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BAA Bonds "to be downgraded" due to terror threatBAA Bonds "to be downgraded" due to terror threat
James Featherstone
16-Aug-2006
Sources quoted in Wednesday's Times say that the cost of BAA's £4.7bn of outstanding bonds will "soar" due to a reported downgrading by global credit ratings agencies
The Times reports that BAA has asked the Association of British Insurers to facilitate negotiations with BAA bond holders as concerns over the terror threat, and possible compensation claims from airlines, affect the company's financial health. Potentially adding to BAA's credit rating woes is the fact that new owner Ferrovial is expected to part-fund its takeover by means of a refinancing deal based on cashflows from the BAA business. Bankers speaking to The Times said that BAA's cashflows look likely to be damaged as a result of increased security measures, compensation claims from airlines and airport retailers, and a reduction in sales at World Duty Free.However, John Hatton, a debt analyst at Fitch Ratings, points out that BAA's bonds have been on "ratings watch" with the main ratings agencies since the Ferrovial takeover. "I think the idea that this terror alert has suddenly caused thoughts of a downgrade of BAA's bonds is far-fetched," he said. "What is at issue is what Ferrovial will have to put in place in terms of a financing structure for its BAA deal. And that is what will cause ratings changes. It is too soon to say what effect, say, a reduction in duty-free income will have on BAA's financial health."
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