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

DBRS Limited (DBRS) has today confirmed Edmonton Regional Airports Authority’s (ERAA or the Authority) Issuer Rating at A (high) and Revenue Bonds, Series A rating at A (high). Both trends are Stable. The ratings are supported by stable credit metrics that are comfortably within the range for the rating category, albeit tempered by a province-wide, resource-related downturn in economic activity that has depressed passenger traffic levels.

Terminal passenger traffic dropped by 3.5% in 2016 because of a continuing decline in activities in the energy industry, which began to have a dampening effect on ERAA’s traffic levels starting in early 2015. Domestic traffic recorded a modest level of growth of 2.0% in 2016, although transborder traffic fell by 25.4% in 2016 and international traffic fell by 9.8%. The more economically sensitive fixed-base-operator passenger volume decreased by 29.0% in 2016, down by approximately 45.0% from its peak in 2014, although it still contributes 6.6% of ERAA’s passenger traffic.

Debt declined slightly as at year-end 2016 to $963.6 million from $965.4 million as at year-end 2015, despite a new issuance of $20 million Series C bonds under the Alberta Capital Finance Authority (rated AA (high) with a Stable trend by DBRS) facility to finance capital projects. Over the next five years, the Authority plans to limit new borrowing, reflecting prudent management in the face of economic uncertainty and reduced capital needs since the completion of the capital expansion program approximately five years ago. Although debt levels remained fairly consistent between 2015 and 2016, the recorded decline in traffic of 3.5% in 2016 has resulted in debt per enplaned passenger (a key leverage ratio tracked by DBRS for the sector) rising to approximately $274 as at year-end 2016 from $265 in 2015. The debt service coverage ratio (DSCR) declined to 1.48 times (x) as at year-end 2016 as a result of a 4.2% decline in EBITDA in 2016 to $100.2 million from $104.6 million in the prior year. DBRS expects the DSCR to stay above 1.40x until 2021 in accordance with the current growth projections and capital plan and if plans for limited new borrowing remain the same. The credit metrics remain supportive of the ratings 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 depressed energy markets encountered during 2014 to 2016 are more structural in nature and have a protracted impact on Alberta’s economy. Notwithstanding, if traffic remains flat for the next few years, DBRS estimates that credit metrics will remain supportive of ERAA’s A (high) Issuer Rating and Stable trend. While DBRS views a positive rating action as being unlikely at current debt levels, a material increase in the debt per enplaned passenger or a material decrease in the DSCR could result in a negative rating action. DBRS notes that the federal government is weighing different options for the potential sale of all or part of Canada’s airports, although the sale of airports was not included in the latest federal budget. When there is greater clarity around the form of privatization and how it relates to ERAA, DBRS will assess its potential impact on ERAA’s ratings.

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.

This rating is no longer endorsed by DBRS Ratings Limited for use in the European Union.

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

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.