Approximately $400 million of rated debt affected (face value)
Toronto, April 22, 2021 -- Moody's Investors Service, ("Moody's") has
today assigned an A1 rating to Aéroports de Montréal's ("ADM")
proposed issuance of up to CAD400 million in revenue bonds. The
outlook is negative.
The net proceeds from the sale of the bonds will be used to fund ADM's
general corporate activities and its capital program. The proposed
bonds will be documented under ADM's master trust indenture dated April
10, 2002 and thus will rank pari passu with the existing senior
secured debt of ADM. The new debt issue will help ADM enhance its
liquidity levels to manage through the continued and material declines
in traffic caused by the coronavirus pandemic.
RATINGS RATIONALE
ADM's A1 rating and baseline credit assessment (BCA) of a1 reflect (1)
ADM's role as the third largest airport in Canada serving the needs of
the City of Montreal, the second largest metropolitan area in the
country (2) the essential role the Canadian airports such as ADM play
in Canada given the country's very large size and low population density
(3) the general lack of competition between Canadian airports and from
other types of transportation (4) the airport authorities' unfettered
right to set fees, charges and rates with only minimal notice periods
for changes and (5) ADM's relatively high origin and destination traffic
at about 80%. As well, ADM has no material debt maturities
until 2025, when their CAD150 million credit facility is due,
at which point there should be enhanced visibility on actual traffic recovery
trajectories.
ADM's rating also reflects Moody's expectation that passenger traffic
losses will likely continue to be substantial at least through 2023 when
compared to 2019. The proposed debt issuance will offset the Authority's
continued cash burn, which Moody's expects to extend until
at least through 2022, and will aid in funding ADM's reduced
but still material capital expenditure program (excluding most of the
financing of the new Reseau express metropolitain station on airport lands
that is expected to be funded by the federal and provincial government
and the Canada Infrastructure Bank). Absent a meaningful recovery
of passenger traffic starting in the latter part of 2021 that solidifies
in 2022-2023, this additional debt will depress ADM's credit
metrics through 2023. However, we note that ADM entered the
pandemic with very solid debt service coverage ratios (almost 2.75x
Moody's DSCR) and declining debt per O&D enplaned passenger,
thus able to withstand some financial metrics deterioration.
Moody's notes that ADM continues to have some ability to mitigate
the negative impact of lower than expected traffic volumes. It
has already taken a number of substantial cost-cutting measures
including the scaling back of its capital expenditure program and the
implementation of a material reduction in its workforce as well as wage
reductions. It has also increased its aeronautical rates and Airport
Improvement Fee and it has taken advantage of some of the federal government
support packages such as the wage subsidy program. Finally,
the federal government agreed to a partial waiver of the 2020 ground rent
payment and a deferral of the 2021 payment.
The rapid spread of the coronavirus outbreak, severe global economic
shock, and asset price volatility have created a severe and extensive
credit shock across many sectors, regions and markets. The
combined credit effects of these developments are unprecedented.
The airport sector has been one of the sectors most significantly affected
by the shock given its sensitivity to consumer demand and sentiment.
Moody's regards the coronavirus outbreak as a social risk under our ESG
framework, given the substantial implications for public health
and safety.
ADM is considered a Government Related Issuer (GRI) of the Government
of Canada (Aaa stable) with a BCA of a1 and an assumption of low dependence
and low likelihood of extraordinary support from the Canadian government.
RATING OUTLOOK
The outlook is negative because the increased risk of very little passenger
traffic growth in 2021 followed by a longer period of weak passenger numbers
will translate into more prolonged liquidity requirements for ADM and
a more prolonged period of weakened credit metrics.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
In light of the negative outlook due to the material weakening of revenues
and metrics until the pandemic is controlled, upward rating pressure
on ADM's ratings is unlikely in the near future.
Upward pressure on ADM's ratings could develop if, following the
lifting of border and travel restrictions and a return to normal traffic
performance there is:
- Reassessment of the Government Related Issuers (GRI) support
level
- Increased diversity of air carriers with the largest one representing
less than 35% of traffic
Downward pressure on ADM's ratings could develop if:
- It appears likely that the vaccination rollout will be further
delayed causing a sustained detrimental impact on traffic levels,
either because of sustained travel restrictions or potential airline failures
- Any legislative or other development(s) which would limit ADM's
ability or willingness to set rates and charges as necessary to fully
cover its costs will cause a downgrade
- Undertaking of a major expansion not justified by expected demand
- Inability to return to 1.75x DSCR and CAD450 debt per
O&D enplaned passenger by 2023.
PROFILE
Aéroports de Montréal is a non-share capital corporation
responsible for the management, operation, and development
of YUL Montréal-Trudeau International Airport (Montréal-Trudeau)
and YMX International Aerocity of Mirabel (Mirabel) under the terms of
the Ground Lease concluded with Transport Canada in 1992 and expiring
in 2072. ADM served 5.4 million passengers in 2020 at Montréal-Trudeau,
while Mirabel's aeronautical operations are limited to cargo traffic.
RATING METHODOLOGIES
The methodologies used in this rating were Publicly Managed Airports and
Related Issuers published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1140469,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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
