GIAA bonds get medium investment grade

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Moody’s Investor Services has given Guam International Airport’s 2019 series A and B general revenue bonds a Baa2 rating.

According to Moody’s, the Baa2 rating means that the investment grade of the bonds are “medium” with “some speculative elements and moderate credit risk.”

GIAA holds about $20 million in Series A bond debt and another $20.6 million in Series B debt.

The outlook on the bonds is stable, according to the rating agency.

A stable outlook reflects Moody’s expectation that the authority will remain on track to complete the International Arrivals Corridor project and that GIAA will continue to maintain adequate liquidity reserves.

GIAA has an “adequate capacity” to pay back the investors who bought the bonds but “adverse economic conditions or changing circumstances” could lead to “a weakened capacity” to meet its financial commitments, according to the report.

Credit negative

Among the negative factors affecting the rating is the still ongoing litigation over GIAA’s retail concession agreement with Lotte Duty Free and the “potential loss of its retail concession agreement and associated revenue” if the Supreme Court of Guam confirms the order of the Superior Court that the contract is void.

Another negative factor affecting the lower to medium rating is the airport’s “limited scale and vulnerability to event risks such as typhoons, political events, and the narrowness of the local economy, with a significant dependence on a volatile tourism sector and US military activity.”

In addition, the Baa2 rating also considers Moody’s assessment of the linkage between GIAA and the financial health and stability of the Government of Guam.  “While the airport operates fairly independently from the government, we expect that the authority would not be able to disconnect itself from any material financial stress at the government level.”

Benefits

According to Moody’s report the rating benefits from the airport’s monopoly as the only commercial airport on Guam and GIAA’s “ratemaking framework” which has supported stable operating performance, despite “volatility” in visitor arrivals.

The report notes that in 2019 GIAA renewed 5-year airline lease and operating agreements with 9 signatory airlines: Air Busan, Air Seoul, China Airlines, Japan Airlines, Jeju Air, Korean Airlines, T’Way Air, Cebu Air, and United Airlines.

United is the largest carrier at the airport, representing around 38% of FY 2018 enplanements.

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