• Pledges to prevent LPIA debt default
• Debt cover ratio waived until June ‘22
• Moves key to preserve ‘going concern’
By NEIL HARTNELL
Tribune Business Editor
The government has pledged to “take whatever action is necessary” to prevent Nassau Airport Development Company (NAD) defaulting on its $480m debt as it remains in breach of a key investor term.
The Lynden Pindling International Airport (LPIA) operator, in its just-released 2020 annual report, revealed that the Minnis administration gave a November 25, 2020, commitment to holders of more than $365m of its debt securities that it will provide whatever financial support is necessary to ensure NAD continues meeting its financial obligations.
Walter Wells, NAD’s chairman, yesterday told Tribune Business that while “it would be overly optimistic of me” to suggest government support will not be required, it had not drawn on any assistance yet.
Whether it does, and to what extent, depends entirely on the timing and strength of tourism’s recovery, with NAD’s financial woes caused immediately by “the bottom falling out” of international air travel last year due to COVID-19 lockdowns, border closures and other measures.
With the absence of passengers drying up its revenue streams, NAD fell into breach of its debt service coverage ratio that requires it to maintain a 1.3:1 ratio as part of the terms that induced investors to help finance LPIA’s $409m-plus redevelopment more than a decade ago.
NAD’s annual report reveals that this breach is expected to persist through at least end-September 2021, but it has secured an agreement from its senior debt holders to waive this condition until end-June 2022 in the hope this will provide sufficient breathing room for both the tourism industry to rebound and to rebuild its finances.
“If we didn’t get it, we would have been in default of our obligations,” Mr Wells told this newspaper of the importance of the June 2022 waiver. “Obviously we didn’t want to see that happen, and the Government didn’t want to see that happen.
“The senior debt holder also did not want to see that happen. They’ve got a lot bigger problems than NAD to deal with globally. They were very understanding of our situation because of what they’re dealing with elsewhere. They were quite accommodating, and obviously we were very grateful. It’s working well, and we meet with them on a regular basis to keep them abreast.”
As for the Government’s pledge of financial assistance, Mr Wells said: “We haven’t had to ask them for support just yet, and the extent to which we require it has yet to be determined. It all depends on the recovery.
“I think it would be overly-optimistic of me to say we will not need it at all, but at the end of the day it’s refreshing for them to support is in this process. The good thing about that [June 2022] as well is that so much can happen between now and then.
“We’re talking more than 12 months. It could really be humming at that point, or on the other hand it could not be humming, but certainly the indications are things should be substantially improved by then for everybody’s sake.”
The NAD pledge, though, remains another potential liability that already-strained Bahamian taxpayers and the Public Treasury may have to pick up if the recovery in international travel and stopover tourism visitor arrivals does not materialise as anticipated.
NAD’s external auditors, PricewaterhouseCoopers (PwC) Bahamas, while flagging up the “going concern” issues created by the covenant breach did not qualify the accounts for the period to end-June 2020.
But notes to the financial statements revealed: “The Government of The Bahamas has expressed to the note holders of the company’s senior debt, through a letter dated November 25, 2020, a commitment to take such action as may be necessary to enable the company [NAD] to continue to meet its obligations under the senior financing agreements.”
The Government’s pledge will remain in place until June 30, 2022, unless NAD comes back into compliance with its debt service coverage covenant and fully funds the debt service reserve earlier or a default occurs.
“While in compliance with the debt service coverage ratio covenant at June 30, 2020, the company was in breach as at September 30, 2020, and the company’s cash flow projections indicate that the debt service coverage ratio covenant is expected to be breached for each of the consecutive calendar quarters through to September 30, 2021,” NAD’s financials said.
“Management obtained a waiver from the senior note holders to temporarily waive the debt service coverage ratio covenant requirement for the calendar quarter of September 30, 2020. The temporary waiver was subsequently extended on November 25, 2020, through the execution of an amendment and waiver agreement which provided for a waiver under the debt service coverage ratio covenant through to June 30, 2022, unless there is an event of default.”
NAD’s financials indicate that the Government’s commitment letter, promising to support the airport operator financially if necessary, was critical to securing the debt service coverage ratio given that both developments occurred on the same day. And this, in turn, was vital to ensure NAD was treated as a ‘going concern’ for accounting purposes.
“The bottom has fallen out of the travel industry for the past 13-14 months,” Mr Wells said of NAD’s financial woes. “How quickly we resolve our position is contingent on how quickly travel is restored over the next 12 months, and we get some element of control over what COVID-19 is doing to us.”
He added that NAD was “starting to see some light at the end of the tunnel” due to the “exceptional job” the US is doing with vaccinating the population in The Bahamas’ largest visitor source market, and said: “We saw a slight uptick in March, April was relatively steady, and the hotels are telling us the summer is very, very bright in relation to what they were seeing last year.”
Mr Wells said he understood Copa Airlines was due to resume flights from Panama, and re-establish The Bahamas’ Latin America connectivity, in June or July, while talks were also underway over British Airways’ return to Nassau within the next three months.
“Had it not been for COVID-19, it would have been a banner year for NAD and the country,” Mr Wells said. The pandemic, which completely shut LPIA down apart from emergency flights during the final quarter of its 2020 financial year, saw the airport operator’s $7.755m profit in 2019 turn into a $4.449m loss last year - a swing of more than $10m.
Full-year total operating revenue was down by 25.4 percent or more than $27m year-over-year, falling to $80.69m from $108.168m, while total operating income was off 35 percent at $50m compared to more than $78m in 2019.