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

DBRS has today confirmed the Issuer Rating of A (high) and the rating of A (high) assigned to the Revenue Bonds (the Bonds) of Aéroports de Montréal (ADM or the Authority). Both trends are Stable, supported by healthy operating results, manageable debt levels and prudent management, against a backdrop of decelerating traffic growth. Passenger traffic in 2012 grew by 1.0%, which lagged the other airport authorities rated by DBRS, as well as ADM’s budget expectations. For the first three months of 2013, traffic growth slowed to 0.3%, primarily driven by weakness during February. ADM’s projections call for 2013 traffic growth in the order of 1.4%, an assumption which DBRS views as potentially optimistic, given the uncertain economic climate which continues to prevail.

For 2012, modest passenger growth and increases in landing and terminal fees drove revenue increases of 2.0%, with operating expenses increasing only marginally on a year-over-year basis. Correspondingly, EBITDA as calculated by DBRS increased by 4.1%, resulting in an improvement of the DSCR, to 2.0 times (x). With the issuance of $250 million Series K revenue bonds in September, debt increased by 18.1% to slightly over $1.6 billion in 2012. Combined with modest passenger growth, this led to an increase in debt, on a per-enplaned passenger basis, to $236, which DBRS nevertheless views as suitable for the rating.

For 2013, EBITDA is expected to decrease by 2.8%, reflective of the expected growth in expenses. However, this trend is expected to reverse in 2014, with expected compound EBITDA growth of 3.4% over the next five years and DSCR levels expected to remain within the 1.8x to 2.0x range during this time frame. ADM expects debt per enplaned passenger to peak at roughly $240.

Annual infrastructure spending for the next few years is expected to total between $160 million and $200 million. ADM intends to address these needs by way of surplus cash, although these balances are expected to be depleted by mid-2014. At that time, the Authority plans to gradually draw down its bank line to fund capital expenditures while still leaving a portion undrawn as a measure of liquidity to handle any unexpected shocks, such as the bankruptcy of a key airline or a sizable drop in passenger traffic. At a suitable time, ADM intends to conduct a capital markets issuance, using the proceeds to pay down its revolving line.

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.