European Infrastructure Finance Yearbook - Investing In Bonds ...

the 12 months to December 2006 at 10.6% and
2.7x were quite similar to those at fiscal year-end
March 2006 (10.8% and 2.8x, respectively).
The debt-financed acquisition of BAA by ADIL
and expected refinancing will have a significant
impact on cash flow adequacy measures.
Although financial ratios are likely to be weak,
they should be interpreted in light of BAA’s
relatively low business risk and the transaction’s
structural features. We would expect BAA to fund
its future capital investment program in respect of
the designated airports through further debt
issuance from the ring-fenced designated airports,
limiting the future cost of debt.
Capital structure/Asset protection
Leverage is forecast to increase as ongoing capital
expenditure will be debt-financed. Future ratings
will be constrained by an anticipated aggressive
capital structure, moderate debt protection
measures, and the ongoing need to raise debt to
finance capital expenditures.
At Dec. 31, 2006, gross unadjusted debt was
£6.4 billion, as at March 31, 2006. Adjusted debt
to capitalization in the 12 months to December
2006 increased to 54.6%, from 53.3% at
March 2006.
Table 3 - BAA Ltd. Financial Summary
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
TRANSPORTATION INFRASTRUCTURE
BAA’s debt structure was adequate at Dec. 31,
2006, with 80% of debt maturing in more than
five years. Of the debt portfolio, 86% was at
fixed interest rates.
During the nine months to Dec. 31, 2006,
ADIL acquired BAA’s outstanding convertible
bonds (£424 million 2.94% and £425 million
2.625%). Unless previously redeemed or
converted, BAA will redeem the bonds at par on
April 4, 2008, and Aug. 19, 2009, respectively.
At year-end 2006, secured debt was marginal at
£234 million, out of gross unadjusted debt of
£6.4 billion. Structural subordination for
unsecured lenders is therefore minimal.
BAA’s long-term bonds benefit from upstream
guarantees from Heathrow, Gatwick, and
Stansted. Those due in 2016, 2021, 2028, and
2031 also carry interest coverage and gearing
covenants, but do not contain negative pledge
clauses. Under the terms of the ADIL senior and
junior finance documents, BAA Ltd., as an
obligor, jointly and severally guarantees the
ADIL senior and subordinated facilities. The
maximum value of this guarantee is limited by the
threshold at which the financial and other
covenants contained in the existing bonds would
be breached.
--12 months to Dec. 31-- --Fiscal year ended March 31--
(Mil. £) 2006 2006 2005 2004 2003
Rating history A/Watch Neg/A-1 A/Watch Neg/A-1 A+/Stable/A-1+ A+/Stable/A-1+ AA-/Negative/A-1+
Revenues 2,564.0 2,313.0 2,115.0 1,970.0 1,909.0
Net income from continuing operations 463.0 531.0 672.0 377.0 374.0
Funds from operations (FFO) 810.3 738.3 732.4 680.0 636.5
Capital expenditures 1,521.9 1,502.2 2,288.9 1,314.6 719.6
Free operating cash flow (758.6) (805.9) (1,597.5) (680.5) (96.1)
Discretionary cash flow (1,001.6) (1,036.9) (1,811.5) (886.5) (294.1)
Cash and investments 93.0 83.5 83.5 890.0 1,156.0
Debt 7,641.9 6,842.7 4,381.7 3,983.9 3,506.1
Common equity 6,339.0 5,982.0 5,623.0 5,018.0 4,575.0
Total capital 13,990.9 12,834.7 10,013.7 9,009.9 8,089.1
EBIT interest coverage (x) 1.9 2.3 3.7 3.2 3.2
EBITDA interest coverage (x) 2.7 3.0 4.7 4.1 4.0
FFO interest coverage (x) 2.7 2.8 3.3 3.9 3.9
FFO/debt (%) 10.6 10.8 16.7 17.1 18.2
Discretionary cash flow/debt (%) (13.1) (15.2) (41.3) (22.3) (8.4)
Net cash flow/capital expenditure (%) 37.3 33.8 22.6 36.1 60.9
Debt/total capital (%) 54.6 53.3 43.8 44.2 43.3
Return on common equity (%) 7.5 9.2 12.6 7.9 8.0
Common dividend payout ratio (unadjusted) (%) 16.8 45.8 33.8 56.2 54.0
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