DBRS Confirms Vancouver Airport Authority at AA (low) with a Stable Trend

DBRS Limited (DBRS) has today confirmed the Vancouver Airport Authority’s (VAA or the Authority) Issuer Rating and Senior Debentures rating both at AA (low), with Stable trends. The rating confirmations reflect the Authority’s continued solid financial performance and relatively low debt burden, tempered by softening domestic and global economic climates.

Passenger traffic rose by approximately 5.0% in 2015, which is faster than other DBRS-rated Canadian airports. EBITDA grew by 3.5% in 2015, benefiting from a 4.6% increase in non-aeronautical revenue and a 2.2% increase in landing and terminal fee revenues. VAA fully refinanced the $200.0 million Series E Senior Debentures with the issuance of Series F Senior Debentures on November 10, 2015. Total debt, including deferred rent, decreased at a pace of 1.2% to $543.8 million by the end of 2015, or $54 per enplaned passenger. The modest improvement in EBITDA, coupled with lower-than-expected debt levels, led to a strong interest coverage ratio (ICR) of 8.2 times (x).

During Q1 2016, passenger volume increased by 8.4% relative to the same period a year ago. The Authority anticipates that total traffic will grow by 5.8% by the end of 2016. However, as a result of the implementation of a restructured landing fee and terminal charge program, which reduces both the landing fee and terminal charge rates, EBITDA is anticipated to drop by 7.0% in 2016. The new rates structure, which will be frozen until 2020, is aimed to enhance the Authority’s competitiveness, improve the utilization of the facility and boost revenue over the medium and long term.

The Authority anticipates approximately $1.45 billion of capital spending between 2016 and 2020, which is somewhat reduced from last year’s forecast. Debt is expected to peak at $699.0 million by 2020, or an estimated $62 per enplaned passenger, a level considered supportive of the ratings. The ICR is projected to hit a low of 6.6x in 2020, a level also appropriate for the ratings. In addition, DBRS draws comfort from the Authority’s ability to control its capital spending through an established annual capital project review process, its ability to raise the airport improvement fee if necessary and the fact that the current financial ratios remain considerably favourable compared with its DBRS-rated peers. While not expected, the ratings may be negatively affected should traffic drop significantly or debt increase at a faster pace and start testing the $125 per enplaned passenger threshold that is typically expected for a credit rating in the AA category.

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 (June 2016), which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.