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Rating Action:

Moody's assigns A1 rating to the Vancouver Airport Fuel Facilities Corporation (VAFFC) proposed C$400 million issuance; outlook stable

21 Nov 2019

Approximately C$400 million of proposed debt securities affected

Toronto, November 21, 2019 -- Moody's Investors Service has assigned an A1 rating to the Vancouver Airport Fuel Facilities Corporation ("VAFFC") proposed C$400 million issuance of senior secured amortizing notes. The outlook is stable.

Assignments:

..Issuer: Vancouver Airport Fuel Facilities Corp

....Senior Secured Regular Bond/Debenture, Assigned A1

RATINGS RATIONALE

VAFFC's A1 rating reflects the essentiality of the service it provides, on an exclusive basis, to a consortium of airlines at Canada's second largest airport, the Vancouver International Airport ("Airport"). This role will ensure that VAFFC's services will be required for at least the term of the debt. The rating also reflects VAFFC's right to recover its costs in a timely manner without any revenue variability. Importantly, given VAFFC's exposure to historically generally weak airlines, it benefits from various levels of contractual protections that insulate it from airline credit risk. The rating however, is weakened by the sum sufficient rate covenant as well as the fact that VAFFC is not a party to some of the material agreements in which various contractual protections are documented.

VAFFC's decision to issue up to C$400 million of incremental fully amortizing debt represents a substantial increase in total debt when compared to the year-end 2018 balance. However, we view the incremental debt as being credit neutral as the new bond issuance will fund needed projects that have support from the consortium of commercial airlines "(Contracting Airlines)", the increased cost of such issuance is entirely recoverable from the contracting airlines in a timely fashion and the contracting airlines have approved the amount of the note issuance.

The new amortizing note will be issued pursuant to the master trust indenture, and will allow VAFFC to finance its planned capital expenditures, including the Marine Terminal and Fuel Receiving Facility ("Fuel Delivery") project, which is expected to require a total investment of C$350 million. VAFFC is a single purpose corporation operated on a not-for-profit basis and owned by a trustee who holds the share on behalf of the Contracting Airlines. Its sole purpose is to own, operate and maintain jet fuel storage and distribution facilities at the airport until 2072.

OUTLOOK

The stable outlook incorporates our expectation that VAFFC will continue to recover all costs and obligations from the Contracting Airlines on a timely basis.

FACTORS THAT COULD LEAD TO AN UPGRADE

Considered unlikely given the Fuel Delivery project on the Fraser river, a major capital project. However, increased growth at the airport, increased diversification of airlines and improvement in the creditworthiness of the airlines could support an upgrade.

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Any contractual or other developments that limit VAFFC's ability to fully recover its costs on a timely basis

- A material and sustained reduction in the number of Contracting Airlines and/or Contracting Airlines' fuel volumes (e.g. a decline of 15-20%)

- A fundamental deterioration in the role of the Airport as a major transportation infrastructure asset in Western Canada.

PROFILE

VAFFC is a single purpose corporation operated on a not-for-profit basis and owned by a trustee who holds the share on behalf of the Contracting Airlines. VAFFC benefits from long term land rights with the Vancouver Airport Authority, which grants VAFFC the exclusive right to lease lands, install, operate and maintain the system and equipment at the Airport on an exclusive basis until 2072. In turn, VAFFC has sub-leased its interests and rights in the land and has leased the system and equipment to the Contracting Airlines. The system and equipment related to into-plane services is leased to Swissport Canada for a nominal amount (which means that VAFFC still recovers all its costs related to the into-plane assets from the Contracting Airlines). FSM Group (FSM) is the administration services provider for VAFFC and several other Canadian fuel facilities. There are 34 consortium members with an annual volume throughput of about 1.79 billion litres of jet fuel. Itinerant airlines' volumes only represent about 5% of the total volumes.

The principal methodology used in these ratings was Generic Project Finance published in April 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

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Catherine N. Deluz
Senior Vice President
Project Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

A.J. Sabatelle
Associate Managing Director
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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