European Airport Deal of the Year 2011: Gatwick Funding
Credit Agricole, HSBC, JP Morgan and RBS underwrote the £600 million senior secured class A bond issue. The two £300 million tranches have 15- and 30-year maturities and carry all-in interest rates of 6.125% and 6.5%, respectively. They priced at about 205bp over Gilts, which was only 20bp wider than BAAs Heathrow bonds at the time of close.
The bank debt was split between a £600 million term loan, £300 million capital expenditure facility, £100 million liquidity facility and £50 million working capital facility. Commonwealth Bank of Australia, Credit Agricole, Credit Suisse, HSBC, ING, JP Morgan, KfW, M&G Investments, Prudential Capital, Royal Bank of Scotland (RBS), Banco Santander, Siemens Financial Services, Sumitomo Mitsui Banking Corporation (SMBC), Societe Generale and WestLB were lead arrangers.
Proceeds of the deal were used to repay £1.12 billion of outstanding acquisition debt, which closed in the fourth quarter of 2009. The remaining funds will be used to meet expenses and pay a dividend to the airports sponsors. Gatwicks owners are Global Infrastructure Partners (42%), Future Fund of Australia (17%), Abu Dhabi Investment Authority (16%), California Public Employees Retirement System (13%) and National Pension Service of Korea (12%). Global Infrastructure led the £1.51 billion acquisition of the airport from BAA, selling down equity stakes in the venture in the period after the acquisition.
Gatwick Funding, the funding company, issued the bonds while Gatwick Airport, the operating company, borrowed the bank debt; Ivy Bidco is the holding company. The fundco then lent the proceeds of the bonds on to the opco. Fitch and Standard & Poors both rated the bonds BBB+. Gatwick Airport is the second busiest airport in the UK and the busiest single runway in the world. It handled 33.64 million passengers in 2011, up 4.3% from 2010 excluding the impact of the snow disruption that year.
The financing is structured around the regulatory regime for UK airports. This includes defined capital expenditures and uses a weighted average cost of capital-based permitted revenue regime. The senior debt to regulated asset base default level is 85%, with traps at 70%, while the interest coverage ratio default level is 1.1x and the trigger for cash traps is 1.5x. The financing also incorporated enhancements such as the liquidity facility, the subordination of hedge counterparties to senior and (potentially) junior debt, and a provision that the sum of available reserves (none of which are funded at close) and the liquidity facility must be enough to meet the next 12 months expenses to avoid restrictions on dividends.
Gatwicks first time issue was impressively oversubscribed. The underwriters put together a book of about £2 billion after a four- day roadshow. The borrower had sought to sell between £200 and £300 million of 10- to 15-year debt and a £200 to £300 million 25- to 30-year tranche with pricing of 210bp to 220bp over Gilts for both tranches. Heathrow was the only other airport bond issuer in the UK to have closed a bond issue.
The UKs credit-friendly insolvency regime has made the whole business securitisation structure a favourite with transport, and especially water, issuers. In this instance it allowed the sponsors to create pricing tension with the bank lenders. The financing incorporates a shared set of documents for bond and bank debt, and removed a cash sweep from the original bank deal. The sponsor was comfortable with the new structure because it came with a bank backstop from the bond underwriters, in effect a guarantee that departing lenders could be replaced.
Deepak Agrawal, principal at Global Infrastructure Partners, says that the sponsors began planning the refinancing in 2010. They offered the lenders on the original acquisition debt the option to roll over their respective outstanding tickets into the new long-term loan. BayernLB, Banco Espirito Santo and Royal Bank of Canada opted out of the new deal. He adds that the refinancing allowed the borrower to reduce its interest rate margin by about half.
The structure, which has echoes of BAAs Heathrow securitisation, has the flexibility to allow for additional bond issues, providing the borrower keeps within its debt to RAV covenants The bonds could be in other currencies (provided they are fully hedged), floating rate (in which case the fundco or opco will need to put interest rate hedging in place), or even junior class B debt.
On 13 January 2012, in a bumper month so far for UK infrastructure issuers, Gatwick issued another £600 million in bonds, led by Credit Agricole, HSBC, RBS and Societe Generale, with the proceeds going towards refinancing bank debt. The issue was split into a £300 million 12-year tranche and a £300 million 25-year tranche that priced at 295bp over Gilts, a little wider than the first, but thanks to recent falls in Gilt yields the two tranches had lower coupons.
Gatwick Funding
STATUS: Financial close 2 March 2011
SIZE: £1.65 billion ($2.53 billion)
DESCRIPTION: Refinancing of £1.5 billion Gatwick Airport acquisition financing
SPONSORS: Global Infrastructure Partners (42%), Future Fund of Australia (17%), Abu Dhabi Investment Authority (16%), California Public Employees Retirement System (13%) and National Pension Service of Korea (12%)
BONDS: £600 million
UNDERWRITERS: Credit Agricole, HSBC, JP Morgan and RBS
LOANS: £1.05 billion
LEAD ARRANGERS: Commonwealth Bank of Australia, Credit Agricole, Credit Suisse, HSBC, ING, JP Morgan, KfW, M&G Investments, Prudential Capital, RBS, Banco Santander, Siemens Financial Services, Sumitomo Mitsui Banking Corporation, Societe Generale, WestLB
FINANCIAL ADVISER: RBS
SPONSOR LEGAL ADVISER: Slaughter & May
LENDER LEGAL COUNSEL: Allen & Overy
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