NAD's rating upgrade a 'glimmer of change'


Tribune Business Editor

A Cabinet minister yesterday hailed the Nassau Airport Development Company's (NAD) return to investment grade status as "a glimmer of change" in the Bahamas' financial fortunes.

Dionisio D'Aguilar, minister of tourism and aviation, told Tribune Business that the Fitch rating agency's upgrade of the Lynden Pindling International Airport (LPIA) operator should be viewed as a break from "the failed financial policies" of the former Christie administration.

He argued that, while it was not an upgrade of the Bahamas' sovereign creditworthiness, it was "a boost for the country" and at least represented an end to the persistent rating downgrades suffered since the 2008-2009 recession.

Mr D'Aguilar said the return to 'investment grade' status meant NAD would no longer have to maintain the 'doubled' debt reserve it had to implement when downgraded, thereby freeing up capital for investment projects at LPIA.

"We do have some positive news to report on NAD; the bond rating of NAD got upgraded," the Minister disclosed to Tribune Business. "We were informed about that a week-and-a-half, two weeks ago. "Fitch reviewed the operations at the airport, and was excited to see there had been a financial turnaround in well-being at the airport. It was upbeat about the economy, the coming on stream of Baha Mar, and the general interest in our tourism product.

"They saw fit to reverse the downgrade. It's gone from a 'BB+' to a 'BBB-', which is an upgrade, and it has returned the debt of NAD back to investment grade," Mr D'Aguilar continued.

"That's very important. When NAD was downgraded it lost its 'investment grade' status, and was forced to out aside funds that instead would have gone to capital projects. It had to put that aside to go to the debt reserve; funds set aside for debt servicing.

"Once downgraded below investment grade, the debt covenants kick in and and required NAD to set aside double the size of its debt reserve fund - the money it has to set aside to give lenders additional coverage for their debt."

Mr D'Aguilar last year revealed that NAD had to double its debt reserve fund from $19 million to $38 million as a result of Fitch's downgrade, which stemmed from Standard & Poor's (S&P) decision to cut the Bahamas' sovereign creditworthiness to 'junk' status at Christmas 2016. This had a direct knock-on effect for the LPIA operator, given that it operates solely in an economy that had lost 'investment' grade status. "Their [NAD's] debt got downgraded because Fitch said there's additional sovereign risk," the Minister told Tribune Business in June 2017. "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. Its last financials, to end-June 2016, show that the debt reserve account contained $18.735 million at that point.

Mr D'Aguilar last year added that the increased debt reserve requirements could only be financed by NAD increasing its total per passenger costs by $8, or 4.7 per cent, from $175 to $183 by December 1. This sparked concerns over LPIA's price competitiveness, and possible repercussions for the Bahamian tourism product.

The Minister of Tourism, though, was much more upbeat yesterday, interpreting the NAD rating upgrade as an early sign of market confidence in the Government's economic and fiscal policies, and efforts to turn the Bahamas around.

"I think it's a boost for the country," he told Tribune Business. "It demonstrates, at least, the confidence of the rating agency, Fitch, in our economy. People are complaining bitterly about our strict and stringent spending requirements, and this is beginning to bear fruit in terms of the improvement and rising confidence in the management of the fiscal affairs of the country."

Mr D'Aguilar said NAD's management will now be able to recover the extra funds applied to the 'debt reserve', and added: "It will allow NAD to look at expansion and think again about capital projects; resurfacing a second runway or building of a new one.

"All those things come back on the table. NAD was not downgraded because of its own financial performance. It was downgraded because of the four sovereign downgrades in five years. Fitch was concerned that NAD operated in the Commonwealth of the Bahamas, and if the country was downgraded it only made sense to downgrade an entity operating in it."

Unable to resist taking a swipe at the Christie administration, Mr D'Aguilar added: "This shows the failed financial policies of the former government led to the downgrade.

"This is a testament to the fiscal discipline that the Minnis administration operates in and, at least for Fitch, the positive outlook for the economy and growing tourism numbers.

"When the persons doing the review came to Nassau, they were impressed by what they saw; the renewed investment in hotel infrastructure, the focus by the Government on returning some fiscal discipline to the Treasury, and all that registered in their minds and caused them to say there should be an upgrade," he continued.

"At least there's a glimmer of a change from the previous administration, which always talked about downgrades. At least we got an upgrade, albeit it's not the national debt, but it was for a company that operates in the Commonwealth of the Bahamas and is rated by Fitch."