DBRS Assigns “A” Rating to GTAA’s $300 Million MTN Issue with a Positive Trend, Confirms All Ratings

DBRS Limited (DBRS) has today assigned a rating of “A” with a Positive trend to the Series 2016-1 Medium-Term Notes (the Notes or Series 2016-1 MTNs) of the Greater Toronto Airports Authority (GTAA or the Authority). DBRS has also confirmed the Issuer Rating and the ratings on the Revenue Bonds and Medium-Term Notes at “A” with Positive trends. All of the various series of Medium-Term Notes and the Revenue Bonds rank pari passu. Proceeds of the Notes will be used to partially refinance the $350 million Series 2005-3 maturing February 15, 2016. The rating assignment and confirmation are supported by a declining debt load, good traffic growth, the expectation of strong cash flow generation from diverse revenue sources and the Authority’s continued focus on cost controls, but is tempered by modestly higher capital expenditures over the near term. DBRS notes that the supplemental indenture for the Series 2016-1 MTNs revises the required amount in the debt service reserve fund to six months of interest payments from 12 months to better align with market practices, which DBRS believes is reasonable in light of the GTAA’s declining debt load and strong revenue generation. The Authority expects that all future supplemental indentures will also outline the requirement for a six-month debt service reserve for subsequent debt issues.

Despite the somewhat tepid economic environment, passenger traffic growth at Pearson International Airport was strong in the first nine months of 2015, up 6.9% year over year to 31.4 million passengers. GTAA experienced one of the highest growth rates in over ten years, helped primarily by the international and transborder segments. Aeronautical fees were essentially unchanged during the period but the increased traffic resulted in revenues growing by 3.9% year over year to $902.7 million. Management contained expense growth to 6.8%, yielding improvement in EBITDA of 1.8% year over year. Cargo volumes saw a slight decline of 2.2% year over year, bringing total volume to 323,000 metric tonnes for the nine-month period. DBRS notes that cargo revenues represent a small, but important, component of overall revenues.

Ongoing deleveraging resulted in adjusted debt at September 30, 2015, of $6.2 billion compared to $6.6 billion at the end of 2014. Correspondingly, the debt service coverage ratio rose from 1.6 times (x) in 2014 to 1.7x for the first nine months of 2015, and debt per enplaned passenger improved to $308 by September 30, 2015, from $343 at the end of fiscal 2014. GTAA’s $350 million February 2016 maturity will be only partially refinanced by the Notes, with the balance being funded by a draw against the Authority’s credit facilities that is expected to be paid back over the course of the year and supports the Authority’s continued deleveraging efforts.

Current trends, supported by recent results, contribute to medium-term forecasts of a declining debt burden, moderately higher levels of capital expenditures and continued growth in traffic, revenues and EBITDA. Overall, debt per enplaned passenger is expected to continue its downward trajectory into sub-$300 territory. DBRS believes these forecasts to be reasonable and supportive of the current rating. Continued improvement in credit metrics, 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.