DBRS Confirms Ratings on Vancouver Airport Authority at AA (low), Stable

DBRS Limited (DBRS) confirmed Vancouver Airport Authority’s (VAA or the Authority) Issuer Rating and Senior Debentures rating at AA (low) with Stable trends. The rating confirmations reflect the Authority’s continuing solid financial performance and relatively low debt burden but are tempered by the potential for debt levels to increase to fund the Authority’s capital program.

Total passenger traffic rose by approximately 7.3% in 2018, in line with the Authority’s expectations, albeit at a slower pace than in the previous year. Total revenue and EBITDA in 2018 increased by 6.4% and 6.9%, respectively, largely in line with expectations. With the issuance of the Series G Debentures in 2018, the Authority had $595 million of total debt by the end of 2018, or $46 per enplaned passenger, marginally higher than the previous year. The interest coverage ratio (ICR) slightly improved to 9.1 times (x) because of stronger EBITDA. For 2019, both the ICR and debt per enplaned passenger are projected to slightly weaken as a result of debt issuance in support of the Authority’s capital program. During Q1 2019, passenger volume increased by 3.0% compared with the same period a year ago. The Authority expects total traffic to grow by 4.9% for the full year, though it expects EBITDA to slightly reduce by 2.8% as a result of faster expense growth while the aeronautical revenues are somewhat constrained by the ConnectYVR program.

VAA’s updated capex plan entails spending of approximately $2.6 billion between 2019 and 2023. The capex plan is being undertaken to meet the Authority’s strategic target of 32 million passengers by 2023 and generally involves expansion of passenger terminal facilities, airside and groundside paving work, parking facilities, utility work and other improvements and renovations. The plan includes approximately $300 million of sustaining capex. Capital outlays are expected to be funded by a combination of existing cash balances, internally generated cash flows and new debt, including partial use of the Authority’s operating line, with total debt expected to gradually increase to approximately $1.6 billion, or $106 per enplaned passenger, by 2023 under the Authority’s projections, or $114 per enplaned passenger using a 2% annual traffic growth rate. The ICR is projected to hit a low of 4.5x in 2023.

DBRS draws comfort from the Authority’s annual capital project review process, which provides oversight of capital allocation; its ability to raise the airport improvement fee if necessary; and the expectations that the financial metrics will remain comfortably within the rating range. While not expected, the ratings may be negatively affected should traffic drop significantly or if debt increases at a faster pace, testing the $155-per-enplaned-passenger threshold for a credit rating in the AA category.

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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