Heathrow Funding Limited credit ratings affirmed

05 March 2021

Heathrow Funding Limited credit ratings affirmed

Credit rating agency Standards and Poor's (S&P) affirmed Heathrow Funding Limited's investment grade ratings at BBB+ for Class A debt and BBB- for Class B debt. Both ratings were taken off CreditWatch where they had been since May 2020 and moved to negative outlook.

S&P highlighted the swift mitigating actions Heathrow has taken to reduce its cash burn, protect its covenants, and the airport's strong liquidity position as key drivers for the improvement in outlook. Although continued uncertainty around the recovery of traffic remains one of the largest challenges for the UK's aviation sector, S&P valued the CAA's recent recognition that a regulatory intervention to support Heathrow through a RAB adjustment is now needed. The updated credit opinion also depends on the outcome of the H7 regulatory reset. S&P expects that the regulator will take a balanced approach for the next price control period starting in 2022, ensuring Heathrow remains financeable by charging higher prices to generate enough cashflows to maintain investment grade credit ratings.

Heathrow has sufficient financial cover for the next 18-24 months after achieving nearly £400 million of gross operating savings, cancelling or deferring £700 million of capital expenditure and completing a £600 million capital injection to protect investors.

Heathrow Chief Financial Officer Javier Echave said:  

"COVID-19 has presented unprecedented challenges, and over the past year we've been focussed on taking swift action to protect the business. We've made great strides in cutting costs and making the airport more efficient and competitive while expanding our liquidity and protecting investment grade credit ratings. It's great to see this effort recognised by S&P. We will continue to work hard to restore our A- rating in the medium term, and for this to happen the regulator must also deliver on its duties to ensure Heathrow remains financeable. S&P's conclusions are unequivocal - It is now time for the CAA to protect ratings by providing a RAB adjustment and rebalancing urgently investors' risks and reward."

Heathrow published its full year 2020 financial results on 24 February 2021 and forecasts no covenant breach in 2021.

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