DBRS Rates Vancouver Airport Authority Debt Issue at AA (low) Stable

DBRS Limited (DBRS) has today assigned a rating of AA (low) with a Stable trend to the $200 million Series F Debentures (the Debentures) issued by Vancouver Airport Authority (VAA or the Authority) under VAA’s original indenture dated December 6, 1996, and a sixth supplemental indenture executed on November 10, 2015.

The proceeds from the Debentures will be used to refinance the $200 million existing Series E Debentures, which mature on November 13, 2015. The financing involves a slightly higher debenture issuance than DBRS’s expectations incorporated in the August 17, 2015, confirmation of the Authority’s ratings, and as a result, the debt level by the end of 2015 is now expected to be approximately $550 million instead of the previously estimated $500 million. However, on a per enplaned passenger basis, the expected debt level by year end is still considered to be supportive of the rating.

VAA’s operational performance has been generally in line with expectations. For the first three quarters of the year, cumulative total enplaned passenger volume was 7.9 million, 4.8% higher than the same period a year ago. The interest coverage ratio as of Q2 2015 was calculated by DBRS at 8.0 times.

The supplemental indenture also features some amendments to the original indenture. Most notably, the limitation on total guarantees or investments is increased from 15% of net assets to 15% of total assets, beyond which a rating affirmation will be required. Although DBRS believes that any impact of non-aeronautical investment on VAA’s financial viability can still be captured through the ongoing monitoring of the financial matrices, DBRS recognizes the time lag between an investment decision and materialization of any potential adverse impact. Nonetheless, DBRS draws comfort from the fact that the current debt level still embeds considerable buffer before potential investments can impose any downward pressure on the rating. As of Q2 2015, VAA’s net assets accounted for approximately 67% of total assets, providing a meaningful buffer to weather unexpected loss or write-offs.

The Debentures have a 30-year maturity with a bullet repayment of principal on November 10, 2045, with interest payable semi-annually. The Debentures rank pari passu with all other senior obligations of the Authority, and the assigned rating is consistent with the ratings previously assigned by DBRS to VAA and its other outstanding debentures.

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.

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