Banking & Capital Markets

London Airport Refinancing Takes Flight

Debt-laden operator BAA is using Heathrow and Gatwick assets to back new bonds.
Alan RappeportJuly 14, 2008

BAA Ltd., the world’s biggest airport operator, is working on a debt refinancing to improve its credit rating. Facing downgrades, the company hopes to swap $9.6 billion of bonds with new ones that are backed by its London properties: Heathrow and Gatwick.

BAA’s actions, which also include the Heathrow Express train, have been accepted by the Association of British Insurers, according to Ferrovial, the Spanish infrastructure firm that acquired BAA in 2006. The new bonds are expected to be given A- ratings, and existing holders will exchange their non-convertible notes for the new ones. The existing notes are rated BBB- by Standard & Poor’s and Baa2 by Moody’s, both below investment grade.

Ferrovial said the new financing would be “stable and long term” and that it would reduce “future financing uncertainty.”

BAA was taken private two years ago for $20 billion in a deal that was laden with debt. The onslaught of the credit crisis nearly forced the operator — which also manages London’s Stansted airport, along with other facilities in Glasgow, Edinburgh, Aberdeen, Southampton, and Naples, Italy — to breach its loan covenants last year and slowed the refinancing project.

Calling the move “signficiant,” BAA offered bondholders additional interest payments of $30 million and additional one-time incentives of $24 million to entice them to take the deal by the end of the month. If the offer is accepted by 75 percent of BAA bondholders, new notes will be issued next month.

BAA recently has secured a $15 million financing package from Citigroup, Royal Bank of Scotland, HSBC and Santander to fund airport redevelopment projects, but that is contingent on it restructuring its debt. The airline operator has suffered this year from problems related to the opening of Heathrow’s new Terminal 5, opposition to a new runway at Stansted and complaints that it has a monopoly that limits competition.

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