The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Nassau Airport Development Company (NAD) has been forced to double its debt reserve to $38 million after losing its ‘investment grade’ credit rating, the Minister of Tourism revealed yesterday.

Dionisio D’Aguilar disclosed the “troubling” consequences of the Bahamas’ sovereign credit downgrade by Standard & Poor’s (S&P) just before Christmas 2016, which had a direct knock-on effect for the Lynden Pindling International Airport (LPIA) operator’s own creditworthiness.

“Their [NAD’s] debt got downgraded because Fitch said there’s additional sovereign risk,” the Minister confirmed to Tribune Business. “They went to downgrade NAD one rating below investment grade, and one effect of that was they needed to increase the bond reserve fund from $19 million to $38 million.”

The debt financing for LPIA’s $409.5 million redevelopment requires that NAD maintain “a restricted debt service reserve account” with Citibank in New York, which contains a balance equal to six months’ worth of principal and interest due on the senior notes (bonds).

This facility is designed to give NAD’s lenders extra security, and comfort, that the airport manager will continue to make debt payments as they come due - especially since the funds cannot be used for anything else.

However, NAD’s credit rating downgrade - and that of the Bahamas’ - will likely have triggered lending conditions requiring an increase in NAD’s debt servicing (interest) costs. The company’s latest financials, to end-June 2016, show that the debt reserve account contained $18.735 million at that point.

Mr D’Aguilar yesterday said the increased burden was why NAD had elected to increase total per passenger costs by $8, or 4.7 per cent, from $175 to $183 by December 1, 2017.

Suggesting it would take time to increase the debt service reserve from its current $19 million to $38 million, the Minister added: “The only way they could increase it is by increasing the facility charge.

“The thing that’s most troubling about this debt downgrade is there are severe restrictions about what NAD can spend money on. It can only spend on certain expenses before it goes to debt interest.”

Mr D’Aguilar suggested this could hinder NAD’s ability to undertake capital works projects vital to maintaining LPIA’s upkeep as the primary gateway to the Bahamas for stopover tourists.

The Minister, meanwhile, declined to comment further on the political controversy he ignited last week by arguing that the Christie administration’s direct intervention allowed one LPIA tenant to amass rental arrears worth $3.3 million.

He suggested that the former government, and the then-NAD Board, wrote-off $1.2 million of this debt because the tenant concerned, businesswoman Patricia Mortimer and her PatMor Holdings vehicle, enjoyed strong links to the Progressive Liberal Party (PLP).

Mr D’Aguilar’s claims were strongly denied by both Glenys Hanna-Martin, the former minister of transport and aviation, and then-NAD chairman Anthony McKinney, who branded the Minister’s comments “irresponsible”.

Mr McKinney said the Kikivarakis & Company accounting firm was hired to investigate Ms Mortimer’s claims that the rental rates for her five LPIA stores were excessive compared to other tenants, and a settlement was agreed where PatMor would pay $800,0000 of the arrears upfront - and the balance over an agreed period - in return for the $1.2 million write-off.

Several observers have suggested the key question is whether any other NAD tenant, in similar rent arrears circumstances, would have received a similar deal, given that the terms appear weighted heavily in favour of Ms Mortimer.

Tribune Business understands that the Minnis administration’s attention was drawn to the situation by NAD’s desire to increase passenger user fees, and its fears that the airport could be making itself price uncompetitive at a time when Baha Mar makes it imperative to attract additional airlift.

The Government is understood to have asked add about other sources of funding, including persons who owed it money, as a means to avoid the fee increase - and Ms Mortimer’s situation came up.

NAD’s 2016 financials, which were signed-off just three months ago, reveal that more than 80 per cent of its operating income is going towards servicing the interest on its $523.62 million debt mountain.

Although the airport manager’s operating income rose by 3.8 per cent year-over-year to $50.93 million, some $42.156 million of this sum went towards paying its interest bill.

Together with various accounting treatment ‘amortisations’, the interest bill drove NAD to a net $13.59 million loss for the year to end-June 2016 - a figure that was down 10 per cent on the previous year’s $15.101 million net loss.

NAD executives have stressed to Tribune Business in the past that profitability is not the best measure of its success. Rather, they have suggested that cash flow and the ability to service its redevelopment financing are the key metrics, especially as interest costs will reduce over time once the debt principal starts to lower.

However, NAD’s continued losses, and a near-$25 million accumulated deficit, are another factor likely driving the passenger fee increases as well as the 3 per cent rise in aeronautical revenues.

With Baha Mar not fully opening until March/April 2018, NAD will have lost three years of projected passenger increases since the missed March 2015 opening. This, too, will have forced it to increase yields given that rising volumes have yet to materialise.

NAD’s financials show it was owed $18.64 million in receivables by the private sector at end-June 2016, with a $3.285 million allowance made for doubtful accounts.

The airport operator was also owed $2.979 million by Bahamasair, the national flag carrier, which accounted for the majority of the Government’s net $3.124 million payables to NAD.