British Airways Drops Slot-Backed Bond Issue

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Published: July 21, 2012

IAG-owned British Airways has abandoned plans to issue its first secured bond backed by its valuable take-off and landing slots at London’s Heathrow airport, due to insufficient demand.

“Despite this week’s improvement in the underlying credit rating of British Airways, there was a lack of demand for this bond at a price which would compare with other financing alternatives. IAG has therefore decided not to progress with the bond issue,” it said in a statement on Friday.

“This was subject investor feedback and market conditions,” it added.

Earlier this month IAG said it hoped the bond issue – backed by Heathrow slots, routes between London City Airport and JFK, New York and two leased Airbus planes – would help it raise GBP£250 million (USD$ 393 million).

On Thursday ratings agency Standard & Poors raised its long-term corporate credit rating on British Airways to ‘BB’ from ‘BB-’ after it performed better than S&P had expected in the first half of 2012.

However, IAG shares in London, which have fallen 6 percent in the last three months, closed down 3.3 percent at 154.80 pence.

Had the bond issue been successful it would have been the first secured financing transaction backed by airport slots to which Moody’s has assigned a rating.

The rating agency had given the bond an A3 grade and put a value of about GBP£454 million on up to 31 paired take-off and landing slots, assuming that GBP£250 million of bonds were issued.

US airlines have used their airport gates as debt collateral for some time. But it is a novel practice in Europe, where airport access is allocated by slots alone, rather than physical infrastructure.

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