Doubts began to surface, particularly among rating agencies and analysts, not so much as to whether Ferrovial could indeed pull off the refinancing — “It was too important for us not to,” says Villén — but whether it could to come up with a credible Plan B.
It did. When markets started to turn for the worse in 2007, it was clear to the refinancing team that dealing with the fallout in addition to their regular, full-time jobs wasn’t feasible. From a new base camp set up at Heathrow, a full-time team, comprising dozens of in-house and external advisers got to work. “We offered our best people,” says Villén, a former engineer who was appointed Ferrovial’s CFO in 1993.
Rather than relying on the initial plan for big bond issues, the refinancing team turned to banks, a syndication of nine for the regulated assets and five for the unregulated ones. It was a sign of the turbulent times that so many were needed, notes Villén, but getting the banks on side was relatively easy. “Because of the importance of the assets and the size of the transaction, we were always able to get the interest of the banks.” A trickier proposition was how to structure the financing. “We had to think of a banking facility that would recreate a profile of different bonds and be able to obtain an investment grade, single-A rating,” the CFO explains.
Contrary to what many external deal watchers believed, it wasn’t the refinancing’s complexity or market jitters that delayed the transaction’s completion, says José Leo, a Ferrovial veteran who became CFO of BAA shortly after the takeover. Holding the deal’s fate in its hands was the UK’s Civil Aviation Authority (CAA). While BAA was negotiating with banks and bondholders, nothing could be finalised before the spring of this year, when the CAA planned to announce new airport passenger tariffs for Gatwick and Heathrow for the next five years, to 2013.
BAA’s entire business plan relied on the results of CAA’s review. All else was “completely irrelevant,” says Leo, clearly as weary as other Ferrovial executives from defending the two-year period that elapsed between the acquisition and completion of the financing. “We could only [move after] we had a set of numbers blessed by the regulator,” he explains. “And then the financial markets could have been going fantastically well, and it wouldn’t have made any difference to us in terms of timing — probably in terms of outcome, but not in timing.”
As it happened, the CAA published its review in April and was more generous than expected. Allowing tariffs to increase to 7.6% above inflation at Heathrow and 2% at Gatwick, the new plan is expected to help BAA pay for badly needed infrastructure improvements, such as new runways.
But that news alone wasn’t be enough to win over BAA’s existing bondholders, an understandably wary constituency. For the refinancing plan to move forward, at least 75% of bondholders needed to vote in favour of transferring their holdings into a new, investment-grade issuer, BAA Funding. Yet financial incentives for bondholders who agreed to accept the offer before the August deadline didn’t gain much traction. And whether a £490m capital increase from BAA’s Singaporean shareholder (reducing Ferrovial’s stake in the company to 56% from 61%) in May helped confidence is still debated. Whatever the case, it was clear that Ferrovial might not complete the refinancing by the third quarter of this year, as it had pledged to the rating agencies.