DBRS Confirms Aéroports de Montréal Issuer Rating of A (high), Stable

DBRS Limited (DBRS) confirmed the Issuer Rating and Revenue Bonds rating of Aéroports de Montréal (ADM or the Authority) at A (high). The trends are Stable, supported by healthy operating results, well-diversified revenue sources and passenger mix, and the prudent management style of the Authority, but tempered by the substantial debt increases expected to be needed in the coming years to fund ADM’s capital program.

Passenger traffic in 2017 grew by 9.5% to 18.2 million, surpassing ADM’s expectations. Excluding Airport Improvement Fees (AIF), aeronautical revenue increased by 10.4%, with total revenue increasing by 10.0%. Operating expenses (excluding municipal taxes and ground lease) increased by 11.0%, mainly attributable to higher costs related to the planning of future projects, to the improvement of services at international arrivals, and to severe winter conditions and enhanced security measures. The Authority recorded an operating surplus of $39.7 million and EBITDA, as calculated by DBRS, increased by 10.9% while debt service payments increased by 4.7%, collectively resulting in a slightly improved debt service coverage ratio (DSCR) of 2.4 times (x). With the Series N Revenue Bonds issued in 2017, the total debt per enplaned passenger rose to approximately $225 by the end of 2017, from $218.

Results for Q1 2018 have been strong with a new record high of 4.4 million passengers, which again exceeded expectations and was up by 7.0% over Q1 2017. EBITDA for Q1 2018 totalled $65.4 million, an increase of $4.8 million or 7.9% over the corresponding period in 2017. For the full-year 2018, the Authority targets 4.6% growth in passenger traffic, resulting in 5.5% growth in aeronautical revenues (excluding AIF) and 3.4% growth in non-aeronautical revenues. ADM increased its AIF to $30 from $25 per passenger effective on April 1, 2018, and expects the total AIF revenue to increase by 17.1% in 2018. Total revenue growth of 9.2% is targeted while total operating expenses are expected to rise by 7.1%, resulting in a targeted increase in EBITDA of 11.3%. This growth trend is expected to continue into 2019 and 2020, with passenger growth of 3.5% and 2.9% envisioned by the Authority.

Infrastructure spending in 2017 was approximately $229 million, slightly lower than the Authority’s budget. As noted in ADM’s 2017 annual report, the Authority will be investing $2.5 billion to increase capacity over the 2018–2022 period, in response to the strong volume growth and to renovate or rebuild end-of-life infrastructure. Without assuming another increase in AIF, ADM expects to finance these investments through internally generated cash flows as well as bond issuances of approximately $1.5 billion over the 2019–2022 period.

Total debt per enplaned passenger is expected to peak in 2022 at approximately $317, and the DSCR is expected to gradually reduce to 2.1x in 2022. While the debt per enplaned passenger and DSCR are expected to weaken over the medium term, these financial metrics are still acceptable when viewed in combination with the Authority’s tested ability and management style to prudently manage capital expenditures (capex) in accordance with passenger traffic growth, the airport’s diversified revenue sources and passenger mix, as well as the economic strength of the service area.

DBRS views a positive rating action as unlikely at the forecast debt levels. While not expected, a material worsening of the airport’s business environment or a substantial deterioration of the airport’s primary financial metrics from the current forecast levels could result in a negative rating action.

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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