DBRS Rates GTAA’s $400 Million Medium-Term Note Issue at A
DBRS has today assigned a rating of “A” with a Stable trend to the $400 million Medium-Term Note (the Notes) issue of the Greater Toronto Airports Authority (GTAA or the Authority). Maturing in June 2040, the Notes are senior obligations of GTAA and rank pari passu with all other senior obligations of the Authority. The rating is consistent with those previously assigned by DBRS on the Authority’s outstanding bonds. Net debt proceeds will be used to repay a portion of the $600 million MTN Series 2000-2 maturing in July and to fund capital expenditures.
Operating conditions remain challenging in the sector as a result of volatile consumer confidence and the disruption caused in European airspace by the eruption of the Eyjafjallajökull volcano in Iceland. Nonetheless, traffic is showing tentative signs of recovery across Canada’s airport system, including an increase of 1.1% at Toronto’s Pearson International Airport for the first three months of 2010, somewhat ahead of GTAA’s expectations. However, aircraft movements were down 0.6% relative to the same period a year ago, reflecting continued tight capacity management by airlines. While soft traffic conditions played a role, the Q1 2010 decrease in aeronautical revenues was primarily driven by the 10% rate reduction introduced on January 1, 2010, and the $5 increase in the Airport Improvement Fee (AIF) for originating passengers introduced last June helped limit the decline in total revenues to a modest 1.4%. However, the first year of implementation of the federal ground rent formula based on revenues, lower snow removal expenses and various cost containment initiatives led to an even larger decline of 10.9% in operating expenses, providing a moderate support to EBITDA and the interest coverage ratio.
Preliminary results for the month of April indicate that the modest traffic growth seen during the first quarter is continuing, and GTAA anticipates additional modest growth in passenger activity beyond the year-over-year growth experienced in the first quarter. EBITDA is expected to decrease slightly, although with the envisioned reduction in debt burden, this should keep the interest coverage ratio relatively stable at 1.4 times in 2010.
Notes:
All figures are in Canadian dollars unless otherwise noted.
DBRS ratings on Canadian airport authorities are primarily based on the strength of the Authority’s service area, the competitiveness of airline fees and operating track record of the management team, the adequacy and state of good repair of the infrastructure base, as well as the affordability and growth outlook of the debt burden.
This is a Corporate (Public Finance) rating.
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