Ferrovial, the Spanish construction giant heading up a hostile bid for BAA, has raised £6.6bn in debt to finance its takeover, according to the formal offer document posted last night to shareholders in the airports group.
BAA, which owns Heathrow, Gatwick and Stansted, immediately seized on the highly leveraged nature of the offer, warning that together with its own existing loans the company would be burdened with £15bn of debt should the bid succeed.
The offer document shows that the bid will be financed 65:35 debt to equity. Ferrovial and its two partners, the Canadian investment fund Caisse de Dépôtet Placement du Québec and GIC, the private equity arm of the Singapore government, will put £3.65bn of their own equity into the bid.
Debt financing of £6.58bn has been arranged through a senior loan facility of £4.58bn and a subordinated facility of £2bn. The banks providing the loans are the consortium's main financial adviser Citigroup, Royal Bank of Scotland, Banco Santander - which owns the UK bank Abbey, HSBC and Calyon Sucursal en Espana.
The two loans were each signed on 7 April and are repayable in five years. The interest rate on the senior facility is 1 per cent above Libor, which is currently 4.4 per cent, while the interest rate on the junior facility is expected to be between 3.25 per cent and 4.25 per cent above Libor.
The offer has been pitched at 810p a share, making it worth £8.75bn. However, in addition to that the Ferrovial consortium will have to spend a further £1.5bn buying up convertible shares and options, taking the total cost of the bid to £10.2bn. Ferrovial will provide 64 per cent of the equity element, the Canadians 26 per cent and the Singaporeans the remaining 10 per cent.
The airports regulator, the Civil Aviation Authority, and the Secretary of State for Transport, Alistair Darling, have already raised concerns about BAA's balance sheet being over-leveraged because of the very heavy capital investment programme it is facing to upgrade facilities at its London airports.
BAA's debt-to-equity gearing currently stands at 61 per cent but it will rise to more than 100 per cent once the £4.2bn construction of Heathrow's Terminal Five is complete in 2008. In addition, BAA is planning to invest £1bn to £1.5bn to upgrade the central terminal area at Heathrow and a further £1.7bn on the first phase of the second runway at Stansted. Its current estimate is that debt will peak at £8bn in 2012-13.
Ferrovial has sought to reassure the regulator that the highly leveraged nature of its offer will not put any of BAA's investment plans at risk or the Government's desire to see a second runway at Stansted and, ultimately, a third one and a sixth terminal at Heathrow.
But BAA is certain to use the debt issue as one of its main cards in resisting what it has described as a hostile approach which does not begin to reflect the true value of the company. Last night Marcus Agius, the BAA chairman, responded to the offer document by saying: "The Ferrovial consortium's offer cannot be taken seriously. It is not more than a tactical manoeuvre and our shareholders should have nothing to do with it." BAA said it intended to write to shareholders within the next 14 days giving its detailed reasons for rejecting the offer.
Ferrovial continues to insist that its offer is "unilateral" rather than hostile and that it remains keen to secure the support of the BAA board. Despite this, BAA only got sight of the full offer document late yesterday evening, giving it little time to respond. "If this is a friendly approach, then the Spanish have got a funny way of proceeding with it," one source in the BAA camp said.Reuse content