DBRS Confirms Vancouver Airport Authority Issuer Rating at AA (low), Stable

DBRS Limited (DBRS) confirmed Vancouver Airport Authority’s (VAA or the Authority) Issuer Rating and Senior Debentures rating, both at AA (low) with Stable trends. The rating confirmations continue to reflect the Authority’s solid financial performance and relatively low debt burden, potentially tempered by increasing debt levels to fund its capital program.

Total passenger traffic rose by approximately 8.4% in 2017 to 24.2 million, which exceeded the Authority’s expectations, albeit at a slower pace than observed in the previous year. Total revenue and EBITDA increased by 8.1% and 3.8%, respectively, in 2017, outpacing the budget. With no new debt issued in 2017, the Authority had $545.6 million of total debt by the end of 2017, or $45 per enplaned passenger. The interest coverage ratio (ICR) slightly improved to 8.6 times (x), mainly because of the stronger EBITDA. For 2018, both the ICR and the debt per enplaned passenger are projected to slightly improve. During Q1 2018, passenger volume increased by 9.5% relative to the same period a year ago. The Authority expects total traffic and EBITDA will grow by 7.3% and 6.2%, respectively, by the end of 2018.

VAA’s updated capital expenditure plan amounts to approximately $2.7 billion between 2018 and 2022, notably higher than the Authority’s plan of a year ago. Of the $2.7 billion, $0.4 billion will be spent in asset rehabilitations. Major improvements are budgeted to meet the Authority’s new strategic target of reaching 32 million passengers by 2022. The long-term capital plan generally involves expansion of passenger terminal facilities, airside pavement construction, paving of roads and parking facilities, utility work and other capital improvements and renovations.

In 2017, the Authority predicted that passenger traffic volume would not surpass 24 million until 2019 under its “most likely” growth scenario. However, this figure was eclipsed in 2017 and last year’s forecast seems to be conservative. With a forecasted annual average growth of approximately 5.4%, total passenger volume is expected to approach 32 million in 2022, necessitating a revised capital program. 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 $103 per enplaned passenger, by 2022 under the Authority’s projection or $116 per enplaned passenger using a 2% annual traffic growth rate, both of which are still supportive of the ratings. The ICR is projected to hit a low of 4.7x in 2020.

DBRS draws comfort from the Authority’s ability to control its capital spending through an established annual capital project review process, its ability to raise the airport improvement fee (AIF) if necessary and the fact that the current financial ratios remain considerably favourable compared with its DBRS-rated peers. While not expected, the ratings may be negatively affected should traffic drop significantly or if debt increases at a faster pace, testing the $125 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.

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.

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