Budapest Airport: Project over corporate

The Budapest airport deal is notable for the structural challenges posed by installing a project finance facility backing the Hochtief-led consortium's acquisition of the asset over BAA's corporate facility. Also, despite straddling the beginning of the credit crunch, the Eu1.52 billion ($2.24 billion) senior debt was distributed without increasing its margin or fees.

The eight original lead arrangers – Bayerische, BNP Paribas, Calyon, KBC Bank, RBS, SG, SMBC, and WestLB – equally underwrote the senior debt. KBC subsidiary K&H Bank and Bayerische unit MKB Bank later came in as MLAs with a share of their parents' portions. BNP Paribas, Calyon, RBS and SMBC were bookrunners.

The debt package features senior A facilities, which comprise a Eu830 million 7.5-year term loan and a Eu300 million 7.5-year capex facility, and a Eu370 million 7.5-year share acquisition B facility. The deal inherits a 15-year accreting swap and an 8-year vanilla interest rate swap from the original deal, which BAA put in place when it bought the stake in early 2006.

Senior A facilities have an initial margin of 95bp over Euribor stepping up to 110bp after year five, whilst the senior B facility has an initial margin of 110bp, stepping up to 120bp after year five. The difference in pricing is because the A facilities benefit from a full compensation guarantee in the event of termination from the Hungarian government, along the same terms negotiated by BAA.

The debt features a balloon payment at maturity but amortises with the benefit of annual cash sweeps. To counteract the subordination issues between B and A facilities, B debt gets prepaid first. In the first two years 100% of the excess cash is taken in the sweep, 50% in the next four years, 60% in the penultimate year and 75% in the final year.
The buyer, the HTA consortium, comprises operator Hochtief AirPort (49.666%, which equates to a direct interest of 37.25% in the airport company), and financial investors Caisse de dépôt et placement du Québec, Montreal (23.167%), GIC Special Investments, Singapore (23.167%), and KfW IPEX-Bank, Frankfurt (4.0%). Since June 2007, the consortium, which contributed Eu360 million in equity, has owned 75% minus one vote of Budapest Airport.

The principal challenge in structuring the deal was that the Hungarian government, which owns the remaining 25% plus vote, one did not want to renegotiate the original terms of the concession it had with BAA.

"Much time was spent on complex discussions not only with the sellers BAA but also with the relevant Hungarian government agencies APV and KVI," says Reiner Schränkler, Managing Director and CFO Hochtief AirPort. "We did not have a completed Direct Agreement since BAA chose to finance its acquisition of Budapest via its own group balance sheet. We are grateful to the Hungarian agencies for their professional and supportive approach. We could not take this support for executing a Direct Agreement for granted. In addition, we had to deal with other major issues like the MALEV privatization that ran in parallel and the protests of the Hungarian people against their government in late 2006. Both issues led to 'uneasiness' within our bank group. All throughout the process, all parties involved on our side had to flexibly adapt to events."

The underwriters had to go through an intensive bout of due diligence to satisfy themselves of the risks and mitigants of the original deal, and document the new transaction along similar lines. The termination guarantee covers only the A tranches of the senior debt, reflecting the fact that the original debt had been partially amortised.

The overall total purchase price is Eu1.9 billion, with the Eu1.52 billion debt disbursed in May and a deferred payment of Eu406 million due on 30 June 2011.

The deal launched in the last week of August, one of the first to do so after the crunch. But it benefited from a partial termination guarantee and strong asset-backing compared with other recent airport financings such as Brussels and London City Airport.

The lead arrangers were in constant dialogue with the sponsors and the subject of price flex was high on the agenda. The underwriters were committed to pre-crunch pricing, but the sponsors where unlikely to alienate banks it may wish to revisit for a future refinancing. Ultimately, the banks did not gain their flex, and after a protracted round of bank meetings, the deal closed syndication oversubscribed on 15 November.

Tickets of Eu75 million, Eu50 million and Eu25 million were offered originally, though a select few banks came in with Eu100 million takes. Fees of 65bp were offered on the Eu75 million ticket, with the fees commensurately higher and lower for the other ticket sizes.

"More than in any other transaction that I was involved in before, we needed to perfectly orchestrate the many parties and the many tasks and sub transactions (fx hedge, interest hedge, bridge and bridge take-out with syndication, Direct Agreement and amendments to other privatization documentation, multiple approvals, etc.)," adds Schränkler "A steady hand, persistence, expertise, flexibility and enthusiasm – all at a highest and best level – that is what was required by the team including all banks involved."

HTA Consortium
Status: Syndication close 15 November 2007
Description: Eu1.52 billion senior credit facilities to finance the acquisition of a 75% minus one vote stake in Budapest Airport from BAA
Sponsors: Hochtief AirPort, Caisse de Depot et Placement du Quebec, GIC Special Investments, Kreditanstalt fur Wiederaufbau
Mandated lead arrangers: Bayerische Landesbank, BNP Paribas, Calyon, K&H Bank Nyrt, KBC Bank, MKB Bank Nyrt, Royal Bank of Scotland, Societe Generale, Sumitomo Mitsui Banking Corporation, WestLB
Sub-underwriters: DekaBank, EDC, HSH Nordbank, ABN Amro, BBVA, BTMU, Caja Madrid, Helaba, Investkredit, LBBW, Allied Irish Bank, La Caixa, CIB Bank Ltd, Piraeus Bank, National Bank of Greece, Magyar Takarekszovetkezeti, Inter-Európa Bank
Financial adviser: SG
Legal counsel to lenders: DLA Piper
Legal counsel to the sponsor: Taylor Wessing