NMIA revenue to back US$440m bond by unknown issuer KingAir

Revenue flows from Norman Manley International Airport, NMIA, will secure a bond of up to US$440 million to be floated on the international market by unnamed entities, utilising a special vehicle called Kingston Airport Revenue Finance Limited.

A senior source said last night that the bond will be debt for the issuers but income for the Jamaican Government, which will receive a one-time payment equivalent to the take-up of the bond, less transactions costs.

The source did not disclose the entities behind Kingston Airport Revenue, also referred to as KingAir. Neither the Airports Authority of Jamaica nor the Government of Jamaica are involved in KingAir, sources said.

“The proceeds from the financing will be applied to fund a six-month debt service reserve account, to pay transaction costs and expenses, and to make a one-time payment to the Government of Jamaica for the repayment of outstanding debt obligations and the financing of certain infrastructure projects related to the modernisation and rehabilitation of roads,” said rating agency Moody’s.

The debt raise, which is pending, would amount to nearly $70 billion in Jamaican currency at current exchange rates.

Rating agency Standard & Poors has assigned an indicative rating of ‘BB’ and a stable outlook to the pending bond, which will mature in 2036. Moody’s also assigned a stable rating.

President of the AAJ Audley Diedrick declined to comment on the bond, referring the Financial Gleaner to the Ministry of Finance, instead.

Last night, Minister of Finance Dr Nigel Clarke declined to comment on the transaction. CEO of PAC Kingston Airport Limited Sitara English-Byfield also referred comment to the AAJ or others in government.

PAC Kingston, also called PACKAL, is the Mexican-owned company that operates NMIA, Jamaica’s second-largest airport, under a 25-year concession agreement.

S&P said the stable outlook on the debt issue was, in part, based on its “expectation of a gradual increase in passenger volumes at the NMIA, given its importance for Kingston.”

The NMIA suffered from a slight setback in the wake of Hurricane Beryl in July. August numbers now show a 2.0 per cent year-on-year increase in total passenger traffic. However, year-to-date passenger traffic, from January to August, totalled 1.2 million, which was 2.0 per cent lower than a year ago.

As security, the shares in KingAir will be pledged to bondholders, and the notes will also be backed by just over half of NMIA’s gross revenues.

“At the direction of the government, the AAJ plans to transfer its revenue share from the concession to a bankruptcy-remote, non-recourse, special-purpose vehicle, KingAir,” said S&P in its assessment. The failure of a bankruptcy-remote entity is generally said to have limited impact on other members of the corporate group to which it belongs, and is generally used for special projects.

“The notes will be backed by the collection rights to 53.22 per cent of the gross airport revenues of Norman Manley International Airport, and the final size of the notes may vary based on the final coupon,” said S&P.

Last year, Kingston airport’s concession tax was 62 per cent of the gross annual aeronautical and commercial revenues, according to the financial filings of PACKAL’s parent company, Pacific Airport Group. The amount can fluctuate annually.

NMIA generated 1.1 billion Mexican pesos, or US$57 million, in revenue in 2023, roughly the same as in 2022. The airport is owned by the AAJ but has been operated by Pacific Airport Group, through PACKAL, since 2019.

KingAir must maintain a DSCR, or debt service coverage ratio, above 1.25 times over the next 12 to 24 months. Should the DSCR fall below 1.3 times, the Jamaican government has pledged to make up the shortfall, S&P said.

“The government will make payments to KingAir in order to maintain its DSCR above that level,” the rating agency said.

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