Credit rating agency Fitch Ratings has once again relegated the Nassau Airport Development Company’s (NAD) debt rating to a negative outlook, with no change in the rating score, pointing to the country’s economic risks post-Hurricane Dorian as a limiting factor for the country’s main airport and what the rating agency sees as a country lacking fiscal buffers.
While the Fitch rating for NAD remains at BBB-, its outlook has degraded from stable, which it received in 2018, to negative in the most recent rating report acquired by Guardian Business.
“The outlook revision reflects concerns with respect to the weakening credit quality of the Bahamian sovereign, particularly the risk of imposing controls on the transfer of foreign currency for the USD denominated notes,” the Fitch report states.
“In the last three years the archipelago has been hit by two major hurricanes that have deteriorated the fiscal position of the sovereign, leading to an increase of the debt burden. The negative outlook also reflects the lack of fiscal buffers that could contain the fiscal impact in case of a severe weather event.
“While there is a Fiscal Responsibility Act (FRA) and a fiscal council, these policy tools are recent and relatively untested.”
This change in the airport’s rating comes on the heels of a landmark travel year for NAD in 2019, even after a falloff in arrivals in September because of Dorian.
However, Fitch outlined developments that could lead to a future positive rating action, including the strengthening of The Bahamas’ credit profile; a sustainable increase in NAD passenger traffic; and the company’s net senior debt to EBITDA (earnings before interest, tax, depreciation and amortization) below 4.0 in a sustained basis.
“The ratings reflect the airport’s traffic stability with low peak-to-trough variations, despite its limited traffic base and its exposure to some competition from alternative modes of transportation and/or other similar touristic destinations in the Caribbean,” Fitch said.
“The ratings are also supported by a strong rate setting framework and minimal capital expenditure needs to accommodate traffic growth. Current leverage ratios under the rating case are viewed as adequate for the rating level according to applicable criteria.”
Fitch said factors that could lead to a future negative rating action include a weakening Bahamian credit profile, “particularly the risk of imposing controls on the transfer of foreign currency for the USD denominated notes”; an increase in the airport’s net senior debt /EBITDA ratio above 8.0 in a sustained basis; and a sustained drop in passenger traffic that could lead to more tariff increases.
When international credit ratings agency Standard and Poor’s downgraded The Bahamas’ credit rating to just above junk status in late 2016, NAD also lost its investment grade status.
The country is awaiting new rating outlooks from Standard and Poor’s and Moody’s for 2020 and their post-Dorian assessment of The Bahamas.
Last year the International Monetary Fund reduced the country’s growth possibility to below one percent for this fiscal year.