Heathrow seeks covenant waivers on £1.1bn of bonds

Heathrow airport's finance arm has asked holders of more than £1.1bn of bonds to grant waivers on covenants threatened by plunging passenger numbers.

Heathrow Finance Plc said without support from noteholders it would breach covenants for the 2020 financial year when tested in June 2021 and may also breach a covenant for 2021 when tested in June 2022. It blamed the "seismic challenge" to the aviation industry caused by the coronavirus emergency, which has almost wiped out passenger traffic.

In order not to break the group regulatory asset ratio (RAR) covenant in 2020 and 2021 Heathrow is requesting an increase of the covenant from 92.5% to 95% in 2020 and 93.5% in 2021. The request covers £1.125bn of notes due in 2024, 2025, 2027 and 2029.

Heathrow Finance said in return for noteholders' support it would not pay dividends to its owner, Spain's Ferrovial, during the waiver period or when the group RAR is not greater than 87.5%, whichever is latest. It will also commit to having at least £200m of liquidity at the end of each quarter until the waiver period ends.

Heathrow Finance will also pay 0.75% extra in interest depending on certain trigger events and a consent fee of 0.125% of the notes' value to the holders. Heathrow estimates that on 30 June the group will have £442m of cash - enough to service its debt until 2024 without money from Heathrow Airport Ltd.

"The reduction in passenger numbers has had a negative effect on the revenue of the group," Heathrow said. "As a consequence, the group has considered the potential impact of Covid-19 on cash flow and liquidity over the next 12 to 18 months and the corresponding impact on the covenants associated with the issuer's financial arrangements."

The number of passengers flowing through Britain's biggest airport plunged by 96.6% in May as governments imposed restrictions on international travel. Passenger numbers are expected to remain weak for some time and may take years to return to pre-crisis levels.