Heathrow Funding Ltd. will meet investors on Wednesday and Thursday as it considers offering notes due in about 15 years, according to a person familiar with the matter who isn’t authorized to speak publicly and asked not to be identified. A different entity visited the syndicate market in October, selling sterling bonds.
The roadshow comes just weeks before the U.K. is due to leave the European Union, and as Prime Minister Theresa May struggles to push a deal through parliament that could ease potential disruptions. The risk of Brexit hurting the U.K. economy and denting air travel caused S&P Global Ratings to cut its outlook on Heathrow in December and it has left some investors nervous about buying the airport’s notes.
“Unless they pay a huge premium, I don’t want to invest in this kind of bond,’’ said Arnaud Colombel, head of credit at La Banque Postale Asset Management in Paris, which oversees 220 billion euros ($250 billion).
The airport operator is also contending with capacity constraints after spending years struggling to get permission to build a third runway. It was only able to boost flight numbers 0.2 percent last year due to a shortage of slots. Still, larger planes helped the annual passenger count surpass 80 million for the first time.
Heathrow declined to comment on the planned bond sale in an emailed reply to Bloomberg News questions. The group raised about 2.3 billion pounds ($3 billion) of debt last year, according to S&P.
The airport is targeting a red-hot market for new investment-grade corporate bonds in euros, as a dovish turn by central banks damps fund outflows and leaves portfolio managers flush with cash to invest. Issuance has surged 74 percent so far this year, and new-issue concessions have evaporated. Coca-Cola Co.’s 3.5 billion-euro deal on Monday got more than 13.5 billion euros of orders and investors accepted smaller yields than on existing notes.
U.K.-Europe flights should carry on as usual, even in a no-deal Brexit, due to agreements between the country and the European Union, Heathrow Chief Executive Officer John Holland-Kaye has said. Brexit could also boost air-cargo traffic, particularly if new customs and regulatory checks snarl up sea-ports.
“Heathrow stacks up quite well, but a number of people may see it as a Brexit-risk bond,’’ said Gordon Shannon, portfolio manager at TwentyFour Asset Management in London, which oversees 14.2 billion pounds including Heathrow debt. “Investors are positioned for Brexit one way or another and may not be in the mood to move that exposure right now.’’
The airport owner’s earnings last year were better than S&P expected, which the ratings provider said may provide a “buffer” to help weather any Brexit disruptions. Still, it retained a negative outlook on the A- grade, four steps above high-yield levels.
“Negative pressure on financial performance could build if passenger traffic weakens as a result of a potential economic slowdown triggered by a no-deal Brexit,” it said in a note.
–With assistance from Christopher Jasper.
©2019 Bloomberg L.P.