DBRS Morningstar Assigns Ratings of AA (low) With Negative Trends to Vancouver Airport Authority New Debt Issuances

DBRS Limited (DBRS Morningstar) assigned ratings of AA (low) with Negative trends to the $250 million Series I Debentures and the $350 million Series J Debentures (collectively, the Debentures) issued by Vancouver Airport Authority (VAA or the Authority) pursuant to the tenth supplemental indenture to VAA’s original indenture dated December 6, 1996. The ratings being assigned are based upon the rating on the already-outstanding series of the above-mentioned debt instrument.

The interest on the Debentures are payable semi-annually. The Series I Debentures have a 10-year maturity with a bullet repayment of principal on September 21, 2030, while the Series J Debentures have a 30-year maturity with a bullet repayment of principal on September 21, 2050. The proceeds from the Debentures will be used to provide funding for general corporate purposes, which may include the Authority’s capital program.

The issuance of the Debentures was anticipated and incorporated in our rating action on September 1, 2020, when DBRS Morningstar confirmed VAA’s AA (low) ratings while changing the trends on the ratings to Negative from Stable. The Debentures rank pari passu with all other senior obligations of the Authority. Correspondingly, the Debentures’ ratings and trends are consistent with VAA’s ratings and trends for the Issuer Rating and Senior Debentures rating.

There has been no material negative changes to VAA’s business outlook since our rating action on September 1, 2020. On September 9, 2020, VAA announced the termination of its CORE project. DBRS Morningstar welcomes this decision of VAA to safeguard the airport’s financial sustainability during the Coronavirus Disease (COVID-19) pandemic and understands that moving forward VAA plans to focus its financial resources on projects that support the recovery and restart of aviation.

Through the execution of the ninth supplemental indenture dated September 11, 2020, the debenture holders agreed to waive potential breaches of certain interest coverage ratio requirements when tested based on each of the 2020, 2021, and 2022 fiscal years of VAA, in relation to maintaining minimum coverage, additional indebtedness, sales and leaseback, as well as amendments to ground lease. These waivers are expected to provide financial and operational flexibility to VAA in response to the pandemic.

With the issuance of the Debentures, VAA’s existing credit facilities will be automatically downsized to $300 million from $450 million. Such downsizing was anticipated in our rating action on September 1, 2020, and is not expected to materially jeopardize the Authority’s liquidity under the DBRS Morningstar Base Case (as published in our press release on September 1, 2020).

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Canadian Airport Authorities (April 6, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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