In a surprise intervention, the Civil Aviation Authority said it had the power to refer any would-be owner of BAA to the Competition Commission if it was concerned that the financing of the company might compromise its investment in new airport facilities.
The CAA also stressed that when it came to set caps on the amount that BAA can charge airlines from 2008 for use of the three regulated south-east airports - Heathrow, Gatwick and Stansted - it will not "accommodate any particular financing arrangements adopted" by the company. Ferrovial has said it is considering bidding for BAA as part of a consortium.
Its partners are likely to include a number of financial backers who could seek to leverage up the airport operator's balance sheet with debt.
BAA's debt-to-equity gearing already stands at 61 per cent and will rise to more than 100 per cent in 2008/9 when the £4.2bn construction of Heathrow's Terminal 5 is complete. In addition to this it is considering spending £1.5bn on a new terminal, known as Heathrow East, and plans to invest £2.2bn to build a second runway at Stansted.
Legally, the CAA is required to set airport charges in such a way that they encourage investment in new facilities.
Referring to the forthcoming price-control review, the CAA said: "It is particularly important that, in making financing arrangements, airport operators recognise the significant near- and medium-term investment required to upgrade airport facilities and accommodate a continuing increase in the demand for air travel in the south-east of England.
"This is likely to require the maintenance of credit quality sufficient to ensure the cost-effective financing of future investment."
The CAA has not indicated what level of gearing for BAA it would be comfortable with to ensure the company's debt remains at investment grade level.
The regulator's concerns about the level of indebtedness at BAA will also limit the company's scope to respond to any bid from Ferrovial with the traditional defence mechanisms such as special dividends or share buy-backs as these would impose more strain on its balance sheet.
For this reason, the BAA board is thought to have ruled out a big return of capital to shareholders as a means of fending off any approach from the Spanish.Reuse content