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

DBRS has today confirmed the Issuer Rating and 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 Authority’s good operating discipline and sound management, tempered by relatively soft traffic levels seen in recent months.

After growth of 3.4% in 2011, passenger traffic increased by a more modest 1.3% in 2012. All sectors contributed positively, although transborder levels were most improved, with a year-over-year increase of 3.3%, while international and domestic passengers were up 2.6% and 0.7%, respectively. Revenues for 2012 were up 2.7%, with parking receipts and AIF revenues contributing strongly. Operating expenses increased by 3.9%, attributable in part to higher salaries and benefits costs, higher incidences of snow and freezing rain events, increased outsourcing costs and increased fuel and utilities costs. Payments in lieu of taxes and ground rent paid to Transport Canada also increased. Correspondingly, EBITDA grew by 1.3% on a year-over-year basis. Interest charges grew by 4.7% and the Authority’s recurring surplus, net of depreciation and interest charges, was $5.3 million, down 6.6% from the year prior. The debt service coverage ratio (DSCR) increased slightly, to 2.2 times, while debt per enplaned passenger declined to $150.

Traffic levels began to decline in the second half of 2012, and this trend generally continued in 2013, with traffic down 2.3% for the calendar year. For the first three quarters of 2013, the softening traffic conditions contributed to a 2.3% decline in revenue, with a 3.0% drop in AIF revenue, a 2.2% decline in landing and terminal fee revenue and a 2.0% drop in concession revenue. Parking revenue and revenue from space rentals were also down modestly. Operating expenses increased by 2.1% during the same period, mainly due to the impact of adverse winter weather conditions and contractual salary increases. As such, EBITDA declined by 6.7% for the first three quarters of 2013. DBRS estimates that the Authority will end 2013 with a DSCR of about 2.0 times and debt of roughly $155 per enplaned passenger.

The Authority has recently announced an increase of its airport improvement fee (AIF) to $23 per departing passenger, as well as aeronautical rate increases to partially offset the recent declines in passenger traffic. Over the coming year, the Authority plans to draw down about $47 million against its credit facility to bridge operating cash flows and fund its capital program, for total bank borrowings of an estimated $66 million at year-end. While this would still leave YOW with satisfactory remaining liquidity, the Authority is considering additional financing options. This would result in a debt burden of about $400 million at the end of 2014, or roughly $170 per enplaned passenger. Runway resurfacing and reconstruction project, the completion of baggage handling system upgrades and some other relatively small projects are planned for 2014, at an estimated cost of roughly $62 million. At some point in the future, YOW will need to embark on phase 3 of its Airport Expansion Program, although the airport continues to have excess capacity and the timing of phase 3 has not been determined.

On February 25, 2013, the Minister of Transport for the Government of Canada executed the 20-year extension to the ground lease, which is now scheduled to terminate on January 31, 2077.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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