Heathrow issues €650m bond, to borrow more money, weeks before Brexit deadline
Heathrow Airport has placed a €650m (£558.9m) bond with only weeks to go before the UK is due to leave the European Union. The 15-year bond was backed by current and new investors, which were mostly European, and reached an order book in excess of €2.8bn (ie. there was demand of that amount). Heathrow said the high demand for the bond “shows investor confidence in Heathrow’s expansion plans and resilience ahead of Brexit.” The bond means Heathrow hopes to extend the duration of its debt portfolio – ie. taking more time to pay it all back – for its 3rd runway expansion plans. It said the funds will be used on day-to-day corporate spending. The airport’s director of treasury and corporate finance, said: “The transaction delivers on our strategy of further diversification, longer duration and stronger liquidity.” Heathrow hopes, at the earliest, that the runway might open in 2026 – but it has a large number of hurdles to overcome before them, including the long DCO (Development Consent Order) process, that is the equivalent of a planning application, but for a vast project – with the decision taken out of the hands of the local authority, and made by government instead (a process devised to avoid the sort of long delays they had on Terminal Five).
Heathrow issues €650m bond weeks before Brexit deadline
By Jessica Clark
(City A.M. news reporter covering private equity and investment)
Wednesday 6 March 2019
Heathrow Airport has placed a €650m (£558.9m) bond with only weeks to go before the UK is due to leave the European Union.
The 15-year bond was backed by current and new investors, which were mostly European, and reached an order book in excess of €2.8bn.
The airport said the high demand for the bond shows investor confidence in Heathrow’s expansion plans and resilience ahead of Brexit.
The move drives forward Heathrow’s strategy to build strong positions in core markets and extend the duration of its debt portfolio ahead of the airport’s third runway expansion, and the funds will be used on day-to-day corporate spending.
Sally Ding, Heathrow director of treasury and corporate finance, said: “The overwhelming support received from investors 23 days before the Brexit deadline clearly signals Heathrow’s robustness and strong global investor support as we gear up for growth.
“We are extremely pleased to re-access the long-dated Euro market two years after our last issuance.
“The transaction delivers on our strategy of further diversification, longer duration and stronger liquidity.
“It also delivers on our commitment to repeat issuance in each active market and the ongoing support by global bond markets for Heathrow.”
The London airport was given the go-ahead to proceed with its long-awaited third runway last year, however, it is facing a legal challenge from nearby local authorities.
Heathrow will conduct a public consultation in June ahead of submitting a planning application next yet, with the runway anticipated to open in 2026.
Article on why large companies issue bonds, to raise finance, rather than getting a bank loan
Heathrow airport is battling debt pile of £13bn – enough to build the third runway
Heathrow has blown more than £6bn in interest on its debts over the past 12 years, a Mail investigation has found. It spends more than £500m a year on interest payments alone, accounts for Heathrow Airport Holdings show. Meanwhile its debt pile has risen to £13.4 billion – about the cost of aa possible 3rd runway. Heathrow is planning to spend around £14 billion on the project, but its mammoth debts reveal just how stretched the airport has become. Airline bosses fear Heathrow may not be able deliver the runway on budget, and want Heathrow to guarantee not to increase these to pay for the runway. While it has paid more than £6 billion in debt interest over 12 years, shareholders have extracted £3.6 billion in dividends. Heathrow makes money by charging landing fees to airlines, which are passed on to passengers – around £22 for each fare. The airport is planning to spend £33 billion on infrastructure in coming decades – including the runway and terminals to serve an extra 52m passengers a year. Most of the work is due to be completed by 2035, and there is growing concern that the airport will have to raise charges significantly to pay the bills.
Heathrow increases its debt by almost £1 billion (total net debt £13.7 bn) to protect it from a worst-case scenario Brexit
Heathrow’s CEO John Holland-Kaye has raised nearly £1bn in debt to keep it going through a “worst-case scenario” following a hard Brexit. He said this was equivalent to 2 full years’ funding, to give the airport the level of financial resilience for a worst-case scenario. He said he expected “something close to continuity” through a Brexit agreement, but “our funding levels . . . mean we are protected. Even if we have no income for two months, we would be financially safe.” The debt deals, primarily refinancing, total £981m and take Heathrow’s total net debt to £13.7bn. A financial commented that this was an attitude of “let’s raise it while we can”, and a hard Brexit might raise fears over access to financial markets. Heathrow’s first half financial results showed a 2.3% increase in total revenue to £1.4bn compared with the 2017, but a 7% fall in pre-tax profit to £289m. Heathrow had spent money on more operational investment, such as in facilities for disabled passengers and in keeping the airport going during snows this winter. Passenger numbers rose 2.5% to 38.1m, its busiest ever first half, by use of higher load factors. Heathrow expects to spend £160m this year on the expansion project.