BAA, the beleaguered owner of Heathrow and Gatwick airports, was forced to make an unusual public declaration yesterday, reassuring investors that it is in compliance with covenants related to its £9.3bn debt.
The public statement to bondholders by BAA and its Spanish parent, Ferrovial, came less than a week after the Competition Commission recommended a reduction in the profit BAA is allowed to pocket from Heathrow and Gatwick. The regulator also suggested a lower-than-desired increase in landing fees. The rulings outraged the company and increased anxiety among bondholders about BAA's ability to pull off a crucial refinancing of its debt, most of which was incurred when it was taken over last year by Ferrovial.
"BAA wishes to reassure creditors it is in compliance with the financial and other covenants in its bonds," the company said. It added that "existing bonds continue to provide the protection to bondholders that existed prior to the acquisition of BAA by [Ferrovial's acquisition vehicle] ADIL".
Ferrovial must refinance BAA's debt to free up the cash necessary for its £3.5bn redevelopment of Terminals One and Two at Heathrow and to reduce the interest it pay on its arrears. The deal, set to be the world's-largest securitisation using airport assets as collateral, could be pushed back to as late as March next year, when the Civil Aviation Authority is expected to have made its final ruling on airport landing fees. The commission has suggested that Heathrow's fees should rise from £9.28 to £10.96 per passenger while Gatwick's should go up from £4.91 to £5.48.
Heathrow's next stage of redevelopment is due to start next year but a delay in the refinancing could push that plan back.
Analysts said the groundbreaking refinancing, which will move BAA's loans into a new investment grade, ring-fenced structure, would still go ahead. The amount of cash it will be able to migrate into the vehicle is now likely be less.
Alexandre de Lestrange, an analyst at S&P, said the commission ruling could "reduce the overall amount of debt that can be migrated into the ring-fenced vehicle". BAA said it would engage with bondholders through the Association of British Insurers. It added in a statement: "BAA confirms that no such ABI consultations have been undertaken to date."