DBRS Rates Montréal International Fuel Facilities Corp. at A (low)

DBRS has today released and confirmed its rating of A (low), with a Stable trend, on the Amortizing Bonds issued by the Montréal International Fuel Facilities Corporation (MIFFC or the Company). The securities were issued in June 2006 to repay existing debt, finance upcoming capital investments and pre-fund a $3 million debt service reserve. The post-transaction release of the rating reflects the recent decision of the Company to change the rating from private to public.

The credit profile of MIFFC continued to evolve as planned since the last rating review, supported by the Company’s exclusive rights over fuelling activities at Montréal’s Trudeau International Airport (Trudeau), as well as the reasonably broad membership base of the fuel consortium (24 members at March 30, 2007) and the airline risk diversification provided by the residual cost recovery mechanism outlined under the Interline Agreement. Although members can withdraw from the consortium at any time, airlines serving Montréal regularly are unlikely to do so since members benefit from substantially lower service fees, service priority over non-members and on-site fuel storage.

MIFFC maintained its track record of sound management and operating results in 2006, posting solid EBITDA and earnings of $1.2 million, which was more than double the prior year’s level due in part to $600,000 in membership fees from three new members. As expected, debt jumped to $64.4 million fuelled by the $65 million debt issue completed in June 2006, but is expected to slowly decline in the years ahead as a result of annual principal amortization payments. As such, interest coverage is likely to soften in 2007 on the full-year impact of the new debt, but should stabilize around 1.5 times going forward, which is adequate for the rating and consistent with airport credits.

Nonetheless, the rating remains tempered by the generally weak credit profiles of airlines and the somewhat complex contractual framework under which MIFFC leases its fuel system and subleases its exclusive service rights at Trudeau and its non-exclusive rights at Mirabel International Airport to the consortium in return for the assumption of its debt servicing requirements and operating obligations. Such a structure may be more susceptible to legal challenges in the event of disputes. Given the nature of its activities, the Company is also exposed to potential environmental liabilities. However, this risk is largely mitigated by extensive employee training, regular testing of the fuel system and the maintenance of environmental liability insurance.

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