GIP’s Gatwick Airport Bond Refinancing is a Hit with Investors

By Andrew Cavenagh

The refinancing of Gatwick Airport acquisition debt in the second half of February – with GBP600m (USD980m) of bonds and a fresh bank loan for just under the same amount – has put a structure in place to fund the British airport’s future long-term finance needs with capital markets debt.

The consortium, led by Global Infrastructure Partners (GIP), that owns Gatwick Airport sold two GBP300m (USD490m) bonds with 15-year and 30-year maturities to 113 different investors. The offerings – which are secured against the airport’s assets – attracted orders worth more than GBP2bn (USD3.25bn). Both instruments priced at the tight end of the guidance, at 205bps over the relevant UK Treasury benchmark issues.

The success of the sale and the obvious appetite for the paper may well lead the GIP consortium to refinance a four-year bank loan that formed the balance of the new debt arrangements before the end of the year. A total GBP598m (USD975m) of that loan has been drawn.

“The plan obviously is to take out the bank debt in the bond market, although we don’t have to do it before 2014,” said Deepak Agrawal, a principal at GIP. “Having said that, it’s difficult to rule out another issue this year but that will clearly depend on market conditions.”

Reducing the Cost of Debt
Agrawal added that putting a long-term capital structure in place that was “optimum” for the asset – in terms of the debt-equity ratio – and had been one of the key objectives of the refinancing. Another had been to reduce the cost of the airport’s debt.

The refinancing will cut the annual interest bill that the Gatwick Airport owners pay considerably. Both the coupons on the bond issues – 6.125% for the 15-year tranche and 6.50% for the 30-year instruments – and the margin on the bank loan are well below that of the GBP1.125bn (USD1.835bn) of bank facilities put in place to fund the acquisition of the airport in 2009. GIP acquired Gatwick Airport from the Spanish construction group Ferrovial at the end of 2009. “The margins are significantly better,” Agrawal acknowledged, but GIP is not disclosing the price of the latest bank loan. It is reckoned to be 175bps over LIBOR.

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