Richard Branson’s Virgin Atlantic Airways secured an impressive £220m senior secured note transaction using the airline’s take-off and landing slots at London Heathrow Airport. It is the first time in European air travel history that airport slots have been leveraged in this way, which made quite an impression on the Deals of the Year Awards judging panel.
Moody’s provided a private rating for the senior notes, which lent further credibility and confidence to investors. The deal attracted interest from blue-chip investors as well as long-term pension funds.
The senior secured notes enabled Virgin Atlantic to improve its liquidity while diversifying the group’s funding sources and ensuring it has the right asset base to fund its long-term investment programme, including buying a new fuel-efficient fleet of aircraft.
The biggest hurdle for the treasury team, led by group treasurer Nathan Dunton, in securing the deal was that landing slots are not ‘owned’ by airlines. They have the right to use them, however, and, therefore, there is an implied value.
Aviation analysts have viewed the transaction positively, suggesting it has the potential to transform the capital structure of the aviation industry
To overcome potential investor concerns, the note issuance was completed through a wholly owned subsidiary called Virgin Atlantic International Limited with flights from London Gatwick to Caribbean destinations, including Antigua, Barbados, Grenada, Saint Lucia and Tobago.
Legal control of the secured slots remains with Virgin Atlantic, but the subsidiary is used to ring-fence the landing slot assets from Virgin Atlantic. The bonds were issued by an insolvency remote securitisation vehicle, which on-lent and has security over the subsidiary airline to protect the security of investors.
“It is not a traditional type finance deal with treasury teams pitching to banks,” says Dunton, who credited the deal to his predecessor and CFO. “The maintenance involves the operations teams in the business as well as the treasury team, which is an amazing thing to see in the company.
“It’s something that some treasury teams would never get exposure to. It’s a very good example from my perspective to understand how operations work with treasury.”
The deal provided many firsts for Virgin Atlantic. Apart from it being the first transaction of its kind in Europe, it was also Virgin Atlantic’s first capital markets transaction. The deal secured attractive margins for long debt tenors, especially in comparison with typical aviation financing transactions.
The successful transaction presents an opportunity for other airlines to unlock the value held by these intangible assets. Aviation analysts have viewed the transaction positively, suggesting it has the potential to transform the capital structure of the aviation industry.
Macquarie Corporate and Asset Finance acted as sole arranger. Virgin Atlantic was advised by law firm Herbert Smith Freehills. Watson Farley & Williams provided legal advice to investors.
“An innovative use of corporate securitisation, which has been overlooked in recent years”
Issuer Virgin Atlantic
Amount £220m
Structure Senior secured note transaction
Rating (at time of deal) Private rating by Moody’s
Currency and tenor £/12/08/2030
Interest rate/coupon Undisclosed
The judges commended Thames Tideway for its successful transaction for a second year running. Thames Tideway and Bazalgette Finance plc secured debt funding of between 32 and 38 years, representing the longest deferral on a corporate inflation-linked bond issuance.
The deal used an innovative ‘Delayed Purchase Bond’ structure, which, although common in the US private placement market, is a less common tool in European Reg S bond transactions in private placement or club deal format.
Proceeds of the transaction will fund capital expenditure for construction of the Thames Tideway Tunnel, designed to discharge storm water and sewage into the River Thames.
The peak capex requirements are not until the 2018-20 window, and the deal was structured to allow Tideway to de-risk its funding plan by locking in committed debt funding at today’s market rates and manage negative carry costs associated with pre-funding in a very low interest rate environment.
The Treasurer's Deals of the Year Awards recognise the outstanding work of treasurers, both within the treasury community and the wider business world. Through them we champion the success and achievements of treasury teams that have stood out in the market over the prior 12 months. Winning an award is a great way to strengthen your organisation's and your treasury's profile, bringing peer and industry acknowledgement. Find out more here.