PFI: AirTanker decision fuels bond market gloom
UK PFI deal taps loan market for entire £2.2 billion.
Capital markets make a U-turn for AirTanker
At £2.5 billion ($4.98 billion), the AirTanker deal (which will fund new aircraft for the Royal Air Force) is a very big transaction by public finance initiative standards, and not to tap the bond and bank markets would have been unthinkable this time last year. But it seems that a rethink on the size of the bond tranche was on the cards as early as August 2007, when the crisis in the credit market first began to bite. By the New Year, as it became very clear that the monoline guarantors faced serious difficulties, plans to include both bond and loan tranches in the deal were abruptly scrapped by sponsors Cobham, EADS, Rolls-Royce, Thales UK and VT Group. A group of seven banks was then swiftly assembled to arrange a £2.2 billion loan. This is an understandable if comprehensive U-turn from the sponsors, which were planning to finance the majority of the deal in the bond market, with a smaller portion funded in the loan market via HBOS.