Credit Opinion: Brussels Airport Holding SA/NV

Transcription

1 Credit Opinion: Brussels Airport Holding SA/NV Global Credit Research - 14 Jun 2013 Belgium Ratings Category Moody's Rating Outlook Stable Sr Sec Bank Credit Facility -Dom Curr (P)Baa1 Senior Secured -Dom Curr (P)Baa1 Contacts Analyst Phone Johan Verhaeghe/London Joanna Fic/London Andrew Blease/London Key Indicators Brussels Airport Holding SA/NV[1] EBITA Margin 12/31/ /31/ /31/ /31/ % 34.8% 30.5% 25.1% EBITA / Average Assets 6.3% 5.5% 4.4% 3.6% EBITA Interest Coverage 2.7x 2.2x 1.7x 1.3x FFO Interest Coverage 3.6x 3.1x 2.6x 2.5x FFO / Net Debt 13% 11% 8% 8% RCF / Net Debt 9% 8% 6% 6% [1] Standard adjustments in accordance with "Rating Methodology: Moody's Approach to Global Standard Adjustments in the Analysis of Financial Statements for Non-Financial Corporations, Part 1, Part 2 and Part 3". In addition, Moody's adjusts for one time items. Note: For definitions of Moody's most common ratio terms please see the accompanying User's Guide. Opinion Corporate Profile Brussels Airport Holding SA/NV ("BAH") is the owner of the Brussels Airport Company SA/NV ("TBAC"). TBAC (together with BAH, "Brussels Airport") is the owner and operator of Brussels airport, which is Belgium's major airport. BAH is 25% owned by the Belgian state (Aa3 negative), 36% by Macquarie European Infrastructure Funds, and 39% by Ontario Teachers' Pension Plan. We understand that BAH will merge with TBAC as part of an upcoming refinancing plan. Recent Developments In 2012, passenger numbers at Brussels Airport were million, up by 1% compared with Passenger growth was driven by low-cost carriers and Brussels Airlines' long-haul traffic. However, overall growth was

2 constrained by a decline in Brussels Airlines' short-haul traffic and by reduced traffic of certain long-haul carriers. Revenues in 2012 was EUR413 million, up by 4.8% compared with 2011, and EBITDA was EUR247 million, up by 5.7%, as a result of (1) an increase in aeronautical tariffs; (2) a focus on cost control; and (3) growth in retail and real estate revenues. Passenger numbers in the first five months of 2013 were 7.09 million, up 0.2% compared with the first five months of We understand that Brussels Airport is in advanced negotiations with its existing and new lenders to refinance EUR1.17 billion of its existing debt, which matures in June As part of this refinancing plan, which will be implemented over the next few months, BAH will raise approximately EUR1.35 billion of bank and bond debt with maturities spread over three, five and seven or ten years. As part of the refinancing programme, Brussels Airport plans to merge TBAC with BAH, which will lead to a simplified corporate structure and tax savings. Rating Rationale The provisional (P)Baa1 senior secured rating, assigned to the senior secured bank debt facilities and bonds which BAH will raise at refinancing date, reflects (1) the strong business profile of Brussels Airport, which is the largest airport in Belgium; (2) a recently established but transparent regulatory regime that includes a five-year price agreement between Brussels Airport and airline customers until 2016; (3) BAH's high leverage; (4) the largely constraint-free environment in which TBAC operates, which provides management with the scope to efficiently meet the needs of airlines and passengers, and the Brussels Airport's modest capital expenditure (capex) programme; and (5) debt structural features that provide for the treatment of BAH's shareholder loan as fully subordinated for credit rating purposes and include an element of senior debt protection, but provide no uplift to the rating. The rating is constrained by BAH's debt level, which reduces Brussels Airport's ability to withstand unexpected stress. We note that BAH plans to refinance debt of approximately EUR350 million in the first year following the financial close of the proposed refinancing programme, and this is an important element in the rating. The provisional rating further assumes that BAH will merge with TBAC as part of the refinancing programme. Rating Drivers The six key business and financial factors (detailed below) are assessed in light of Moody's Rating Methodology: "Operational Airports outside of the United States" (published May 2008). The overall rating methodology grid score maps to an A3 rating, one notch higher than BAH's assigned provisional rating. The key reason for this difference relates to the downside risk associated with the current economic environment and Brussels Airport's current financial policies. Factor 1 - Governance and Rate Setting BAH is a legal entity incorporated as a public limited liability company (naamloze vennootschap). It is not subject to any particular provision that would imply bankruptcy remoteness. Brussels Airport is subject to regulatory oversight, which places some constraints on operations and capex. Its licence puts some constraints and obligations on its operations including noise-control, night flights, security and safety. Given the essential service provided by the airport, its licence includes some provisions for government support (albeit not clearly defined) in times of crisis to assure continuity of service. BAH is to merge with TBAC (the license holder for Brussels airport), as a result of which the latter will cease to exist and the licence will reside with BAH. This procedure requires a licence renewal and the licence will be awarded, by Royal decree, by the Secretary of State for Mobility. This licence renewal will take place simultaneously with the merger. Following the merger, the licence will no longer be subject to a renewal process. We assign an A score for the Legal Status/Corporate Objectives sub-factor. Brussels Airport is subject to a framework of economic regulation that is considered appropriate and transparent. It is a fairly light framework that has been in place since Charges are set through a consultation process with the airlines. The regulator (Ministry of Transport) only becomes involved if no agreement is reached. The framework permits fair recovery of costs, is considered an appropriate mechanism for remunerating capex, and generates a reasonable return on capital. A tariff agreement, between the airport and airline customers, for the next five years (the second control period) was reached in January This process illustrates that (1) there is consensus between the major parties; (2) the mechanism works; and (3) that mechanism is clear to all participants. The framework is, nevertheless, somewhat untested. We assign a Baa score for the Rate Setting Methodology sub-factor.

3 Brussels Airport owns the key airport assets in perpetuity. All key aviation infrastructure is controlled by management. We assign a Aaa score for the Nature of Ownership/Control sub-factor. Factor 2 - Market Position Brussels Airport is located at the centre of Belgium, which has a population of around 11.1 million. Brussels Airport serves the vast majority of the needs of the sovereign state and, to some extent, the north, east and south of surrounding countries. There is, nevertheless, some competition from Charleroi Airport, which is around 50 kilometres south of central Brussels and which targets low-cost airlines. Given that approximately million passengers passed through Brussels Airport in 2012, it is comparable to other large regional airports in Zurich, Vienna and Copenhagen. Brussels is close to other major European cities, is easily accessed by road and its airport offers 18,000 car parking spaces. It is also easily accessible by rail through a train station below the terminal, which additionally provides high-speed rail connections to Paris and London and to a dense national rail network. We assign a Aa score for the Size of Service Area sub-factor. Belgium has a globalised economy and its transportation infrastructure is integrated with the rest of Europe. Brussels is located at the heart of a highly industrialised region and is also a main political centre of the European Union. There is a large corporate presence in the region, and Brussels is only minutes drive from Antwerp, which has the second-largest port in Europe. Brussels/Belgium is a major tourist destination, with foreign visitors entering the country through the airport and with major tourist destinations around Brussels including Bruges, Gent, and Antwerp. We assign a Aa score for the Robustness & Diversity of Service Area sub-factor. Brussels Airport has a very strong position of in-bound and out-bound passengers. Given the very good rail network in continental north-west Europe, the airport is exposed to rail travel for certain European destinations. However, this competition is not new and has already been incorporated in traffic projections/expectations. Overall, the airport has a very strong position and faces limited competition. We assign a Baa score for the Competition for Medium- to Long-Distance Travel sub-factor. Factor 3 - Passenger & Airline Base Brussels Airport is an Origination & Destination (O&D) airport (around 84% of traffic is O&D). O&D passengers are generally less dependent on airline decisions regarding airport choice than transfer passengers. O&D traffic is also much less volatile than transfer traffic and provides for resilient stable revenues. Given the level of O&D traffic, Brussels Airport is the least exposed to the risks of the airline market compared with its rated peers. The low proportion of transfer and transit traffic also creates a growth opportunity for Brussels Airport. We assign a Aa score for the Passenger Mix (O&D/Transfer) sub-factor. The collapse of Sabena, formerly Belgium's national airline, which was declared bankrupt in 2001, led to a collapse of transfer traffic. Following the collapse of Sabena, Brussels Airport reported a steady increase of traffic till 2008, with a material drop in 2009 (following the global recession) and a recovery in 2010 and Since Sabena's collapse, Brussels Airport has nevertheless reported fairly low volatility in passenger traffic in the past 10 years, with a standard deviation of the year-on-year passenger number growth rates of below 6.0%. We assign an A score for the Standard Deviation of Long-Term Average Annual Passenger Growth Rate sub-factor. Given Brussels Airport's status as an O&D airport, (i.e., based on its O&D traffic) we do not score the factor Carrier Base (Transfer Traffic). Nevertheless we note that Brussels Airport has material exposure to Brussels Airlines, which is the flag carrier airline of Belgium. The airline accounts for around 30% of the flights to and from the airport and is therefore an important component of the airport's route network. Brussels Airlines reported net losses in 2011 and in A collapse of Brussels Airlines could have a material short-term impact on the airport's revenues. Factor 4 - Operating Environment & Capital Programme The licence under which Brussels Airport operates imposes some restrictions such as a limited number of night flights and noise limitations. However, we believe there is sufficient headroom before these restrictions take effect. From a capacity perspective, the airport handled million passengers in 2012 but according to Brussels Airport, the airport has a capacity to handle up to 30 million passengers. In terms of runway capacity, the airport has three runways with a current peak load of 74 flight movements per hour and there is scope to move to 80 flight movements per hour. The airport therefore appears to have some headroom to further expand its business before encountering any physical or legal/regulatory constraints. We assign an A score for the Operational Restrictions

4 sub-factor. Brussels Airport's annual maintenance capex is modest and its planned capex programme is flexible, as major capex plans can be postponed if actual passenger traffic is less than projected. Expansion capex is planned between 2013 and Factor 5 - Stability of Business Model and Financial Structure Management pursues a strategy of focusing on the Brussels Airport business with no intention to invest in other airports or businesses. Furthermore, the airport land cannot be sold without prior approval of the Secretary of State for Mobility, and TBAC cannot dispose of any activity that is subject to the licence. We assign a Aa score for the Ability & Willingness to Pursue Ability & Willingness to Pursue Opportunistic Corporate Activity (M&A, Disposals, Investments) sub-factor. Under the refinancing documentation, Brussels Airport can raise debt to (1) refinance any existing financial indebtedness; (2) finance up to 70% of its aggregate capex; and (3) raise incremental debt subject to a ratio and rating test. Brussels Airport's ability to finance up to 70% of its capex through debt and its policy to distribute 100% of its annual free cash flows is rather aggressive. Brussels Airport is nevertheless committed to maintaining its investment-grade status. We assign a Ba score for the Ability & Willingness to Increase Leverage sub-factor. There are no contractual prohibitions on Brussels Airport investing outside its core airport business. However, management has publicly stated that it has no intentions to invest outside its core airport business, as commercial activities such as retail and real estate at Brussels airport are considered as core airport business. We assign an A score for the Targeted Proportion of Revenues Outside Core Business sub-factor. Factor 6 - Key Credit Metrics Given that Brussels Airport will refinance all of its current senior secured debt, post refinancing Brussels Airport's debt structure will be different from its current structure. Brussels Airport has therefore been scored for rating methodology grid purposes based on a three-year average of Moody's projected financials as this more accurately reflects its future financial profile. Brussels Airport benefits from debt structural features that provide for the treatment of the shareholder loan as equity for credit rating purposes and include some element of senior debt protection; however, these characteristics provide no uplift for the rating. Liquidity Profile In line with other major airport companies, Brussels Airport generates strong operating cash flow throughout the year. We would expect Brussels Airport to generate sufficient cash flow and have sufficient cash balances to cover all cash requirements for the first 12 months post refinancing. Post refinancing, Brussels Airport will benefit from a staggered maturity profile, with debt facilities maturing in three, five and seven or ten years. Brussels Airport intends to refinance approximately EUR300 million of the three-year term loans, absent unforeseen market conditions, over the first year following the assumed financial close of the refinancing programme, and this is an important element in the rating. Brussels Airport's refinancing plan also includes a five-year EUR250 million capex facility (from which Brussels Airport is expected to draw approximately EUR50 million in the 12-month period post refinancing) and a five-year EUR50 million working capital facility (which we expect will remain undrawn in the 12-month period post refinancing). The availability of these facilities, together with Brussels Airport's positive operating cash flows and a 12 month interest reserve account, should guarantee a sound liquidity profile. As at 31 December 2012, Brussels Airport had EUR35 million of cash and cash equivalents. Following refinancing, Brussels Airport will have no borrowings due within 12 months. Brussels Airport's projected cash balances and available bank facilities following refinancing will be adequate to meet its cash requirements, and we expect Brussels Airport to maintain good liquidity. Rating Outlook The stable outlook assigned to the rating reflects the visibility provided by the current regulatory settlement - until the next review in and a traffic profile that is proving somewhat resilient in the current challenging economic environment.

5 What Could Change the Rating - Up Upwards pressure would be exerted on the rating on evidence that BAH (1) had transitioned to a less leveraged capital structure that provided greater financial flexibility to deal with adverse and highly adverse scenarios; and (2) was intent on retaining more cash within the business. However, upwards rating pressure is unlikely in the short term given uncertainty regarding near-term economic developments and Brussels Airport's current financial policies. What Could Change the Rating - Down The rating could come under downwards pressure if BAH's funds from operations (FFO)/interest coverage ratio were to fall below 4.5x, and its FFO/debt ratio had or was expected to decline below the low teens, in percentage terms, on a sustained basis. In addition, negative pressure on BAH's rating could develop as a result of a bankruptcy of Brussels Airlines. Other Considerations GRI Factors Moody's categorises Brussels Airport as a Government-Related Issuer (GRI) and therefore applies its rating methodology "Government-Related Issuers: Methodology Update", published in July However, we have not assigned any rating uplift, reflecting the moderate ownership percentage and the government's fairly noninterventionist approach to Brussels Airport in terms of strategic decision making. Rating Factors Brussels Airport Holding SA/NV Airports Industry Aaa Aa A Baa Ba B Caa Factor 1: Governance and Rate Setting (15%) a) Legal Status / Corporate Objectives b) Rate Setting Methodology c) Nature of Ownership / Control Factor 2: Market Position (15%) a) Size of Service Area b) Robustness & Diversity of Service Area c) Competition for Medium to Long Distance Travel Factor 3: Passenger & Airline Base (10%) a) Passenger Mix (O&D / Transfer) b) Standard Dev of Long Term Average Annual Passenger Growth Rate c) Carrier Base (Transfer Traffic) Factor 4: Operating Environment & Capital Programme (10%) a) Operational Restrictions b) Complexity of Airport Capital Expenditure Programme Factor 5: Stability of Business Model & Financial Structure (10%) a) Ability and Willingness to Pursue Opportunistic Corp Activity b) Ability and Willingness to Increase Leverage c) Targeted Proportion of Rev outside of Owned Airport Services Factor 6: Key Credit Metrics (Hist & Projected) (40%) [1][2] a) (FFO + Interest Expense) / (Interest Expense - Non- Cash Int) b) FFO / Debt c) Debt Service Coverage Ratio `

6 d) Implied Concession Life Coverage Ratio Rating: Indicated Rating from Grid Factors 1-6 A3 Rating Lift 0.00 a) Indicated Rating from Grid A3 b) Actual Rating Assigned Baa1 Government-Related Issuer Factor a) Baseline Credit Assessment 8 (Baa1) b) Government Local Currency Rating Aa3 c) Default Dependence Moderate d) Support Moderate [1] Standard adjustments in accordance with "Rating Methodology: Moody's Approach to Global Standard Adjustments in the Analysis of Financial Statements for Non-Financial Corporations, Part 1, Part 2 and Part 3". In addition, Moody's adjusts for one time items. [2] Based on 3 year average projected financial data Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN

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