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

DBRS Limited (DBRS) 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 steady credit metrics that are comfortably within the range for the rating category, along with stabilization in passenger traffic levels that were adversely affected by the recent resource-related downturn in economic activity.

After declining for two consecutive years, terminal passenger traffic increased by 5% in 2017, supported by the gradual recovery in the energy industry and by the uptick in economic activity within the province. Domestic traffic was the key driver of overall traffic growth, increasing by 6.9% year over year (YOY) and accounting for 82% of total terminal traffic. The decline in transborder traffic moderated somewhat to 4.0% in 2017, after witnessing substantial decreases in 2015 and 2016, whereas international passenger traffic remained flat in 2017. The fixed-base-operator (FBO) passenger volume continued to decline, falling 13.6% in 2017 (down 29.0% in 2016), and accounted for 5.5% of ERAA’s total passenger traffic, demonstrative of a still-weakened oil sands sector.

Debt levels declined to $939.3 million as at year-end 2017, from $963.6 million, due to bond amortization, with no new issuances during 2017. ERAA does not plan to issue additional debt in the near to medium term and continues to prudently manage its capital plan. Debt-per-enplaned passenger declined to $255 as at year-end 2017, the lowest level in six years (since the completion of the terminal expansion program), as passenger traffic increased to close to 2014 levels while debt levels declined. The debt service coverage ratio (DSCR) improved to 1.53 times (x) as at year-end 2017 as a result of a 5.5% increase in EBITDA to $105.7 million from $100.2 million in 2016.

ERAA reported strong broad-based growth in passenger traffic at 6.0% YOY for the first five months of 2018 (i.e., January–May 2018), with domestic, transborder and international traffic growing at 6.1%, 7.0% and 4.4%, respectively. DBRS expects passenger traffic growth to continue fairly in line with year-to-date (YTD) trends for the rest of 2018, benefiting from the expected growth in economy activity and recovery within the energy sector in Alberta as well as relatively weaker comparables. DSCR is expected to fall to 1.43x during 2018 due to a comparatively higher increase in debt amortization, which is expected to be only partially offset by the EBITDA growth. However, DSCR is expected to comfortably remain above 1.40x for the next three years, absent any additional borrowings or revenue shocks. While passenger traffic levels and resultant credit metrics continue to remain supportive of ERAA’s A (high) Issuer Rating and Stable trend, a material increase in the debt-per-enplaned passenger ratio or a material decrease in the DSCR could result in a negative rating action. DBRS views a positive rating action as unlikely at current debt levels.

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.

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.

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