DBRS Rates Aéroports de Montréal Revenue Bonds at A (high), Stable Trend

DBRS Limited (DBRS) has today assigned a provisional rating of A (high) with a Stable trend to the Series N Revenue Bonds (the Bonds), expected to be issued by Aéroports de Montréal (ADM or the Authority) in an amount of up to $250 million, and notes that the Issuer Rating and the rating assigned to ADM’s pre-existing Revenue Bonds are not expected to be affected as a result of the issuance of the Bonds. The Series N Revenue Bonds will be direct obligations of ADM, ranking pari passu with all other indebtedness secured pursuant to its Master Trust Indenture. Bond proceeds will be used to fund ADM’s capital program and its general corporate activities. The Bonds will be non-amortizing, pay interest semi-annually and will mature in April 2047.

Passenger traffic in 2016 grew by 6.9%, surpassing ADM’s expectations, and reached 16.6 million. Excluding Airport Improvement Fees (AIFs), aeronautical revenue increased by 5.2%. Total revenue increased by 7.9%, with real estate and retail activities contributing to 37% of this increase. Operating expenses increased by 5.8%, mainly attributable to the opening of the new international jetty, the winter conditions and annual salary increases. As a result, the Authority recorded an operating surplus of $35.8 million. EBITDA, as calculated by DBRS, increased by 9.2% while debt service payments increased by 5.3%, collectively resulting in a slightly improved debt service coverage ratio (DSCR) of 2.3 times (x). With no new bonds issued in 2016, the total debt per enplaned passenger dropped from $233 to $218 by the end of 2016. For 2017, the Authority forecasts 3.0% growth in passenger traffic, resulting in 5.3% growth in aeronautical revenues (excluding AIF) and 2.0% growth in non-aeronautical revenues. However, EBITDA is projected to slightly decrease by 1.3%, mainly as a result of a 7.2% increase in operating expenses attributable to inflation, train and city-side studies, non-passenger screening vehicles as required by new security regulation, and the first full-year operation of the extension of the new international jetty. For January 2017, ADM set a new record of 1.3 million passengers, up by 6% over January 2016.

Infrastructure spending in 2016 was reported to be approximately $256 million, in line with the Authority’s budget. ADM intends to roughly maintain its pace of spending over the next few years, in response to the faster-than-expected traffic growth. According to the Authority, its current 2017 to 2021 strategic plan calls for approximately $240 million to $245 million of investment every year until 2019. Over 40% of the investments for the three-year period (2017 to 2019) are earmarked for a rigorous asset maintenance program and to comply with regulatory and security requirements. Other projects contemplated under the current strategic plan are mainly devoted to the increase in capacity and include the development of runways, taxiways and aprons; development of the southwest sector for aircraft remote parking; increased capacity for car parking facilities and road access enhancements; reconfiguration of international and domestic baggage room, international arrivals and transit area; and reconfiguration of the domestic and international departure sector.

In addition to the Bonds, the Authority plans to rely on cash surpluses, including the AIF, to support the above cash outlays as the existing $150 million bank line will be used to bridge temporary funding gaps. Total debt per enplaned passenger is expected to peak in 2019 at approximately $248 and gradually decrease thereafter, with the DSCR expected to be in the 2.2x to 2.4x range over the next four years. DBRS views both as suitable for the rating.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Canadian Airport Authorities, which can be found on dbrs.com under Methodologies.

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