European Infrastructure Finance Yearbook - Investing In Bonds ...

Publication Date:
July 23, 2007
Issuer Credit Rating:
BBB+/Stable/--
Primary Credit Analyst:
Maria Lemos, CFA,
London,
(44) 20-7176-3749
Secondary Credit Analyst:
Alexandre de Lestrange,
Paris,
(33) 1-4420-7316
COPENHAGEN AIRPORTS A/S
Rationale
The rating on Copenhagen Airports A/S (CPH) is
supported by the airport’s strong competitive
position as a natural hub for Scandinavian
countries. The rating also reflects CPH’s efficient
aviation and strong commercial operations, the
adequate regulatory environment, strong cash
flow generation, and sound financial flexibility.
Offsetting these strengths are CPH’s relatively
large proportion of transfer traffic and high
customer concentration. The rating is also
constrained by the company’s weakened financial
profile following Macquarie Airports (MAp)’s
(BBB/Stable/--) acquisition of a controlling stake in
CPH in December 2005 through financing vehicle
Macquarie Airports Copenhagen Holdings ApS
(MACH; BBB+/Stable/--). As a result of this
partial acquisition we consolidate MACH’s debt
with CPH’s own Danish krone (DKK) 2.0 billion
debt (about €269 million), given the level of
MACH’s control and ownership. The acquisition
debt is nonrecourse to CPH, however, leaving
CPH’s pre-existing debt structure unaffected.
Copenhagen Airport handled 20.9 million
passengers in 2006. In the first half of 2007,
traffic increased by 2.3% year on year on the back
of increased flight frequencies and new routes.
CPH enjoys a strong competitive position,
supported by its main carrier Scandinavian
Airlines (SAS), which uses the airport as its
regional hub. Nevertheless, CPH’s proportion of
transfer traffic has been declining since 2003,
albeit remaining high at about 30%, which
Standard & Poor’s Ratings Services considers a
weakness. Moreover, the company derives about
half of its passenger volume from SAS and runs
the risk of losing part of its transfer traffic if SAS
ceases to operate.
CPH achieved an EBITDA margin of 54.1% in
2006--which is high compared with peers--owing
to its efficient operations, strong cost manage-
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
TRANSPORTATION INFRASTRUCTURE
ment, and successful commercial operations,
which rank among the best in Europe.
At June 30 2007, gross debt at MACH and
CPH combined declined to DKK7.1 billion, from
DKK8.9 billion at Dec. 31, 2006, as proceeds
from a special dividend distribution from CPH’s
associated company Newcastle International
Airport Ltd. and from the sale of CPH’s Chinese
and part of its Mexican operations were used for
debt repayment. At end-December 2006, funds
from operations (FFO) to average total debt and
FFO interest coverage were 12.6% and 3.2x,
respectively, and free cash flow generation was
DKK494.7 million, according to Standard &
Poor’s calculations.
Liquidity
CPH has strong liquidity. At June 30, 2007, the
company had about DKK1.0 billion in unused
committed bank lines and DKK225.4 million in
cash. Debt maturing within the next five years is
not a concern, because maturities are manageable
and we expect CPH to remain cash flow positive
after dividend distributions. Liquidity is further
supported by a modest and flexible capital
expenditure program.
Outlook
The stable outlook reflects our expectation that
CPH will maintain its strong competitive position
and focus on growth of internal cash flow
generation. Free cash flow generation is expected
to continue, but is unlikely to result in significant
early debt repayments given our expectation that
the company will use the cash for dividend
payments and capital spending. Any capital return
to shareholders will limit rating upside.
Major industry events causing a consistent
passenger volume decline or a significant
deterioration in SAS’ operations could pressure the
rating, as could a further increase in leverage. ■
NOVEMBER 2007 ■ 85