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20 Dec 2010
$64 million of USD Notes and $24 million of UDI denominated Notes affected
New York, December 20, 2010 -- Moody's Investors Service has downgraded to Ba3 from Ba2 the rating
on the USD Notes denominated in U.S. dollars, and
UDI Notes denominated in inflation-indexed units or Unidades de
Inversion (UDIs) of the Mexico City Airport Trust (Fumisa). The
downgrade concludes the review period which began on August 19,
2010. The rating outlook is negative, reflecting the continuation
of a potentially negative circumstances which could result in further
weakening of credit quality in the next 18 months.
The review of the rating was triggered by the bankruptcy filing of Compañia
Mexicana de Aviacion S.A. de C.V (Mexicana) on August
3rd, and the potential loss of passenger traffic through Terminal
1 (T1) of the Mexico City International Airport (AICM) given that the
airline represented approximately 33% of total terminal passengers.
Although the revenues to pay debt service are generated from contractual
sublease payments of tenants located in T1 and not directly tied to passenger
flow, a drop in passengers could have negative implications for
the financial performance of the tenants in the medium-term and
the ability of Fumisa to sublease tenant space.
The current rating action takes into account the possible loss of revenue
for the concessionaire from the fall off of passenger use of the tenants
in T1 and the related financial implications, but also incorporates
the stronger than typical project finance structural features, which
include cash trap mechanisms and debt service related reserve accounts,
as well as others, which provide the company with adequate liquidity
that protects creditors in certain downside scenarios.
The rating also incorporates the expectation that the structure could
hit the debt service coverage ratio (DSCR) trigger below 1.15x
in the next year. This would not result in a default, but
it would trigger an acceleration of principal repayment via a sweep of
all excess cash in the waterfall, resulting in the bonds being re
paid in full prior to their stated maturity in December 2013. Moody's
notes that this is a strong creditor protection feature that is not typical
in project financing structures and helps to support the current ratings
level. A DSCR below 1.0x could be reached under additional
severe circumstances, which Moody's believes unlikely at this
time. We note also that despite the challenges faced in the last
couple of years, in 2010 T1 will still process approximately 11
In the months following the Mexicana bankruptcy filing, international
passenger traffic at T1 showed a decline of approximately 34% in
each September, October, and Novembercompared to the same
months in the previous year. The trustee report for the most recent
reporting quarter ending December 2, shows that the passenger threshold
trigger in the structure has been hit. Consequently, there
were no distributions for the period, and the excess cash was trapped
in the Trigger Reserve Account. In the coming months, it
is likely that passenger traffic will be under the threshold given that
most of Mexicana's routes have been picked up by other carriers,
although the situation should stabilize somewhat after the initial drop.
In addition, the U.S. F.A.A.
has restored Mexico's civil aviation authority to Category 1,
and new U.S. routes may now be picked up by other Mexican
carriers. This could help to restore some passenger traffic volumes.
Though the lease revenues are not directly tied to passenger traffic,
the lease rental revenue does fluctuate with the number of passengers
coming through the terminal. In the most recent reporting period,
collections were down 11% from the same period in 2009.
Dufry duty free shops and news stands now comprise 44% of the total
lease revenues, posing a concentration risk if the company decided
to stop operating at T1.
DSCR in the most recent quarterly reporting period was 1.17x,
down from 1.33x in the previous reporting quarter ending August
31, 2010. We note that the 1.33x was the highest the
DSCR had been since at least the last quarterly reporting period of 2008.
The DSCR for the current quarterly period, which will end at the
end of February 2011, is likely to be above 1.15x given the
drop in debt service payments by approximately $1.7 million
compared to the last period. If however, DSCR is below 1.15x,
an early amortization of the notes would be triggered unless the sponsor
chose to avoid the early amortization by injecting cash into the Coverage
Reserve Account, an option that is available to it two more times
over the life of the debt, with the limitation of a 12-month
period in between the use of this cure mechanism. If the early
amortization is triggered and not cured, all of the excess cash
in the structure would be used to sweep debt and the notes would be paid
off prior to the original maturity date of December 2013, hence
adequately providing investor security at the current rating level.
As of the end of November, the structure also had approximately
$28 million in reserves that are specifically dedicated to the
payment of debt service. The amounts in the debt service and trigger
reserve accounts would be used if net revenues were insufficient to make
debt service payments or to pay the remaining notes outstanding.
Moody's estimates that revenues for Fumisa would have to fall another
20% for DSCR to be below 1.0x, and this would only
likely occur if there was another unexpected external shock to the system
that would cause a major tenant in T1 to break the lease contract or otherwise
compromise the financial stability of a number of the tenants.
The majority of tenant leases expire at the end of 2013.
Additionally, the structure now holds $11 million in tenant
security and advance payment accounts, which can be used for debt
service payments at the very bottom of the payment waterfall. However,
if tenant financial conditions were to deteriorate over the next year,
we would expect that these funds would be used at the top of the waterfall,
as revenues, and be unavailable to pay debt service directly.
Moody's expects that the structure will continue to trap cash,
given that it is likely to miss the passenger threshold. Additionally,
Moody's believes it is highly likely that in the next year DSCR
will go below 1.15x and the structure would enter an early amortization
period , triggering a sweep of all excess cash which would result
in the repayment of the outstanding notes prior to their stated maturity.
Although not expected at this time, the rating on the lease revenue
bonds could improve if the stability of the tenants at T1 were to improve,
which would most likely be the case if passenger traffic rose in the coming
year and DSCR stabilized at above 1.25x. The rating could
go down if a major tenant broke its lease or the airport faced another
major external shock that as a secondary effect once again drove down
Fumisa's revenues significantly.
Bond ratings were assigned by evaluating factors believed to be relevant
to the credit profile of the issuer such as i) the business risk and competitive
position of the issuer versus others within its industry or sector,
ii) the capital structure and financial risk of the issuer, iii)
the projected performance of the issuer over the near to intermediate
term, iv) the issuer's history of achieving consistent operating
performance and meeting budget or financial plan goals, v) the nature
of the dedicated revenue stream pledged to the bonds, vi) the debt
service coverage provided by such revenue stream, vii) the legal
structure that documents the revenue stream and the source of payment,
and viii) and the issuer's management and governance structure related
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Project Finance Group
Moody's Investors Service
Chee Mee Hu
MD - Project Finance
Project Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's lowers the rating on the Mexico City Airport Trust Notes to Ba3 from Ba2. Outlook is negative.
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