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 and the rating of ERAA’s Revenue Bonds, Series A at A (high). Both trends remain Stable. The ratings are supported by steady credit metrics that remain supportive of the rating and the notable rebound in passenger traffic during 2018 and 2017 after the resource-related economic downturn.

During 2018, terminal passenger traffic increased by 6.2%, supported by strong transborder and domestic traffic, which grew at 9.9% and 6.3% respectively year over year (YOY). Accounting for 82% of total terminal traffic, domestic traffic continued to be the key driver of traffic growth, supported by increased economic activity and the gradual recovery in the energy industry within the Province of Alberta. Transborder traffic, comprising a 12% share, witnessed a strong rebound after a three-year decline, supported by new ultra-low-cost carriers (ULCC) and the addition of new routes. International traffic continued to account for a smaller share of terminal traffic (6.0%) and declined marginally by 1.4% during 2018. Revenues increased by 6.5% YOY, in line with passenger growth, while EBITDA increased by 2.1% to $109.5 million during the year. Despite higher EBITDA, the debt service coverage ratio (DSCR) declined marginally to 1.50 times (x) as at year-end (YE) 2018, primarily because of higher principal amortization.

As at YE2018, total debt increased to $1,088.7 million from $939.3 million, despite principal repayments, as the Authority raised $180 million from its Alberta Capital Finance Authority credit facility to fund growth capex and commercial real estate development. Debt per enplaned passenger increased to $278 as at YE2018 because of the net incremental debt. DBRS understands that ERAA does not plan to issue further debt in the near term and is expected to prudently manage its capital plan.

During the January 2019 to May 2019 period, terminal passenger traffic growth moderated to 0.6% after strong growth in 2018 and 2017, despite a 6.0% increase in transborder traffic. The Authority expects terminal passenger traffic to grow on average around 3% over the medium term, which DBRS views as reasonable given the expected improvement in energy-linked economic activity and a resilient public sector. ERAA’s DSCR is expected to fall to 1.44x during 2019 as higher debt-servicing costs are expected to outpace EBITDA growth. However, DBRS expects the DSCR to return above 1.50x starting 2020.

ERAA adopted Accounting Standards for Not-for-Profit Organizations in 2018 and has applied the standard retroactively to 2017. DBRS has adjusted financial statements as required for comparative purposes, although these adjustments are not considered to be material in nature.

Passenger traffic levels and credit metrics remain supportive of the current rating, although revenue shocks or substantial cost increases resulting in material degradation of financial metrics 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 & 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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