BIAC: Runway success

Macquarie's acquisition of a 70% stake in the Brussels International Airport Company (BIAC) offered further proof that the Australian bank is one of the canniest investors operating in the infrastructure market. Bought in a Eu735 million ($873 million) BBB-rated transaction mainly funded through equity, BIAC was almost immediately refinanced in the project market for Eu1.135 billion.

Lenders were able to get comfortable with an aggressive debt structure because of Macquarie Airports' proven track record – it already operated high profile airports including Sydney, Rome, Birmingham and Bristol, making it the world's second largest non-government owned airport operator. Since BIAC, it has further strengthened its position with the acquisition of Copenhagen Airports for Dkr5.237 billion ($836 million, Eu702 million).

Macquarie beat competition from Vinci, Copenhagen Airports, 3i, Schiphol, Fraport and Ferrovial to win the privatisation concession: Ferrovial and Vinci made the strongest rival bids. The bank's MABSA consortium acquired 70% of the airport on 29 December 2004, while the Belgian state retained the other 30%.

The MABSA consortium comprised Macquarie Airports (Eu491.9 million), Macquarie European Infrastructure Fund (Eu100 million), Macquarie Global Infrastructure Fund (Eu30 million) and Macquarie Bank (Eu51.1 million). At this point, the mandated lead arrangers – Royal Bank of Canada (RBC) and Societe General (SG) – provided just a Eu62 million bridge facility.

Macquarie Airports' funded the acquisition by way of an equity placement worth A$510.2 million ($377 million, Eu316.5 million) and raised a further A$465 million through a hybrid debt/equity issue. The tradable, interest-bearing, convertible to equity trust securities (TICKETS), also rated BBB by Standard & Poor's (S&P), yield 6.475% per annum, but can be exchanged after five years for shares in Macquarie Airports. The remaining equity came from cash reserves.

Parallel to this, RBC and SG were busy structuring the project debt package to refinance the initial acquisition and yield Macquarie a quick return on its investment.

The Eu1.135 billion debt that was arranged comprised five tranches: a Eu917.5 million mini-perm amortising in two equal instalments in 2009 and 2011, a Eu100 million capital and expenditure facility, a Eu50 million credit facility, a Eu55 million letter of credit and a Eu12.5 million loan to a Macquarie subsidiary. All the loans had a five year tenor, except for the mini-perm, which was for seven years. However, the mini-perm's repayment schedule and margins – 65bp over Euribor for the first five years, 80bp in year six, stepping up to 95bp in the final year – are conducive to a capital market refinancing before the fifth year.

BIAC improved on the private rating for the acquisition when it received a corporate rating of BBB+ from S&P, which gave the airport a recovery rating of two (meaning 80% to 100% of the principal would likely be recovered in the event of a default).

The refinancing closed on 25 February 2005 with the signing of a club deal that saw 13 banks joining the MLAs. The club participants were: Caja Madrid, Calyon, Commonwealth Bank of Australia, Dexia, HSH, HVB, KfW, ING, Ixis, Lloyds TSB, RBC, RBS, SG, SMBC and WestLB. Fees to sub-underwriters totalled 45bp, including a 7.5bp sub-underwriting fee and a 37.5bp participation fee.

The debt was popular enough in syndication that tickets were pared down from the Eu100 million the banks were initially invited to underwrite to Eu75 million.

High demand also meant they could finance the deal ahead of schedule; before deciding on a club deal, RBC and SG had planned to roadshow the deal before going to a general syndication, with final signatures to be collected at the end of April.

The debt leaves BIAC highly leveraged and carries a refinancing risk. On top of the profit Macquarie made from the refinancing, ordinary dividend distribution policy is also aggressive, according to the S&P report. An aggressive financial profile is a characteristic that BIAC shares with Macquarie's other airport servicing a major international airport, the Aeroporti di Roma.

However, bankers who underwrote part of the debt say that the on close inspection of the company's cash flows, the deal is not so aggressive as it looks at first glance. The Belgian government invested Eu700 million into BIAC prior to the privatisation, between 1999 and 2003. This corresponds to a period when the airport's performance was below average, partly on account of the collapse of Belgium's national carrier, Sabena. Moreover, there are relatively few investment requirements through to 2014.

Lenders could draw additional comfort from the fact that agreements are in place with the state locking in dividend distributions if BIAC is in danger of losing its investment grade rating, and from the importance of the airport's location at the political and geographic centre of the European Union.

Ultimately the deal was highly successful because lenders were comfortable with the underlying, yield-driven equity and bought into Macquarie's investment philosophy. The bank was able to extend its run of extracting value from airports because it could support its keen eye for financial investment opportunities with expertise as a long-term asset operator. This was reinforced by 2005 results for BIAC that show EBITDA growth of 18.7%.

Brussels International Airport Company (BIAC)
Status: Closed 25 February 2005
Description: Refinancing of MABSA's acquisition of 70% of Brussels Airport
Size: Eu1.135 billion ($1.35 billion)
Location: Brussels, Belgium
Equity: Macquarie Airports; Macquarie European Infrastructure Fund; Macquarie Global Infrastructure Fund; Macquarie Bank
Mandated lead arrangers: RBC; SG
Financial adviser to the consortium: Macquarie Bank
Consortium legal counsel: Allen & Overy
Lenders' legal counsel: Clifford Chance
Government legal counsel: Cleary, Gottlieb, Steen and Hamilton
Government financial adviser: ING