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Infrastructure financing: Banks bridge BAA’s bond exit

Complex securitization without a single new bond.

In this market, any deal is news. But the BAA deal is big news. It is a complex refinancing involving the separation of regulated and non-regulated assets and the establishment of a single funding vehicle for BAA under which it can tap various sources of finance.

"I don’t think that I have ever been involved in a transaction presented with so many challenges," says Steve Curtis, partner at Clifford Chance, which advised the arranging banks. "There were so many constituencies that needed to agree: shareholders, existing bondholders, junior lenders, new senior lenders, rating agencies and pension trustee – which was an enormous undertaking even before you consider the impact of the credit markets, the price review for the London airports, the market investigation and other regulatory matters."

The deal involves the establishment of a £50 billion ($90.1 billion) multi-currency programme (BAA Funding) under which BAA has access to both the bank and bond markets. It has entailed a corporate reorganization of the company into separately financed designated and non-designated airports. The designated airports include Heathrow, Gatwick and Stansted and the non-designated airports are Edinburgh, Glasgow, Aberdeen and Southampton. The structure is designed to cope with the sale of one or more airports and if, as has been proposed, BAA is forced to sell Gatwick and Stansted the company will pay down debt in order to remain within its covenants.

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