BAA close to deal to refinance £10bn of loans

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The Independent Online

BAA could wrap up its mammoth £10bn refinancing by the end of this month, sources close to the situation said yesterday.

The deal would be a major step forward for the company, which its Spanish owner, Ferrovial, has been struggling to do virtually since it closed the £10.1bn takeover of the operator of London's major airports nearly two years ago. It would go a long way to reducing the company's massive debt payments and lift some of the uncertainty that has hung over BAA's and Ferrovial's financial health. In the wake of the disastrous opening of Heathrow's Terminal Five, and long security queues and lost baggage at its airports, politicians and airlines have accused the company of spending more on servicing debt than on its airports.

The first-of-its-kind transaction, which will use regulated airport assets as collateral against which bonds and loans will be issued, is being organised by Royal Bank of Scotland and Citigroup. It began grinding toward a conclusion after the Civil Aviation Authority, the airport regulator, handed down a key decision last month.

The CAA's rulings were mixed. It complicated BAA's task by pushing through a significant cut in the allowed returns it can make on its regulated airport assets. At the same time it ramped up the landing fees it can charge the airlines. Most importantly, however, the settlement gave a clear trajectory for BAA's earnings for the next five years, which was critical to the designing of the scheme.

Under the securitisation structure, Airport Development and Investment (ADIC) group, the buyout vehicle that Ferrovial used to take over BAA, will be able to issue bonds against a new standalone vehicle that is securitised by BAA's regulated London airports – Heathrow, Gatwick and Stansted. The company's bankers have set up a separate, smaller structure containing its four regional airports, Southampton, Edinburgh, Aberdeen and Glasgow. Loans will be issued against the cash flow of these operations.

In total, Ferrovial hopes to raise £5bn in new debt on much better terms to cancel out its current high-interest load. It also hopes to move holders of £4.7bn in bonds into the new vehicles. Terms of the move are being negotiated.

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