DBRS Changes the Trends on the Greater Toronto Airports Authority to Positive and Confirms Ratings at “A”

DBRS Limited (DBRS) has today changed the trend on the Issuer Rating and on the Revenue Bonds and Medium-Term Notes of the Greater Toronto Airports Authority (GTAA or the Authority) to Positive from Stable and has confirmed each of the ratings at “A.” The Positive trend is supported by a declining debt load, modest capital expenditures over the foreseeable future, good traffic growth, the expectation of strong cash flow generation from diverse revenue sources, and the Authority’s continued focus on cost controls.

Despite the somewhat tepid economic environment, passenger traffic growth at Toronto Pearson International Airport was strong in 2014, up 6.8% over 2013. GTAA experienced its highest growth rate in ten years, helped primarily by the international and transborder segments. Cargo volumes also saw a resurgence, with growth of 9.1% in 2014, bringing total volume to 448.6 million metric tonnes, the highest level in a decade. Aeronautical fees were unchanged during the year, but the increased traffic resulted in revenues growing by 3.2% year over year, while good cost management contained expense growth to 1.9%, yielding solid improvement in EBITDA of 4.2% in 2014 over 2013. For the first half of 2015, passenger traffic was up 7.0%, which lead to revenues rising 2.8% year over year and EBITDA improving by 1.7% to $318.0 million.

A bond buy-back allowed a degree of deleveraging, with debt at year-end of $6.7 billion compared with $7.1 billion a year earlier. Correspondingly, the debt service coverage ratio rose from 1.5 times (x) in 2013 to 1.6x in 2014, and debt per enplaned passenger improved to $343 in 2014 from $390 in 2013. A bond maturity in June 2015 was repaid, which continues the Authority’s deleveraging efforts. For H1 2015, debt service coverage continued at the 1.6x level, while debt per enplaned passenger fell further to $314 as a result of the combined effects of debt declining to $6.3 billion and continued passenger growth.

It is the intention of the Authority to continue to minimize the negative carry on reserve funds, as appropriate. At the end of June 2015, reserves were $501 million compared with $808 million at the end of 2014.

Current trends, supported by results for 2014 and H1 2015, contribute to forecasts for 2015 of a declining debt burden, moderate levels of capital expenditures, and continued growth in traffic, revenues and EBITDA. DBRS believes these forecasts to be reasonable and supportive of the trend change. Continued improvement in credit metrics and, notably, the continued reduction in debt per enplaned passenger would likely contribute to further positive rating action. However, a marked slowdown in passenger traffic or a deterioration of financial metrics could cause a revision of the trend to Stable.

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.

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