November 13, 2009
BAA, the debt-laden operator of Britain’s Heathrow airport, said on Friday it is to raise GBP500 million pounds (USD$831 million) in equity to help shore up its balance sheet as it works to access cheaper bond financing.
The chance for it to raise bonds will be a welcome relief for its majority owner, Spain’s Ferrovial, which used debt to buy BAA at the top of the market in 2006, and is now being forced to sell off several key airports during a recession.
“The capital hike is in preparation for a bond issue, which will take place at the end of the first quarter of 2010,” a Ferrovial spokesman said.
The spokesman later specified that the issue, which Ferrovial chief executive Inigo Meiras said in October would top GBP1 billion, was more likely to be launched before the end of this year or the beginning of next year.
“We believe this additional equity will be used to improve coverage ratios and is therefore driven more by opportunism than a need for more equity,” said Scott Ryall, analyst for Macquarie Equities Research.
BAA said in October that it was planning to re-enter the bond market “soon” after it offloaded Gatwick airport and paid down GBP1 billion of its debt.
The firm currently has in place expensive bank loan financing, a legacy of its takeover in 2006 by a group led by Ferrovial.
At that time it planned to use the bond market to take out a GBP9 billion bridge loan, but the securitisation market shut down before it could complete the arrangements.
Ferrovial suffered a further setback when the UK’s Competition Commission ruled in March that it should sell London Stansted and either Edinburgh or Glasgow airports just as the credit crunch kicked in and financing disappeared or became highly expensive. It is now appealing the decision.
Bond pricing has since recovered, but before BAA can access the bond market it wants to raise equity to pay down more of its expensive bank debt and improve its financial ratios.
One bright spot came when the UK Department of Transport issued a watered down version of proposed solvency rules for airport operators, a move which analysts said would pave the way for new bond issues by BAA.
The airports operator will need to sell bonds on a regular basis to help it fund its programme of upgrading its portfolio of airports.
The new equity capital consists of GBP200 million of new equity from shareholders, and GBP300 million from BAA Airports and FGP Topco, the ultimate holding company of BAA, which is jointly owned by BAA’s three controlling shareholders.
Ferrovial, which holds 55.87 percent of BAA, will contribute GBP112 million to the cash injection, a spokesman said, with the remainder coming from BAA’s other shareholders.
Canada’s Caisse de Depot et Placement du Quebec controls 26.48 percent of BAA and the Government of Singapore Investment Corporation 17.65 percent.
(Reuters)
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