OREANDA-NEWS. Fitch Ratings has affirmed the long-term rating assigned to Aeropuerto International de Tocumen S.A.'s (Tocumen S.A. or AITSA) USD650 million secured debt due 2023 at 'BBB'. Fitch also affirmed AITSA's National scale ratings at 'AAA (pan)' and 'AAA(slv)'. The Rating Outlook remains Negative on all three ratings.

The affirmation reflects the airport's strong operational profile, current leverage ratios, and strategic position as the main gateway to Panama, an established origin and destination (O&D) and transit facility with proven stable demand. The Negative Outlook reflects the continued absence of a concrete financing plan to address the liquidity gaps related to milestone payments for construction of a South Terminal and the potential increased leverage depending on how it is executed.

KEY RATING DRIVERS

Robust Traffic Base with Considerable Carrier Concentration [Revenue Risk: Volume - Midrange]: AITSA serves as the main gateway to Panama. The airport functions as both an O&D and transit facility. COPA Airlines constitutes over 80% of international traffic. Counterparty risk is partially mitigated by the airport's strategic and competitive position.

Adequate Rate Adjustment Mechanism [Revenue Risk: Price - Midrange]: Tocumen International Airport is managed by Tocumen S.A., an entity wholly-owned by the the Panamanian government. Rates and charges for airport services are subject to the approval of the Civil Aeronautics Authority (CAA). Rate-setting does not pose material limits on the ability to recover operational and capital costs from aeronautical sources or passenger fees. Tocumen S.A. sets the rates for non-aeronautical commercial services and minimum rents for the use of airport surface at the respective airports and airfields.

Adequate Structural Features [Debt Structure: Midrange]: The issuance is a senior secured obligation of AITSA with a scheduled amortization of 30% before final maturity. A trust established to collect departing fees and maintain a six months debt service reserve account is viewed as adequate to maintain financial stability. Notwithstanding the asset's strong revenue profile, longevity beyond the life of the debt and the absence of a concession, refinancing risk is elevated due to the need to address a liquidity gap related to the construction of the South Terminal.

Capital Investment Program Requires Additional Funding [Infra Development/Renewal: Midrange]: The airport commenced construction of a South Terminal, which is approximately 50% complete and is now expected to be completed by year-end 2017. Additionally, the airport expects to build a third runway in 2019. To enhance its commercial activities, adjacent land is expected to be purchased for commercial development including hotels, conference and exhibition centers, and retail development among others. AITSA has had to pursue funding alternatives due to a delay in advanced sales of commercial space at the South Terminal.

Moderate Leverage and Credit Profile: The airport's leverage as measured by net debt/ EBITDA, was 6.64x in 2014, and is expected to reach 7.18x at year-end 2015. Given the strategic nature of the asset and absence of a fixed concession period, current leverage is considered adequate for the 'BBB' category.

Peers: AITSA's nearest peer is Lima Airport Partners S.R.L. (rated 'BBB'/Stable Outlook) as both serve as international gateway airports with significant O&D. Each airport has airline carrier concentration. However, Lima Airport has a sizable domestic market and significantly lower leverage.

RATING SENSITIVITIES

Negative: Inability to arrive at a funding solution for the South Terminal without a material and sustainable increase in leverage, as measured by Net Debt/EBITDA above 9.0x in 2017 and beyond.

Negative: A significant downsizing in operations from its anchor carrier, COPA Airlines.

Positive: Outlook may be revised to Stable upon completion of South Terminal without significant increase in indebtedness.

CREDIT UPDATE

The Outlook remains Negative due to the continued absence of a concrete financing plan to meet the funding gap in capital expenditure obligations for the South Terminal. AITSA began building a South Terminal to accommodate expected passenger growth in the intermediate term. Part of the bond issuance in late 2013 was used to finance the construction of the South Terminal and the remaining amount was expected to be derived from the advance sale of prime commercial spaces at the new terminal. Proceeds were expected to be approximately USD514 million but did not materialize as projected. The sale was expected to provide AITSA with close to USD171 million during 2014. As a result of its postponement, the airport should experience a cash flow shortfall of approximately USD250 million needed for construction payments.

Traffic performance continues to exceed expectations. Enplanements grew by 9.6% in 2014 to 8.5 million and mid-year 2015 traffic is currently 60% over the same period in 2014. Departing passengers, which represent the primary cash flow securitizing the bonds, grew by 6.1% to 2 million passengers.

Operating performance remained strong in 2014 with margins at 47%. Total revenue was up 8% and the $29 departing passenger fee generated $59 million, in line with Fitch expectations. Personnel costs have risen marginally to $19.7 million while non-personnel costs have decreased slightly. Debt service coverage ratio (DSCR) as a factor of departing fees was 1.58x in 2014 and 2.09x all-in. Leverage was moderate at 6.64x.

In the Fitch base case, enplanement growth is expected to continue to increase but at a slower rate of 3% per year. Under this scenario, coverages with departing fees are 1.60x in 2015 and decline as debt amortizes. DSCR as a calculation of EBITDA remains strong. Absent a refinancing plan, leverage is expected to breach the rate covenant in 2015 onward, which would trap all departing fees in excess of debt service in a trust account.

Passenger growth in the Fitch rating case increases at a more moderate growth rate than the base case and it includes a downturn scenario with a quick rebound. Coverages with departing fees remain sufficient for debt service and all-in coverages remain strong. Leverage becomes more strained than the scenario described in the base case.

SECURITY
The debt constitutes direct, unconditional obligations of AITSA and is secured by a trust that receives 100% of departing fees and serves as source of payment and guarantee.