BAA Seeks 'Emergency Funding'
Shareholders at the British Airports Authority (BAA) are set to inject £400 million in "emergency funding" into the airport group.
The company, operator of seven major UK airports, said that it hopes to begin negotiations with shareholders in the "coming weeks" to inject more equity into the business.
BAA said the plan was "part of the refinancing" plan to handle the £10 billion of debt acquired by the company's Spanish owner, the construction firm Ferrovial.
However, the airport group also indicated that the refinancing plan may not happen due to the current economic and investment climate.
A spokesman said: "[BAA] may not ultimately be in such a position [to refinance] owing to continuing challenging market conditions".
This has led to business analysts suggesting that BAA could face serious funding issues in the future - even extending to the possibility that the company's debt could be called in.
BAA's Debt Refinancing Plan
The refinancing plan for BAA is needed because of the global economic climate. Ferrovial's acquisition of BAA in 2006 was funded using debt only - and with the increase in interest rates mean this debt has to be overhauled.
The plan calls for investments to be organised into a new debt structure secured against BAA's three London airports - Heathrow, Gatwick and Stansted.
However, BAA is finding it difficult to gain backing for the refinancing because of the global "credit crunch".
Douglas McNeill, an analyst at Blue Oar securities, commented: "It confirms suspicions that the appetite for refinancing just does not exist in current credit markets".
BAA's position has not been aided by uncertainty about the group's future owing to the Competition Commission investigation into the company's share of the airport market. In its interim report released last month, the Commission indicated that it could well recommend the break-up of BAA when it releases its final report in the summer.
BAA's Credit Rating
The company said the cash injection would help improve BAA's credit rating. It said it was "confident" of being able to secure the extra funding.
BAA's problem is that if the refinancing is not completed within the next few months, the company's rating would be downgraded to "junk status", which would increase the company's interest payments.
This, analysts said, would in turn raise the potential of debt being called in and even the spectre of bankruptcy.
David Robertson, a financial analyst at The Times, said: "When that [the downgraded credit rating] happens half the company's bondholders, who own about £3 billion of debt, will be able to call in their money".
Another said the announcement was "embarrassing" for Ferrovial.
Source - Airport International's Aviation Correspondent
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