Cleared for Landing

In the thick of the credit crisis, Ferrovial pulls off a record refinancing.

By selling Gatwick, Ferrovial will want to avoid adding to the negative publicity that its shabby, overstretched airports and the bungled opening of Heathrow’s £4.3 billion Terminal 5 have already drawn. While the ferocity of the criticism initially caught Ferrovial’s executives by surprise, it served to wake them up to the possibility that the deal’s finances could unravel if public criticism began turning off investors. After a new chairman was appointed at BAA in 2007, numerous management changes have followed, culminating with the arrival of a new CEO in the spring of this year. “We were not focused 200% on fixing the [airports'] problems,” admits Iñigo Meiras, a Ferrovial veteran who was appointed CEO of its airports division in May 2007. Now, Meiras says, everyone knows that “when you are the owner of Heathrow, which is one of the UK’s key assets, you are in the press every day, especially if you are not delivering.”

But could the vilification of BAA be more a matter of UK xenophobia than the incompetence of its new Spanish owners? “It doesn’t matter for the passenger whether the company is Spanish, Singaporean, British or Chinese,” says Meiras. “Forget about whether we’re Spanish or not. We have to be focused on operations and for a period of time that was not the case.” For that reason, he takes every opportunity to point out the intensity of the firm’s new focus. During a recent presentation, for example, he explained to analysts how senior managers receive news flashes every 15 minutes, followed by daily reports, monitoring security procedures at each airport. Today, he claims, 98% of passengers get through security queues at Heathrow in less than five minutes.

But more potential PR nightmares are around the corner, if Michael O’Leary, CEO of low-cost carrier Ryanair, has his way. He’s told the press that BAA will have a fight on its hands, particularly at Stansted, if it tries to increase the fees it charges airlines to help offset the cost of airport improvements. “Unlike Heathrow, Stansted is really driven towards the low-cost market,” explains Manish Gupta, a director of the infrastructure advisory practice at Ernst & Young. The low-cost airlines “don’t want fancy infrastructure. If they could fly out of a tent, they would.” The struggle for BAA, he adds, is to meet passenger expectations while creating infrastructure “at an extremely low marginal cost.”

At the moment, Villén has other issues on his mind. BAA needs to start replacing its bank debt with bonds. BAA should be “one of the main private issuers of bonds in the coming decade,” the CFO says, starting “as soon as possible.” With all the documentation ready, he says the company will jump into the market as soon as it sees a window of opportunity.

Will that be any time soon? In a conference call with asset managers early last month, Olek Keenan, an infrastructure analyst at JPMorgan, said that “the European high-yield bond market has been shut for 14 months.” As for (marginally) higher-grade companies like BAA, “people want to wait because they feel the pricing is not advantageous and the first person who comes is going to pay a premium.” The market will return, he predicts, but not until the beginning of 2009.

That’s a little later than Villén would like. Given the heavy investments needed to upgrade its facilities, not to mention the rising costs racked up with bankers and bondholders under the current financial structure, it’s easy to see why.

As for how he is holding up after negotiating a deal as all-encompassing as BAA’s refinancing, Villén admits wearily that “you do feel some emptiness.” In any case, he says that by the time August 18th rolled around, he — like rest of the refinancing team — was eagerly looking forward to a much-needed holiday. “I gave myself to the end of the month,” he says. “It was probably not long enough.”

Janet Kersnar is editor-in-chief at CFO Europe.


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