the DSCR on its slow upward trend. Another round of pre-financing conducted last September prevented debt from declining materially so far this year. However, the repayment of MTN Series 2002-2 maturing on December 13, 2012 is projected by DBRS to cut debt to less than $7.2 billion by year-end. This could translate into approximately $410 per enplaned passenger, which would be the lowest level in nearly a decade.

Barring an unforeseen traffic downturn, credit metrics are likely to continue to strengthen. The Authority’s recent decision to address capacity needs in the coming years by improving passenger processing at Terminal 3 is believed to have postponed the need for Pier G by several years, which has considerably reduced capital outlays for the next five years. Furthermore, a new aeronautical rate-setting methodology, slated for implementation next year, is expected to enhance cash flow generation in order to fund a greater portion of capital investments on a pay-as-you basis. This is likely to provide support to EBITDA and limit borrowing needs to maturing debt, adding resilience to the credit profile.

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.