Ferrovial, the Spanish parent of BAA, was forced to put £400m of new cash into the beleaguered airport operator to convince its creditors to start talks on its massively delayed £9bn debt refinancing that has been hit hard by the credit crunch and doubts about its future as a group.
The company admitted yesterday that it has still not got enough creditors signed up to the new bond and loan structure, despite having been working on the project for well over a year. Sources close to the situation said the £400m equity injection was a "pay to play" move that it hopes will be sufficient to coax bondholders to sign up for the debt restructuring.
"BAA has not yet finalised certain aspects of its refinancing plans, including completion of the rating process and obtaining sufficient commitments from the banks asked to participate in certain bank facilities," the company told the stock market.
It now hopes to begin formal discussion with bondholders via the Association of British Insurers (ABI), the body representing British pension funds.
The cash injection is one of the clearest signs yet of the profound changes that have been wrought by the credit crunch. Bondholders glad to buy the massive debt incurred by Ferrovial and its partners in the summer of 2006 when they bought BAA are no longer comfortable with those levels in today's credit-constrained environment. ADIL, the acquisition vehicle created by Ferrovial and partners GIC, Singapore's sovereign wealth fund, and France's Caisse de Depot et Placement, paid about £4.2bn in their own money for the £10.3bn purchase. The remaining £6.1bn was raised through debt, which came on top of the group's debt load already on the books.
The development will be seen in some quarters as a sign of desperation and increase uncertainty about the viability of the owner of seven UK airports, including Heathrow, Gatwick and Stansted. Getting the refinancing done is crucial as it would markedly reduce an annual interest bill that last year reached £964m.
Under the proposed deal – which is being structured by Royal Bank of Scotland and Citigroup – the company would migrate current bondholders into a ring-fenced, investment grade structure that will use the company's three London airports as its collateral.
Last month, Standard & Poor's, the credit rating agency, slashed its rating of ADIL to just one grade above junk due to delays in getting the deal done caused by the credit crunch. Prospects have worsened since then.
In its "emerging thinking" document published last month, the Competition Commission (CC) hinted strongly that it could recommend asset sales at BAA, suggesting that airport services would be likely to improve if there was competition from rival operators. S&P had warned before the CC made its opinion known that if BAA was forced to sell one of its airports, it would probably reduce its rating to junk. That would greatly complicate the refinancing effort. The CC will hand down its initial verdict in August, with its final decision due by the end of the year.
The company also asked the ABI to conduct an inquiry to determine who holds BAA bonds. BAA added: "If and when BAA is in a position to commence consultations with bondholders, BAA will make a further ann-ouncement at that time."
The company's move comes at a time of myriad operational issues. It announced yesterday that the delayed next phase of British Airways' move to Terminal 5 at Heathrow – the first attempt at which led to more than 500 cancelled flights and thousand of lost bags – would take place on 5 June.Reuse content