DBRS Confirms Ratings on Aéroports de Montréal at 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) with Stable trends. The ratings are supported by healthy operating results, well-diversified revenue sources and passenger mix as well as the Authority’s prudent management style, but tempered by the substantial debt increases expected in the coming years to fund ADM’s capital program.

Passenger traffic in 2018 grew by a better-than-expected 7.0% to 19.4 million while revenues grew by 10.7%, driven by higher passenger traffic, higher commercial revenues and an increase in airport improvement fees (AIFs) to $30 from $25 on April 1, 2018. Aeronautical revenues (excluding AIFs) increased by 6.6% during 2018. Operating expenses (excluding municipal taxes and ground leases) increased by 9.9%, driven by increased costs related to winter maintenance as well as initiatives to improve passenger flow and experience at the terminal in the context of capacity issues with the current infrastructures. EBITDA increased by 12.8% and the Authority recorded an operating surplus of $68.2 million. With no new debt issued during the year, debt service payments increased by only 0.9% based on the full-year effect of the Series N Revenue Bonds issued in April 2017, resulting in an improved debt service coverage ratio (DSCR) of 2.7 times (x). The total debt per enplaned passenger decreased to approximately $209 by the end of 2018 – lower than anticipated – from $225 at the end of 2017.

In Q1 2019, passenger volumes grew by 6.5% to 4.7 million. EBITDA increased by 36.6%, mainly because of passenger volume growth, the AIF increase and a gain on the sale of assets. For the full-year 2019, the Authority is targeting 4.5% growth in passenger traffic, resulting in 8.3%% growth in aeronautical revenues (excluding AIFs) and 9.8% growth in non-aeronautical revenues. ADM expects to achieve full-year revenue growth of 9.2% while total operating expenses are expected to rise by 9.5%, resulting in a 9.0% increase in EBITDA. This growth trend is expected to continue into 2020 and 2021 with passenger growth of 3.0% and 2.3%, respectively, envisioned by the Authority.

Infrastructure spending in 2018 was approximately $219.8 million, lower than the Authority’s budget; however, capex is expected to increase markedly over the next few years, totalling approximately $2.5 billion by 2023, to address the strong volume growth and to renovate or rebuild end-of-life infrastructure. This includes the construction of the Réseau express métropolitain station and the connecting the Montréal-Pierre Elliott Trudeau International Airport transit space to be completed by 2023, rehabilitation of taxiways and a baggage-room expansion. ADM expects to finance these investments with internally generated cash flows and financing of approximately $1.6 billion between 2020 and 2023.

Total debt per enplaned passenger is expected to peak in 2023 at approximately $322 and the DSCR is expected to gradually reduce to 2.2x in 2023 as per the Authority’s projections. While the debt per enplaned passenger and DSCR are expected to weaken over the medium term, these financial metrics are still acceptable in combination with ADM’s tested ability to prudently manage 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, material worsening of the airport’s business environment or substantial deterioration of the Authority’s primary financial metrics from the current forecast levels could result in negative 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.

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

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