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Capital Markets

Infrastructure: BAA hit by bidder withdrawal

Debt drought might force Gatwick sale rethink.

"Banks may think that they are taking lending risk but when the equity gets wiped out they are taking equity risk as well"

When Irish entrepreneur Dermot Desmond decided to sell London City Airport in 2006 he was inundated with roughly 80 expressions of interest. He sold the airport to Global Infrastructure Partners and AIG for £750 million in a deal voted one of the most overpriced sponsor acquisitions of the year by a subsequent industry poll. The unregulated airport was financed using leverage of 14 times ebitda. Fast forward to 2009 and BAA’s forced sale of Gatwick Airport for a picture that could hardly be more different. Gatwick is a trophy asset; if it had been put up for sale before mid-2007 it would likely have sparked a bidding frenzy. Equity investors like airports, and they particularly like well-established transport hubs such as Gatwick. "Airports offer a value opportunity," says the chief executive of a large global infrastructure fund. "Demand risk needs to be looked at in the long term." But although Gatwick has attracted a number of bids, BAA might yet struggle to close the deal.

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