DBRS Morningstar Assigns Rating of AA (low) with a Stable Trend to Vancouver Airport Authority New Debt Issue

DBRS Limited (DBRS Morningstar) assigned a rating of AA (low) with a Stable trend to the $300 million Series H Debentures (the Debentures) issued by Vancouver Airport Authority (VAA or the Authority) under the eighth supplemental indenture executed on October 18, 2019, to VAA’s original indenture dated December 6, 1996. The rating being assigned is based upon the rating on the already-outstanding series of the above-mentioned debt instrument.

The Debentures have a 30-year maturity with a bullet repayment of principal on October 18, 2049, with interest payable semi-annually. The Debentures rank pari passu with all other senior obligations of the Authority and the assigned rating is consistent with the ratings previously assigned by DBRS Morningstar to VAA and its other outstanding debentures.

The proceeds from the Debentures will be used to provide funding for general corporate purposes, which may include the Authority’s capital program. Although the Landlord Acknowledgement Agreement does not extend to the holders of the Debentures, DBRS Morningstar is of the view that the absence of leasehold mortgagee rights does not materially weaken the credit profile, as the possibility of termination remains remote given the solid track record of airport management and the relatively benign nature of the events of default contained in the lease.

For the first six months ended June 30, 2019, cumulative total enplaned passenger volume was 12.7 million, 2.4% higher than the same period last year, with all sectors contributing to such growth. Total revenue and total expenses (excluding interest and depreciation) increased by 1.4% and 6.9%, respectively, and the EBITDA reached $129.1 million. This is 4.4% lower than the same period last year, mainly because the rates of landing fees and terminal fees are frozen under the current ConnectYVR program, which constrained the Authority’s ability to grow aeronautical revenues. DBRS Morningstar notes that the ConnectYVR program will expire in 2020.

DBRS Morningstar draws comfort from the Authority’s ability to control its capital spending through an established annual capital project review process and the fact that the current financial ratios remain favourable compared with its DBRS Morningstar-rated peers. The Authority has also decided to increase the airport improvement fee to $25 from $20 effective January 1, 2020, which should help in funding of VAA’s $2.6 billion five-year capital plan.

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. DBRS Morningstar views the credit as well situated in the AA (low) rating category and considers a rating upgrade to be unlikely at the present time.

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 rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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