DBRS Confirms Greater Toronto Airports Authority Issuer Rating of A (high), Stable, and Commercial Paper Rating of R-1 (low), Stable

DBRS Limited (DBRS) confirmed the Issuer Rating of A (high) and the Commercial Paper (CP) rating of R-1 (low) on Greater Toronto Airports Authority (GTAA or the Authority). Both trends are Stable. The ratings continue to be supported by strong traffic growth and the Authority’s solid financial performance.

GTAA’s passenger growth has been strong over the past four years, reaching 47.1 million passengers in 2017, up 6.2% over 2016. The growth was primarily driven by the international and transborder segments. Cargo volumes also saw a strong growth of 14.1% in 2017, bringing total volume to 538.9 thousand metric tonnes, the highest level in over a decade. Aeronautical fees were unchanged during the year, but the higher traffic resulted in a 6.6% year over year (YOY) revenue increase while operating expenses (excluding depreciation), as calculated by DBRS, grew 9.2%, yielding solid EBITDA improvement of 4.2% in 2017 over 2016. For the year, aeronautical revenues (excluding AIF) increased 2.4% YOY while non-aeronautical revenues increased 9.2%. The positive trends of 2017 have continued into Q1 2018, with passenger traffic of 11.3 million up 6.3% YOY and aircraft movements of 111,700 up 2.2%. Passenger growth was driven by 7.7% growth YOY in international traffic and 3.6% YOY growth in domestic traffic. Revenues rose 7.5% YOY to $348.6 million and EBITDA improved by 1.2% to $157.1 million. During the quarter, aeronautical revenues grew by 2.4% while non-aeronautical revenues grew at a significantly faster rate of 14.3%, mainly attributable to continued expansion of the GTAA’s retail and food and beverage programs and to the revenues generated by the Airway Centre Inc.’s commercial buildings.

At the end of 2017, total debt was $6.31 billion, slightly higher than the $6.22 billion one year earlier, mainly as a result of the increased borrowing, including the usage of the CP program, to fund property acquisitions. However, with the strong growth in passenger volume and revenues, the debt service coverage ratio (DSCR), as calculated by DBRS, rose to 2.0 times (x) in 2017 from 1.9x in 2016 and debt per enplaned passenger improved to $268 in 2016 from $281 the year before. DBRS notes that, at the end of 2017, reserves were $455 million, compared with $477 million in 2016 and $500 million in 2015.

Supported by results for 2017 and Q1 2018, the Authority forecasts a slightly declining debt burden, increasing capital expenditures (capex), solid growth in traffic and revenues as well as modest growth in EBITDA for 2018. DBRS believes these forecasts to be reasonable and supportive of the ratings. Continued improvement in credit metrics and, notably, the continued reduction in debt per enplaned passenger would contribute to positive rating pressure; however, a marked slowdown in passenger traffic or a sustained deterioration of financial metrics could cause downward rating pressure.

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

The principal methodologies are Rating Canadian Airport Authorities and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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