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

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

GTAA served 49.5 million passengers in 2018, an increase of 5.0% over 2017 levels, driven by growth in the international and transborder segments. The higher passenger traffic resulted in a 6.1% year-over-year (YOY) revenue increase. Operating expenses, as calculated by DBRS, grew 9.8%, although YOY EBITDA improved by 2.4%. For 2018, aeronautical revenues (excluding airport improvement fee) increased 1.8% YOY, while commercial revenues increased by a sound 11.4% due to higher traffic. The positive trends of 2018 have continued into Q1 2019, with passenger traffic of 11.7 million — up 2.8% over the same period last year. While revenues rose by 4.0% to $362.4 million in Q1 2019, EBITDA declined by 1.6% to $154.7 million, driven by an 8.5% increase in operating expenses due to higher snow removal costs, which were deemed exceptionally high this winter. During the quarter, aeronautical revenues were flat over the same period last year at $126.2 million, while commercial revenues grew at a significantly faster rate of 8.5%, mainly attributable to the continued expansion of GTAA’s corporate partnerships and to the revenues generated by Airway Centre Inc.’s commercial buildings.

At the end of 2018, total debt was $6.48 billion, slightly higher than the $6.28 billion one year earlier, mainly driven by additional CP borrowings to fund property acquisitions and to take out existing long-term debt. The debt service coverage ratio, as calculated by DBRS, remained unchanged at 2.0 times in 2018 as revenue grew apace. On a per-enplaned-passenger basis, debt levels continued their downward trajectory, and by the end of 2018, debt per enplaned passenger improved to $258.

The Authority forecasts capital-driven borrowings to add to debt levels, although this is expected to be offset by passenger growth. Forecast revenue growth and expense management should lead to EBITDA improvement for the year. The past several years have seen sustained passenger growth at GTAA, resulting in the need to add capacity. Over the term of the expansion plan, DBRS expects that the debt metrics will remain supportive of the ratings. Further improvement in credit metrics, notably a continued reduction in debt per enplaned passenger, would contribute to positive rating pressure; however, a marked slowdown in passenger traffic or other events leading to a sustained deterioration of financial metrics could cause downward rating pressure.

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 & Criteria.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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