GUAM. Moody’s Investors Service last week issued a report finding that the ongoing lawsuit by DFS against Guam International Airport Authority (GIAA) – and specifically the Guam Superior Court’s February judgment voiding GIAA’s US$152 million concession contract with Lotte Duty Free Guam – is “credit negative.”
“GIAA takes the report issued by Moody’s Investors Service very seriously,” said GIAA.
Chairman of the Board Ricardo Duenas said: “We’ve been very concerned that the Court’s decision could seriously impact GIAA’s credit rating, its bond covenants and potentially its signatory airline agreements, and therefore, airport operations, the Guam visitor industry, and the economy of our island.”
“Judge Barcinas’ order created a potential financial disaster for the airport” – Guam International Airport Authority Chairman of the Board Ricardo Duenas
According to the Moody’s [as opposed to Moodie -Ed] report: “A loss of the contract with Lotte Duty Free Guam, LLC would be credit negative for GIAA because a newly procured concession agreement could offer lower annual revenues and there could be a temporary loss in revenue if Lotte exits the airport before a new public procurement of the contract has been completed. This would put short-term pressure on debt service coverage ratios.”
The report noted that the Lotte concession contract represents about 22% of GIAA’s 2017 operating revenue.
Background to a remarkable contract dispute
On 9 May, more than three months after GIAA’s original request for a stay, the Superior Court issued an order staying the judgment, pending Judge Barcinas’ determination of DFS’s motion to amend [For full background click here].
While the Court ruled in DFS’s favour in granting the 2 February judgment, DFS was unhappy with the judgment terms and asked the Court to change them. GIAA has opposed DFS’s motion to amend, asking the Court to stay the judgment and let the Guam Supreme Court decide the case.
On 10 May 10 the Court issued an Order asking for suggestions on changing the judgment per DFS’s motion. GIAA said it will reply “in due course”.
While the Court’s judgment ordered GIAA to abide by the voided contract, Lotte Duty Free was under no such obligation, the airport authority noted.
“Judge Barcinas’ order created a potential financial disaster for the airport, and thus, GIAA worked to get Lotte to agree to stay and abide by the terms of the voided concession contract, even during the on-going US$110 million arrivals floor construction project,” said Duenas.
As reported, GIAA was successful [partly via amended concession terms -Ed] in persuading Lotte to agree to abide by the concession contract pursuant to a Mediation Term Sheet dated 26 April. “With this action, GIAA was successful in mitigating the risk of violating its bond covenants and harm to the bondholders,” the authority commented.
“With all due respect to the Court, the February 5 judgment injected a tremendous amount of uncertainty into the airport’s financial picture,” concluded Chairman Duenas. “Despite the Court’s failure to act until finally issuing the conditional stay on May 9, GIAA worked to mitigate the impact of the judgment by securing Lotte’s commitment to stay in the airport while the appeal to the Supreme Court runs its course.
“We are hopeful that the Court permanently stays the judgment without further delay and allows the Supreme Court to decide this important matter, rather than accommodating DFS’s continuing efforts to devalue the airport concession,” Duenas concluded.
