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

DBRS Limited (DBRS) assigned a rating of AA (low) with a Stable trend to the $250 million Series G Debentures (the Debentures) issued by Vancouver Airport Authority (VAA or the Authority) under the seventh supplemental indenture executed on November 20, 2018, 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 November 23, 2048, 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 to VAA and its other outstanding debentures.

The proceeds from the Debentures will be used to repay the $200 million existing Series D Debentures, which mature on December 7, 2018, and to provide funding for general corporate purposes. Although the Landlord Acknowledgement Agreement does not extend to the holders of the Debentures, DBRS 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.

VAA’s operational performance has been generally in line with expectations. For the first three quarters of 2018 (Q3 2018), cumulative total enplaned passenger volume was 10.0 million, 8.0% higher than the same period last year. Total revenue and total expenses (excluding interest and depreciation) increased by 7.9% and 7.2%, respectively, and the Q3 2018 earnings before interest, taxes, depreciation and amortization reached $220.6 million, 8.6% higher than the same period last year.

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 if necessary and the fact that the current financial ratios remain 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. DBRS 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.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.