OREANDA-NEWS. Fitch Ratings has affirmed Brussels Airport Company S.A./N.V.'s (BAC, or the borrower) senior secured debt ratings as follows:

EUR5bn multicurrency note issuance programme: 'BBB', Outlook Stable
EUR500m senior secured notes due 2020: 'BBB', Outlook Stable
EUR155m senior secured notes due 2022: 'BBB', Outlook Stable
EUR120m senior secured notes due 2024: 'BBB', Outlook Stable
EUR200m senior secured notes due 2025: 'BBB', Outlook Stable
EUR380m term loan facility A due 2018: 'BBB', Outlook Stable
EUR250m capex facility due 2018: 'BBB', Outlook Stable
EUR50m revolving credit facility due 2018: 'BBB', Outlook Stable

The affirmation reflects BAC's solid performance in 2014. The company has performed well in terms of traffic, revenue, operating expenditure and EBITDA.

KEY RATING DRIVERS
Fitch's ratings are based on the following factors, among others:

Volume Risk - Midrange
BAC benefits from a high quality catchment and strong origin & destination base and has historical resilience in line with peers (approximately 8% peak-to-trough passenger (pax) volume loss for 2008-9). Following a weaker rise of 0.9% in 2013, total passenger volumes have increased by an impressive 14.6% in 2014 (driven by additional routes across a number of carriers and traffic segments). Fitch will continue to monitor any retrenchment or consolidation of capacity that this high growth may trigger over the medium term.

The long-term health of BAC's main carrier, Brussels Airlines (B.Air) remains a risk (ongoing financial losses, although now in line with expectations). However, the airline continues to benefit from support from its key stakeholder, Lufthansa Group, which provides a EUR100m credit facility, secondment of key Lufthansa staff and common hedging arrangements.

It is possible that B.Air has reached a 'trough' in financial performance, but the medium-term trend has yet to be established with certainty. Results have continued to improve with a loss of only EUR4.2m in 2014, which compares favourably with losses of EUR60.7m and EUR22.0m in 2012 and 2013, respectively. However, weakness in such a key business counterparty represents a continued material event risk, which Fitch has addressed in its rating and stress cases.

Price Risk - Midrange
BAC is subject to favourable economic regulation (dual till "CPI+/-X" regime with a progressive transformation to a more representative return on regulated asset base by 2026). Despite this seemingly robust building block structure, the price cap regime offers no flexibility to offset lost volumes in the shorter term.

Infrastructure Development and Renewal Risk - Stronger
The airport has significant headroom in capacity (21.9m v 30m pax post scheduled enhancements, with further opportunities to optimise throughput efficiency) and modern facilities. Planned improvements are granular and could be delayed if necessary to offset the impact of traffic declines. BAC has exhibited strong execution across a range of construction projects to date.

Debt Structure - Midrange
The Midrange assessment is supported by BAC's refinancing track record and a 12-month debt service reserve account (on an interest-only basis). Since closing the multi-tranche/maturity refinancing in June 2013, the company has successfully achieved further refinancing diversification by maturity and debt instrument, as well as all-in cost savings. Despite these improvements, the use of bullet maturities and some weaknesses in BAC's hedging policy (no collateralisation and downgrade protections) constrain the assessment of debt structure.

Fitch used the following cash flow scenarios to assess the ratings: i) the Fitch base case (FBC); ii) the Fitch rating case (FRC); and iii) a Fitch "B.Air Shock" sensitivity simulating the collapse of B.Air. The FBC assumes a moderate increase in revenue underpinned by around 1% compound annual growth rate (CAGR) pax growth for 2016-18, while opex and capex are in line with BAC's projections. The FRC builds on this and incorporates 2% pax CAGR for 2016-18 notably assuming a single year traffic shock of -5% simulated in 2015, with modest recovery thereafter (Fitch has concluded that the period of traffic stress as a result of a temporary B.Air-related event should be no longer than one year in duration, with a steady return in traffic thereafter).

The Fitch B.Air Shock incorporates a collapse of B.Air resulting in a reduction in pax volumes for the next two years, with some long-term traffic impairment offset by the benefits of business rationalisation by BAC.

Under the FRC, minimum 25 year synthetic annuity DSCRs and maximum net debt/EBITDA (leverage) ratios are 2.3x and 5.8x, respectively. These metrics are similar for the B.Air Shock at 2.4x and 5.9x, respectively. In both scenarios, Fitch takes comfort from an anticipated deleveraging profile (five-year net debt/EBITDA is 5.6x and 5.1x for the FRC and B.Air Shock, respectively). Fitch also ran a range of sensitivities (increased opex, debt costs and changes in CPI), which result in only mild stresses to the cash flows under the FBC.

Peer Group
BAC is rated one notch lower than Gatwick Funding Limited (BBB+'Stable) reflecting the fact that BAC is subject to potential B.Air event risk. BAC's rating is in line with Copenhagen Airports; (operating company rated BBB+/Stable, the consolidated profile, including holding company debt, is BBB/Stable), partly reflecting that both airports are exposed to potential carrier event risk (SAS for Copenhagen). Sydney Airport (BBB/Stable) can support higher average leverage for the same rating (around 7x), given its more solid operational profile as the main gateway to Australia.

RATING SENSITIVITIES
Positive: Fitch considers net debt/EBITDA consistently below 5.5x under the FRC as a possible quantitative upgrade trigger. Positive rating action also remains subject to a resolution of B.Air-related event risk.

Negative: Significant financial underperformance (FRC leverage consistently above 7.0x) or sustained loss of core origin & destination traffic due to macroeconomic, B.Air-related or competitive factors could result in negative rating action.

SUMMARY OF CREDIT
BAC directly holds the freehold interest in Brussels Airport, the principal airport in Belgium, serving a catchment of over 20 million people. In addition to a wide and affluent hinterland, the airport also benefits from Brussels being the headquarters of the European Union and the North Atlantic Treaty Organisation (Nato).