Ratings agency upgrades DAA

The Dublin Airport Authority (DAA) has been upgraded by ratings agency Standard & Poor's (S&P) in a move that should help the company as it seeks to raise funds for a €2 billion redevelopment of its campus.

S&P has upgraded the DAA to "stable" from "negative" following a detailed review of its business plan. In addition, the ratings agency affirmed its "A" long-term and "A-1" short-term corporate credit ratings on the DAA.

This is a welcome pre-Christmas boost for the DAA, which will have borrowed heavily to fund the development of Terminal 2 and other infrastructure at the airport over the next seven years.

The improved rating will give greater comfort to potential lenders and help the DAA, which is chaired by Gary McGann, to negotiate better credit terms in capital markets.

S&P highlighted the DAA's current low leveraged position and its expected future cash-flow growth from increases in passenger traffic and higher airport charges from 2010 onwards.

It said this would prevent a "significant deterioration" in the DAA's financial profile.

"The DAA's liquidity is strong, with about €500 million in cash and short-term liquid investments at December 2007," S&P stated. "This will reduce in 2008, however, in view of the forecast increase in capital expenditures. At the end of 2007, committed undrawn facilities totalled €300 million."

S&P said given DAA's State ownership and leading domestic position, it should have sufficient access to liquidity in the future. S&P noted how the regulatory environment had improved "considerably" for the DAA.

It said the interim review of airport charges carried out by aviation regulator Cathal Guiomard had provided clarity on the level of investments at Dublin airport in the 2006 to 2009 period that can be included in the regulated asset base. The review also gave a "clear indication" of the regulator's approach for the next determination, S&P said.

Mr Guiomard has indicated that he will allow the DAA an increase in airport passenger charges from 2010. This price increase is being opposed by Ryanair.

The DAA will spend €440 million at Dublin airport in 2008 on construction relating to the new Terminal 2 and Pier E facilities, airfield works and roads.

The airport manager is expected to tap the capital markets for new funds, either by way of a bond or through bank debt.

The DAA's debt is described by S&P as being at "minimum levels" currently, following the sale of its shareholding in Birmingham Airport for £210 million earlier this year.

Its debt levels, however, will ramp up quickly as it seeks to fund its redevelopment at the airport, which is aimed at boosting capacity to more than 30 million passengers a year.

Dublin airport is expected to handle about 23 million passengers this year.

The DAA's debt is expected to peak at €1.2 billion in 2010.

S&P said that the prospects of a rating upgrade, or outlook revision to positive, were limited by the execution risk of the DAA's investment programme and forecast higher debt burden.