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Rating Action:

MOODY'S PLACES A2 RATING OF AEROPORTS DE MONTRÉAL UNDER REVIEW FOR POSSIBLE UPGRADE

07 Sep 2005
MOODY'S PLACES A2 RATING OF AEROPORTS DE MONTRÉAL UNDER REVIEW FOR POSSIBLE UPGRADE

Approximately $800 million of debt securities affected

Toronto, September 07, 2005 -- Moody's Investors Service today placed the A2 rating of Aeroports de Montreal's (ADM) senior secured debt under review for possible upgrade. This rating action was prompted by ADM's revision of its capital expenditure and financing plans to reflect the anticipated implementation of the federal government's proposed new airport rent policy that was announced on May 9, 2005. Moody's expects to conclude its review of ADM's ratings upon the earlier of the final approval of the new airport rent policy (which Moody's expects to occur in December, 2005) and the date on which, in Moody's view, it is apparent that the proposed policy will not be implemented in a timely manner.

The outcome of the federal government's proposed new airport rent policy is central to Moody's review of ADM's rating. Its implementation would eliminate a significant credit challenge that has existed since Moody's initial rating assignment in 2002. Under ADM's existing ground lease arrangement with Transport Canada, a significant portion of incremental aeronautical and commercial revenues generated by ADM flows to Transport as participation rent, making it difficult for ADM to enhance its cash flow by generating incremental revenues. ADM forecasts the new rent formula to result in cash savings of approximately $100 million between 2006 and 2010, and also to provide ADM with much greater flexibility in funding its operations and capital expansion plans.

Moody's review will also consider ADM's revised capital expenditure and financing plans for the 2006 to 2010 period. ADM now forecasts maintenance capital, expansion capital and improvement capital of approximately $99 million, $283 million and $185 million respectively for total capital spending of nearly $570 million. A portion of these expenditures relates to the completion of the previously announced revised Trudeau Expansion Plan (TEP) Phase II but approximately $450 million of the total represents new projects.

Although the $450 million in additional capital expenditure is significant, Moody's notes that the capital plan is comprised of a number of smaller discrete projects which are discretionary in nature. Each project will be subject to the approval of ADM's board. Moody's expects that such approval would require ADM to demonstrate both market demand and revenue support for each project.

Moody's will also consider potential for upsides to ADM's financial forecast, the largest of which would be the possible restructuring of ADM's (municipal) property tax formula.

Moody's review will also consider ADM's plan to raise an additional $300 million of senior secured bonds issued under its capital markets platform in 2005. ADM intends to utilize the bond proceeds to reduce amounts outstanding on its bank line (amounts incurred in implementing ADM's expansion plan, Phase II scheduled for completion in 2007) and to finance ADM's ongoing capital expenditures for the maintenance, expansion and improvement of its facilities. ADM's financial forecasts indicate that it can comfortably comply with both the Gross Debt Service Coverage Ratio and Debt Service Coverage Ratio tests in the Rate Covenant following its proposed new bond offering assuming both the implementation of the new rent policy and moderate aeronautical rate increases in the 2008 through 2010. The rate increases reflect a shift towards a 100% recovery of airside costs. ADM has kept the airlines informed of this proposed shift through its Airline Consultative Committee. ADM's forecasts indicate peak debt in 2008 of approximately $231/enplaned passenger which is high relative to the global peer group but not unusual for airports undergoing major infrastructure renewal programs.

In accordance with Moody's GRI rating methodology, the rating of ADM reflects the combination of Moody's assessment of ADM's baseline credit risk (3 on a scale of 1 to 6, where 1 represents lowest credit risk), the Aaa local currency rating of the Government of Canada as well as Moody's expectation of low dependence and low support.

The current baseline credit assessment of 3 is underpinned by the size and depth of the local air service market, ADM's unfettered ability to levy aeronautical rates and the Airport Improvement Fee (AIF) as well as ADM's revenue and passenger diversity. ADM services the second largest urban centre in Canada and the most important commercial centre in Quebec. The Montreal region has a large and diverse economic base.

The current baseline credit assessment also reflects ADM's revenue diversity, with airline-derived revenue representing about 27% of total revenues during 2004. Passenger volumes have recovered strongly; with 15.3% year over year growth recorded in 2004 (passenger traffic in 2003 was approximately 1.5% higher than corresponding 2002 numbers). ADM has also experienced an increase in the percentage of origin and destination (O&D) traffic (approximately 87.2% in 2004 vs. 85.8% in 2003) due to increased activities of low cost carriers driving O&D traffic. Strong O&D traffic is typically considered a positive factor that can mitigate passenger volume risk associated with periodic changes in airline route structures or service levels. The baseline credit assessment also reflects the fact that ADM's passenger volumes are relatively evenly distributed among domestic, transborder and international destinations and are the most diversified of the Canadian Airports rated by Moody's.

ADM is a not-for-profit, non-share capital corporation that operates the Montreal-Trudeau (passenger) and Mirabel (cargo) airports in the Montreal region. ADM's head office is located in Montreal, Quebec.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Toronto
Allan McLean
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

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