Atlantic Aviation has closed a refinancing and consolidation of the debt on its portfolio of fixed base operations (FBOs), aviation services businesses. Atlantic is a subsidiary of Macquarie Infrastructure company, the listed vehicle for some of Macquarie's US assets. Depfa acted as administrative agent, mandated lead arranger, bookrunner and issuing bank on the $970 million package. The lender is currently working to bring in a number of other MLAs on the debt.

In the current credit market the syndication of such a large commitment could be a struggle. Fewer infrastructure deals are currently reaching retail syndication, and several top-tier arrangers are believed to be sitting on large commitments to other infrastructure loans. Atlantic, a business in which Macquarie has built up a substantial presence, also stretches the definition of infrastructure in an unsettled market.

The seven-year debt comprises three tranches; a $900 million term loan, a $50 million capex facility, and a $20 million revolver, of which Atlantic has to date drawn $905 million. The proceeds will be used to repay an outstanding term loan to Atlantic, of $512.5 million, and to repay the $192 million debt on the Mercury Air Centres acquisition, and the San Jose Jet Centre acquisition debt of $80 million. It will also be used to fund a debt service reserve account. HSH Nordbank, Mizuho, Bank of Ireland and Bayerische Landesbank had arranged the debt for the previous Atlantic FBO acquisitions.

The financing also funds an $89 million distribution to MIC, which repays the $29 million that MIC is spending on the remaining 11% of the Mercury assets, and the $60 million in equity that it used for the San Jose acquisition. MIC is also paying Macquarie Securities $5.2 million in connection with its role as financial adviser on the deal, and says that the debt financing will go towards paying these and other expenses.

The pricing on the facility is 150bp over Libor for the first five years, and 162.5bp in years six and seven. There is also a 100% cash sweep in these last two years. The commitment fee is 0.4% on the undrawn portion.

According to MIC, the weighted average margin on the three new tranches is 0.23% lower than that on the refinanced debt. Interest rate risk is also likely to be hedged for the first five years of the $900 million term loan.

The wider syndication market is not very familiar with Atlantic's business, a niche part of the transport industry. The borrower's competitors are, with one exception, privately-held, and their operations are smaller. Atlantic is currently the largest FBO in the United States, with presence in 65 airports and one heliport. With the exception of two of these locations, it has either one or no competitor in each. The borrower's nearest rival, Signature Flight Support, a subsidiary of London-listed BBA Aviation, owns 43 FBOs to Atlantic's 66.

FBOs are generally small operations, with between one and five per airport. They are often located at regional and private airports, though there are some that also work with commercial airlines. They provide fuelling and hangars for aircraft, and in some cases also provide catering services.

An FBO's success can be measured by how many aircraft it handles and how much time each aircraft spends in the air. The closest analogy is to a petrol station, since FBOs provide both fuel and ancillary services and their success is highly dependent on their throughput. Both the number of fixed-wing turbine aircraft and the number of flight hours per aircraft have risen at an average rate of 5.4% per year in the US since 1995. FBOs are operated under long-term lease agreements with the airport authorities. The average remaining on the Atlantic Aviation FBO leases is 20 years.

Explaining such a story to new lenders will take time. According to sources close to the arranger, the risk as minimal, since many of the FBOs operate effective monoplies at their locations and hold long-term leases. The barriers to entry, expressed as the cost of setting up a new FBO, are very high. Even if revenues fell dramatically, the source believes that the possibility of default remains low.

Lenders enjoy first-lien collateral consisting of the revenues from the assets, MIC's equity, the physical assets and their insurance policies. The borrower will have to use the proceeds from any sales of more than $1 million in value that are not reinvested, the proceeds of insurance not used to repair or replace assets, and lease termination payments to prepay debt. Covenants restrict distributions unless the debt service cover ratio is more than 1.6x, the borrower keeps to debt-to-Ebitda limits, the debt service reserve is fully funded, and the revolver is undrawn.

The above covenant package and relatively generous pricing show that Macquarie has backed off from some of the aggressive terms that characterised the financings of infrastructure acquisitions earlier this year. But the timing is less than perfect, and the lead arranger will need to employ considerable persuasion to reduce its underwriting commitment. According to market rumour though, the banks that have supported Atlantic's acquisitions in the past have yet to sign up.

Atlantic Aviation FBO, Inc
Status: Closed 27 September 2007
Size: $970 million
Location: 65 airports across US
Description: Refinancing of outstanding debt and acquisition of FBOs
Sponsor: Macquarie Infrastructure Company
Debt: Three tranches; $900 million term loan; $50 million capex; $20 million revolver
Maturity: 7 years
Mandated lead arranger: Depfa Bank
Financial adviser to MIC: Macquarie Securities
Lender legal: Orrick
Sponsor legal: Pillsbury Winthrop