DBRS Confirms Edmonton Regional Airports Authority at A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the Edmonton Regional Airports Authority`s (ERAA or the Authority) Issuer Rating at A (high) and the rating on its Revenue Bonds, Series A at A (high), both with Stable trends. The ratings are supported by notable improvement in debt metrics since the completion of the five-year capital program at the end of 2012, albeit tempered by a province-wide, resource-related downturn in economic activity that has begun to depress traffic levels.

After growing by a solid 6.6% in 2014, passenger traffic dropped 2.7% in 2015 due to declined activities in the energy industry, which has reduced both business and leisure travel demand. Domestic traffic only demonstrated minimal growth of 0.5% in 2015, roughly in line with Edmonton’s real gross domestic product (GDP) growth. Transborder traffic fell 10.5% in 2015, which was partially offset by a strong 14.5% growth in international traffic, as American carriers rationalized some routes while international carriers added destinations. Sensitive to the economic environment, the fixed-rate operator (FBO) passenger volume increased 21.7% in 2014 but dropped dramatically in 2015 by 19.5%, essentially receding to the 2013 level.

Debt rose slightly in 2014 to $985.8 million, up 2.2% from year- end 2013, due to a new issuance of $40 million Series C bonds with Alberta Capital Finance Authority (ACFA) to finance capital projects and commercial developments. No new debt was issued in 2015 and with amortization, total debt reduced slightly to $965 million by the end of 2015. Over the next five years, only $20 million in new debt is planned to be raised in 2016, reflecting prudent management in the face of economic uncertainty and reduced capital needs after the completion of the multi-year Expansion 2012 capital program. With the slowing pace of additions to debt and relatively stable passenger traffic volumes, debt-per-enplaned passenger (a key leverage ratio tracked by DBRS for the sector) declined from $251 to $240 by 2014 and estimated to slightly increase to $242 by year-end 2015. The debt service coverage ratio (DSCR) rose to 1.54 times (x) in 2015, assisted by lower borrowing requirements and improved EBITDA, and is expected to stay above 1.45x until 2020. The debt metrics are supportive of the rating and places the Authority in a good position to ride out the economic effects of the energy downturn, although DBRS expects that passenger traffic will continue to be under pressure if the woes in energy markets are more structural in nature and have a protracted impact on the Alberta economy.

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.

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