The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ major aviation gateway is confident it can escape another debt default waiver as it readies for “numbers we’ve not seen for two years” with 6,100 arrivals anticipated this Saturday. 

Vernice Walkine, the Nassau Airport Development Company’s (NAD) president and chief executive, yesterday told Tribune Business that the strong tourism and aviation traffic rebound meant the airport operator is optimistic it will not have to negotiate further relief from investors who hold $345.157m of its long-term debt. 

NAD’s just-released 2021 annual report warned that the Lynden Pindling International Airport (LPIA) operator would likely still be in breach of the debt service coverage ratio it agreed with lenders, who financed its redevelopment some 12 years ago, at end-June 2022 and would thus need to obtain another “waiver” from this condition to avoid a potential debt default.

However, Ms Walkine said NAD had revised its financial forecasts and projections based on The Bahamas’ stronger-than-expected tourism and aviation rebound, and now “didn’t anticipate” requiring an extension of the existing waiver when it expires on June 30 next year.

“We’ve amended our forecasts over the last couple of months given that we were exceeding Budget estimates quite substantially,” she told this newspaper. “We adjusted our forecasts. Based on current forecasts, we don’t need an extension to the waiver. We don’t anticipate we will.

“That is good news. It’s not the sort of thing we would normally publicise, but it’s a fact that we don’t anticipate needing an extension as the forecast suggests we won’t need it after June next year.”

With international and domestic air travel virtually shut down for significant portions of NAD’s 2021 financial year, which began on July 1 last year, the airport operator’s revenues dried up and it 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.

The NAD 2021 annual report reveals that the debt service coverage ratio was still off this benchmark at end-June this year, standing at 0.57:1. While the existing waiver negotiated with investors in late 2020 has prevented the LPIA operator from defaulting on its debt repayment obligations to-date, the annual report was less optimistic than Ms Walkine on the future outlook.

“Forecasts prepared by management project the company to be in breach of the debt service coverage ratio covenant beyond the expiration of the current waiver on June 30, 2022,” it said. “This would constitute an event of default under the senior financing arrangements unless a further waiver of the..... covenant is obtained for the period subsequent to June 30, 2022.

“The company’s updated cash flows indicate that the debt service coverage covenant is expected to be less than 1.3:1 for each of the consecutive calendar quarters in the period through to September 30, 2022. Management intends to seek a further extension to the debt service coverage waiver......

“In the absence of a further waiver of the debt service coverage ratio covenant, this would constitute an event of default under the senior financing agreements and would give rise to a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern.”

The situation prompted NAD’s auditors, PricewaterhouseCoopers (PwC) Bahamas, to flag it as a “material uncertainty relating to going concern”, although it did not qualify or alter its opinion on the financial statements for the 12 months to end-June 2021.

However, Mr Walkine’s upbeat assessment yesterday suggested the likelihood of any default, and need for a further waiver, has receded due to the improved tourism and economic outlook. She added that “a lot has happened” since PwC signed-off on its audit on October 5, 2021.

The initial waiver was obtained after the then-Minnis administration gave a November 25, 2020, commitment to NAD’s debt holders that it will provide whatever financial support is necessary to ensure the airport continues meeting its financial obligations.

Any debt default would have potentially disastrous consequences for The Bahamas’ major aviation and stopover visitor gateway, and cast significant doubt over the future of one of the nation’s key infrastructure assets that plays an essential role in supporting the tourism industry, the country’s major employer and economic engine.

However, Ms Walkine yesterday said she was “almost afraid to say out loud” how strong near-term passenger traffic projections are for LPIA. She questioned whether she was reading the correctly when the forecast of 6,100 passenger arrivals for this Saturday was first made, adding that this brought the numbers back to pre-Dorian and pre-COVID levels.

“Our hotel partners are telling us, based on what they have on their books, they are projecting occupancies if not equal to 2019 then they might exceed occupancies for the same period in 2019. It’s really good news,” the NAD president said.

“We do our passenger projections three days out for all terminals. Our projections for this Saturday are saying we we will have 6,100 arrivals. That, for us, is a huge number. We’ve not had many days where we’ve been over 6,000 passengers since 2019, and then only on certain days of the year.”

Ms Walkine said such airline arrivals numbers were only typically seen during peak periods, such as between Thanksgiving and Christmas/New Year’s. “Now here we are, a week before Christmas, and we have 6,100 passengers arriving. We’re optimistic about the short-term position,” she added.

The NAD chief, though, acknowledged that the COVID-19 pandemic - and its impact on both The Bahamas and major tourism and aviation source markets - remained the greatest threat to the airport operator’s revival and that of the wider Bahamian economy.

Dr Michael Darville, minister of health and wellness, yesterday indicated The Bahamas may adjust its COVID testing procedures for travellers entering this nation in response to the Omicron variant, which could mean reverting to more expensive, less available RT-PCR tests only or narrowing the testing window from the present five days’ before flying.

This could represent a deterrent to travel over the Christmas/New Year period, despite the high COVID vaccination rate among US visitors, and Ms Walkine conceded: “The concern is COVID. Through this pandemic, every time you turn around there’s another variant. You worry about the Christmas holiday, people getting together and the impact of another surge and what that might be.

“But it looks like December and the first week of January are very strong performing months. For us, if the hotels and large hotels are a good barometer, and I think they are, they are projecting occupancies equal to at least 2019. We’d be very happy with that.

“It suggests we are on our recovery path a lot sooner than the global experts had predicted.” Ms Walkine said analysts had first projected that The Bahamas and wider Caribbean would only see a return to pre-COVID tourism numbers by 2026, before revising this downwards to 2024 subsequently.

“The Caribbean has recovered a whole lot faster than the rest of the world, and destinations like The Bahamas - because of their proximity to the US - are recovering faster than the Caribbean on average,” she added.

“It’s been a very good few weeks for us starting with the cruise ship home porting in June and July. We’re very pleased with where we are, and hope to continue that trend.”

Referring to Saturday’s projected 6,100 arrivals, Ms Walkine said: “Oh my God. I was so excited when I saw it. I said to my team: ‘Did I read that correctly?’ I’ve not seen those numbers for two years.

“This virus just keeps evolving, and we have to continue to react, so it’s nice to be in a place where it looks like there’s some stability in the industry and, as an airport serving a tourism destination, to the degree tourism experts are successful in promoting and reminding people why they should come to The Bahamas for a vacation, we are very grateful and optimistic that for the near-term future things are good.”