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GIP completes ‘first slug’ of Gatwick refi

A greatly oversubscribed £600m bond sale that closed earlier this month may be followed by another offering in the next 12 months, though the focus at the moment is on improving the airport’s operations.

Investors who missed out on Gatwick Airport’s oversubscribed £600 million (€696 million; $971 million) bond offering may get a second chance to buy debt in the London area airport within the next 12 months.

The offering, which closed 2 March, attracted about £2 billion of investor demand against a £600 million offering size, said Andrew Gillespie-Smith of Global Infrastructure Partners (GIP), the independent infrastructure fund that bought Gatwick in a £1.5 billion deal in December 2009. The acquisition included £1.1 billion of five-year bank debt.

The bond offering was only the “first slug” of a bank debt refinancing in the bond market, Gillespie-Smith said, with a further offering possible “maybe in the next 12 months or so”.

“The intention obviously was to refinance that at some point into the bond market,” Gillespie-Smith said. “I think it’s fair to say we managed to get the bond issue done a little earlier than we were expecting”, he added, pointing out that conditions in the bond market were favourable at the moment. 

GIP offered up two, £300 million bonds, one with a 15-year duration and another with a 30-year duration. The 15-year portion priced at a 6.1 percent coupon, while the 30-year portion priced at a 6.5 percent coupon, Gillespie-Smith said. Both portions received BBB+ credit ratings from S&P and Fitch.

Proceeds were used to refinance a portion of the bank debt and repay some of the original equity in the deal. RBS was lead arranger and dealer on the offering, with Credit Agricole, HBSC and JPMorgan Cazenove acting as additional dealers.

“The banks were all pleasantly surprised at the level of demand we got,” Gillespie-Smith said. “I think people liked the story of Gatwick, the change of ownership, the steps that have been taken by management to improve operations.”

Since GIP took over Gatwick Airport in December 2009, the firm has been working to reduce check-in and security screening times and increase the number of airplanes that can use Gatwick’s airfield each hour, among other improvements.

To help drive improvements, GIP lined up a new management team for the airport, replacing 10 of Gatwick’s 12 top officers with new recruits, Gillespie-Smith said. Among them was GIP’s Scott Stanley, who previously served as the former chief operating officer of London City Airport, another GIP-owned airport where the firm has focused on making operational improvements.

Gillespie-Smith will highlight GIP’s operational improvements at Gatwick Airport on a panel at Infrastructure Investor’s Berlin forum next week.