Moody’s Global Credit Research – New York, November 30, 2015 — Moody’s Investors Service (“Moody’s”) has assigned a definitive rating of Ba2 to Aeris Holdings Costa Rica S.A. de C.V.’s (“Aeris”) senior notes issuance of US $127 million (“Notes”). The outlook is stable.
On September 18, 2015 Moody’s assigned a provisional (P) Ba2 rating based upon draft documentation. The definitive Ba2 rating is based on our review of final documentation and our confirmation that the final terms and conditions are not materially different from the drafts reviewed in conjunction with the previously assigned provisional rating.
For further information on Aeris, please refer to the Pre-Sale Report published October 2 on moodys.com.
RATINGS RATIONALE
The Ba2 rating is supported by the airport’s strategic importance to Costa Rica. Aeris has a market share of 80% of total air travel in Costa Rica and handles more than 80% of the country’s tourists. A significant portion of Aeris revenues come from international travelers, providing the company with a natural hedge to the domestic economy and related risks. Recent passenger trends have been positive, with a compound annual growth of 3.2% since 2010. These are expected to continue given the improved economic prospects for the United States of America, origin of 50% of international travelers to Costa Rica.
These strengths are offset by the comparatively short time remaining under the CGI contract (around 11 years), coupled with the challenges of a large capital investment program for the first five years of the life of the Notes. Under the CGI, these investments will be recovered via tariffs, with a set Internal Rate of Return, over the shorter of the next ten years or the time left under the contract. As such, any material shortages and/or delays on the capital program, might have a negative impact on Aeris’ revenues. While Moody’s acknowledges the clear tariff-setting and investment recovery provisions under the CGI, including an economic equilibrium provision, the governing contract is different from the concessions under which most other airports operate outside of the United States.
Based on Moody’s sensitivities, Funds From Operations to Debt are expected to average 25.07% while Moody’s Debt Service Coverage is estimated to average 2.1x over the life of the Notes, in line with the Ba range. Nevertheless, over the first few years of the transaction these metrics are more consistent with a B category. The rating also takes into account the subordination of the IBSA Loan. Over the first five years of the life of the Notes, IBSA Loan interest payments will be capitalized. If cash is available, and if a historic and projected Debt Service Coverage Ratio of 1.4x is met, then interests payments may be made starting 2019. No principal payments to the IBSA Loan are permitted until the Notes, and any accrued interest, have been paid in full.
The rating is also supported by the project finance features under the Notes, including: a trust managed cash waterfall, a 6-month (one semiannual payment) debt service reserve account which will increase to a 12-month debt service reserve during the last two years, a forward looking 3-month Operation and Maintenance Reserve Account, limitations on additional indebtedness, distribution lock-up tests, and a Capital Expenditure Prefunding Account, equivalent to around 20% of the total Capital Program.
The rating outlook is stable. The stable outlook reflects Moody’s expectation that Aeris will continue to show a positive trend of passenger growth, execute the capital program to maintain its infrastructure to support the demand growth, and sustain manageable debt levels and strong liquidity leading to solid cash interest coverage ratios.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the global scale issuer and debt ratings could develop if Aeris’ passenger growth exceeds projections on a sustainable basis leading to consistent stronger credit metrics with Moody’s debt service coverage ratio above 1.8 times.
Downward pressure on the issuer and debt ratings could develop if due to a sustained decrease in passenger traffic or to significant capital expenditures overruns, actual leverage is higher than the projected levels or Aeris’ credit metrics weaken on a sustained basis with cash interest coverage ratio consistently below 1.4 times or its FFO/Debt ratio was consistently below 6.0%.
The principal methodology used in this rating was Privately Managed Airports and Related Issuers published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.