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

DBRS Limited (DBRS) confirmed 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 lowered aeronautical revenues as a result of the implementation of the ConnectYVR program.

Passenger traffic rose by approximately 9.7% in 2016, which exceeded expectations and outpaced any other DBRS-rated Canadian airport. However, total revenue only increased slightly, and EBITDA reduced by 3.6% in 2016, mainly because of the new ConnectYVR program, although these results are still better than anticipated owing to the faster-than-expected traffic volume growth. With no new debt issued in 2016, the Authority reported $544.7 million of total debt by the end of 2016, or $49 per enplaned passenger. The lower interest expense of the Series F debentures compared with that of the replaced Series E debentures was partly offset by a lower EBITDA, leading to a slightly stronger interest coverage ratio (ICR) of 8.3 times (x).

For 2017, both the ICR and the debt per enplaned passenger are projected to roughly remain the same as in 2016. During Q1 2017, passenger volume increased by 7.0% relative to the same period a year ago. The Authority anticipates that total traffic will grow by 3.0% by the end of 2017. However, tempered by the reduced landing fees and terminal charge rates under the ConnectYVR program, EBITDA is anticipated to slip by 1.0% in 2017.

The Authority budgets approximately $1.45 billion of capital spending between 2017 and 2020, which is somewhat higher than last year’s forecast. Debt is expected to peak at $978 million by 2020, or $79 per enplaned passenger, and the ICR is projected to hit a low of 5.7x in 2020. 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 if debt increases at a faster pace and tests the $125 per enplaned passenger threshold for a credit rating in the AA category.

DBRS notes that the federal government is weighing different options for the potential sale of all or some 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 VAA, DBRS will assess its potential impact on VAA’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.

The principal methodology is Rating Canadian Airport Authorities, which can be found on 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.