DBRS Morningstar Confirms Aéroports de Montréal at “A,” Negative Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Revenue Bonds rating of Aéroports de Montréal (ADM or the Authority) at “A,” while maintaining the Negative trend. The confirmations are mainly supported by ADM meeting the traffic volume forecast for 2021. The Negative trend mainly reflects the uncertainties, which are not insignificant, in achieving the forecast traffic volume.

On a monthly basis, traffic slightly and slowly recovered during H1 2021 to approximately 10% of the pre-pandemic level. The recovery continued during H2 2021 at a faster pace as vaccines were rolled out successfully across Canada, enabling about 50% of the domestic travellers to return. Quarterly passenger volume reached approximately 33% and 51% of the 2019 levels in Q3 2021 and Q4 2021, respectively, with the monthly passenger volume in December 2021 reaching approximately 56% of the pre-pandemic level. Total annual passenger volume in 2021 was around 5.2 million, or 26% of the 2019 level, better than expected.

The arrival of the omicron variant along with the new health restrictions imposed in December 2021 will likely somewhat temper the recovery in Q1 2022. Geopolitical risks are also elevated because of the war in Ukraine, clouding the future of the Eastern European sector at least over the short term and potentially making the Asia-North America routes more costly when airlines have to avoid flying over Russia. Notwithstanding, DBRS Morningstar notes that the Eastern European sector is minimal to ADM, representing less than 1% of total passenger volume in 2019.

DBRS Morningstar currently assumes the annual traffic volume of ADM will reach 50% and 70% of the 2019 levels in 2022 and 2023, respectively, and achieve a full recovery by 2025 (DBRS Morningstar Base-Case Scenario). Under this scenario and without assuming any additional increase in aeronautical fees, EBITDA in 2022 is forecast to be around $130 million. While this is not enough to bring the debt service coverage ratio above 1.00 times, no event of default is expected to be triggered since the 20th Supplemental Indenture has effectively waived ADM's obligation regarding the rate covenant through 2022. Noting the Authority's tested ability to prudently manage capital expenditures in accordance with passenger volume, DBRS Morningstar considers ADM’s liquidity to be sufficient. DBRS Morningstar forecasts total debt per enplaned passenger to reduce significantly in 2022 to $578 and then gradually reduce to $312 by 2025 before slightly rising up again in 2026.

A material and negative deviation from the DBRS Morningstar Base-Case Scenario forecast could result in a negative rating action. A trend change to Stable may occur if it has become apparent that DBRS Morningstar’s volume forecast will materialize.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Canadian Airport Authorities (April 7, 2021; https://www.dbrsmorningstar.com/research/376410), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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