DBRS Confirms Montreal International Fuel Facility Corp. at A (low)

DBRS has today confirmed the rating on the Amortizing Bonds of the Montreal International Fuel Facilities Corporation (MIFFC or the Company) at A (low), with a Stable trend. EBITDA declined 7.6% in 2008, slightly below budget, but offset to a degree by fees paid by airlines choosing to become member airlines, and consistent with the not-for-profit mandate of the Company. Despite a slight increase in aircraft movements at Mirabel and Trudeau, fuel volumes declined 2.7% in 2008, which was below expectations for 2.8% growth, due in part to strategic shifts by airlines, including higher load factors and using smaller aircraft which require less fuel, and by the bankruptcy of Zoom Airlines. For 2009, fuel volumes decreased 0.6% compared to 2008, reflecting a slowdown in aircraft movements, albeit offset to a degree by an increased number of international flights at Trudeau. MIFFC’s membership at the end of 2009 totaled 24 airlines, as one airline (Olympic) departed and Northwest and Delta merged. The Debt Service Coverage Ratio (DSCR) declined from 1.2 times in 2007 to 1.1 times in 2008, and MIFFC expects that the 2009 DSCR will be close to break-even.

Looking forward, results are expected to continue to hover close to, but above, break-even levels. MIFFC is forecasting fuel volumes to decline by 5.2% in 2010, which DBRS views as a reasonable yet conservative assumption. The Company has no new borrowing needs or maturities over the short term and debt should continue to slowly decline over the coming years. MIFFC predicts that the DSCR will stabilize close to 1.0 time, in accordance with its rate-setting practices, although this is below the 1.2 times which had previously been expected by DBRS and could diminish the Company’s financial flexibility and ability to respond to unexpected shocks. DBRS notes that a 1.0 time DSCR is below other airline-related infrastructure credits, and while failure to meet a 1.0 time DSCR on an historic basis is not a default under its trust indenture, any inability to do so would be viewed by DBRS as inconsistent with an A (low) rating, and could place downward pressure upon the credit. The ability to increase fees without notice helps to offset relatively low coverage ratios, while tight collection practices, two-month prepayment of user fees and the mechanism under the Interline Agreement allowing MIFFC to recover bad debt from active members will continue to assist in mitigating airline credit risk.

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

DBRS ratings on MIFFC and other airport-related infrastructure providers are based upon their respective contractual frameworks, the strength of the airport served, the operating track record of the issuer and the affordability of their debt burden.

This is a Corporate (Public Finance) rating.