BAA Sells 400 Million Pounds of Eight-Year Bonds Amid Refinancing Drive

BAA Ltd., the owner of London’s Heathrow airport, raised 400 million pounds ($615 million) from the sale of 6.25 percent eight-year secured subordinated bonds as it seeks to refinance debt used to fund its takeover.

The so-called class B bonds ranking after BAA’s senior debt for repayment were priced to yield 375 basis points more than U.K. government notes, according to a banker involved in the sale. A basis point is 0.01 percentage point.

BAA issued the bonds after pledging in July to improve its “gearing and cost of funding” by refinancing a 1.57 billion- pound subordinated loan due in 2011 that pays 400 basis points more than benchmark rates. BAA replaced some of the debt in August with a 625 million-pound four-year loan at a margin of 325 basis points to 375 basis points, Bloomberg data show.

“BAA plans to use the proceeds of the bond issue to refinance part of its existing bank debt, lengthening the group’s debt maturity,” Fred Maroudas, BAA’s director of treasury, said in a statement.

BAA, which has 8.6 billion pounds of outstanding net debt backed by London airports, hired BNP Paribas SA, HSBC Holdings Plc, RBC Capital Markets and Royal Bank of Scotland Group Plc to manage the sale of the new bonds. The notes received initial orders worth more than 1 billion pounds, the London-based company said in the statement.

In 2008, BAA refinanced most of a 13.3 billion-pound debt pile by pledging its London airports in a so-called whole business securitization, a type of funding that gives creditors more rights in eventually running the company. In return, the borrower gets higher credit ratings, reducing interest costs.

BAA, bought by Spanish builder Ferrovial SA in 2006, paid down some debt after selling Gatwick airport in 2009. It raised 235 million pounds from 30-year inflation-linked bonds in December, and sold 700 million pounds of notes due 2026 in November, Bloomberg data show.

To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net Caroline Hyde at chyde3@bloomberg.net

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