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Auckland International Airport's $130 million bond issue gets an A rating but also a warning from Standard & Poor's.
The rating agency says the company must demonstrate a sustained improvement in capital management over the medium term to preserve the credit quality.
"AIALs cash-flow metrics are weak for the A rating. The negative outlook on the ratings reflect the deterioration in the airport's credit metrics and its dependence on prudent execution of capital expenditure in line with passenger demand and revenue growth," Standard & Poor's credit analyst Tammy Garay said.
Although domestic and short-haul passenger growth remains sound, the outlook for long-haul travel is clouded by fallout from the world economic downturn.
The company yesterday launched $80 million of senior unsecured eight-year, fixed rate bonds with an option to accept $50 million more in over subscriptions.
The bonds will be used to repay the company's $75 million medium-term notes maturing next month and to fund future capital spending.
It is nearing the end of a five-year programme of spending and future commitments costing around $560 million.
"We expect that it is likely that management will continue to proactively defer projects, if necessary, to preserve credit quality, similar to last fiscal year's decision to defer $200 million-worth of projects for 12 months."
Garay said that substantial changes to the senior management of the company heighten the transition risk if the company policies were to change.
The company's chief executive, Don Huse, left last month after five years at the helm and chief financial officer Robert Sinclair and head of property Chris Gudgeon left around the same time.
Garay acknowledged the airport's position as a major international gateway, its proximity to Auckland, resilient passenger demand and earnings diversity.
The A rating is the sixth-highest level from Standard & Poor's.
Auckland Airport had $1 billion of bonds and loans at June 30, almost half of which will mature before 2011.
Good demand is expected for the sale, given falling short-term interest rates and volatile equity markets, said David Smith, director of investment banking at First NZ Capital manager of the sale.
"Single-A rated paper is very much in vogue," he said.
"That has become a stronger trend in the last three to four weeks."
- additional reporting Bloomberg
