Heathrow6.45% S Regulatory News (88BX)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018

Heathrow Finance plc

(incorporated with limited liability under the laws of England and Wales)

(formerly BAA (SH) plc)

announces Consent Solicitationin respect of its Notes

19 July 2021. Heathrow Finance plc (the Issuer) announces today separate invitations (together the Consent Solicitation) to Noteholders of each class of notes described in the table below (together the Notes and each class of the Notes a Class) to consent to certain amendments and waiver with respect to the terms and conditions of each Class, as proposed by the Issuer (each a Proposal and together the Proposals) for approval by an Extraordinary Resolution at separate meetings (including any adjourned such meetings) of the holders of each Class (each a Meeting and together the Meetings), all as further described below.

Capitalised terms used in this announcement and not defined herein have the meanings given to such terms in the consent solicitation memorandum dated 19 July 2021 prepared by the Issuer in connection with the Consent Solicitation (the Consent Solicitation Memorandum).

Background

Over a year after COVID-19 was declared a pandemic, the impacts on the aviation industry remain dramatic, including at Heathrow. Progress in vaccination rollouts and testing technologies coupled with lower infection rates both in the UK and abroad have enabled governments to start easing travel restrictions. In the UK, the government took a risk based approach allowing international travel to partially resume from 17 May 2021. Countries have been allocated to three categories green, amber and red depending on their vaccination rate, infection rate and emergence of variants of concern. Health screening and quarantine requirements for passengers travelling to these countries vary depending on which category a country is allocated to. Currently, only 29 countries or territories have been categorised as green, the lowest risk level, with 16 of those on the green watchlist (which represents countries or territories at risk of moving from green to amber), meaning that air travel remains significantly constrained. While the traffic light system resulted in a widely reported surge in bookings, evidencing pent up demand for travel, the path and speed of the recovery remain uncertain and largely dependent on government policy.

In late April 2021, the Group revised its 2021 traffic outlook from its December 2020 guidance of 37.1 million passengers to a range, with the low end of the range being 13 million passengers and the top end of the range being 36 million passengers. Since then, the Group has further updated its passenger forecast to factor in the ongoing political caution around border controls and the expected gradual addition of countries to the UK government's green list over the remainder of the year. The Group's updated base case passenger forecast is that 21.5 million passengers are forecast to travel through Heathrow in 2021. representing a 2.7 per cent. decline compared to 2020 but a 73.4 per cent. decline compared to 2019 (the Base Case Scenario). The 15.6 million reduction in passengers compared to the Group's December 2020 guidance reflects the impact of five months of significant travel restrictions and cautious gradual reopening now expected during the months ahead.

For further details of the impact of the COVID-19 pandemic on the Group to date and the resulting forecast financial performance of the Group, Noteholders are referred to the investor report published on 11 June 2021 (the June Investor Report) which can be found here: https://www.heathrow.com/company/investor-centre/reports/investor-reports.

Whilst the Group could not have predicted the COVID-19 pandemic, it has been taking steps over the past decade to reinforce the financial resilience of the business should the unexpected happen and has taken a number of additional steps during the course of the pandemic to manage costs and further protect its business. Despite its strength, the Group is not immune to this crisis. The Group has taken steps to significantly reduce its monthly cash burn and is acting responsibly to adapt, transform and rethink its business to continue providing a highly competitive offer to consumers and investors:

· the Group has taken action at an operational level such as consolidation of operations into two terminals and one runway, renegotiation of suppliers' contracts and utilisation of the government furlough scheme which was extended until September 2021;

· a swap portfolio reprofiling programme initiated in 2020 resulted in interest savings of approximately £308 million and £207 million for the Financial Years ending 31 December 2021 and 31 December 2022 respectively and the Group expects an additional £50 million of interest savings in both the Financial Year ending 31 December 2021 and the Financial Year ending 31 December 2022;

· prudent cash management alongside a £600 million capital injection into the Heathrow (SP) Group and £300 million immediate RAB adjustment from the CAA has helped to manage the Group's leverage profile; and

· under its forecast traffic scenario, the Group estimates its liquidity horizon to extend into 2025. As at 31 May 2021 the Issuer had liquidity of £318 million, which can cover debt service until 2024 when the next debt maturity occurs. The Group is also required to maintain a minimum amount of liquidity at HFP throughout the Waiver Period (as defined below).

Further details (including forecasts and cashflow projections) are set out in the June Investor Report which can be found here: https://www.heathrow.com/company/investor-centre/reports/investor-reports.

In July 2020, following the outbreak of the COVID-19 pandemic and the significant reduction in passenger numbers, the Issuer successfully sought a number of waivers and amendments in respect of certain of its financial covenants and certain other terms included in the Conditions of the Notes (the July 2020 Consent). The Waiver Period commenced on 8 July 2020, and without giving effect to the proposed amendments and waiver, will end on 1 July 2022 or the date on which the Issuer is able to certify that it has met certain conditions (see the Consent Solicitation Memorandum for further details).

The proposed amendments and waiver

For the Financial Year ending 31 December 2021, the Group's total interest paid is expected to be £187 million while under the Base Case Scenario its cash flow is expected to be £253 million resulting in a Group ICR ratio of 1.35. Although this would not constitute a breach of the Group ICR covenant, it results in only £66 million of headroom in relation to such covenant. A drop in revenue of approximately 5 per cent. less than the Base Case Scenario would risk a breach of the Group ICR covenant occurring, equivalent to a decline in passenger numbers of approximately 1.8 million passengers (based on our forecast total aeronautical and retail income of £37.26 per passenger). This represents less than one month of forecast traffic for the remainder of 2021. Any delay in major EU countries being added to the green list or a delay in the reopening of air travel to the United States or Asia risks causing this level of decline.

As a result, in line with the Group's approach of proactively managing risk, and to enable the Group to focus on the ramp-up of operations in the second-half of 2021, the Issuer wishes to seek a waiver of any Event of Default that would arise from a breach of the Group ICR covenant for the Financial Year ending 31 December 2021 as reported in the Compliance Certificate to be delivered by the Issuer to the Trustee on or before the Compliance Reporting Date in June 2022.

In consideration of Noteholders agreeing to the above waiver, the Issuer is proposing to (a) increase the minimum liquidity covenant from £200 million to £250 million for each of the remaining quarterly testing dates during the Waiver Period; and (b) to amend the Waiver Period End Date to remove the right of the Issuer to bring the Waiver Period to an end prior to 1 July 2022.

Consent fee

In accordance with the terms in the Consent Solicitation Memorandum, each Noteholder from whom a valid Consent Instruction in respect of the relevant Extraordinary Resolution (irrespective of whether such Noteholder votes in favour or against the Extraordinary Resolution) is received by the Tabulation Agent by 4:00 p.m. (London time) on 30 July 2021 (such time and date with respect to each relevant Class, as the same may be extended, the Consent Fee Deadline) will be eligible to receive payment of an amount equal to 0.125 per cent. in respect of the Notes that are the subject of such Consent Instruction (the Consent Fee).

Noteholders may continue to submit Consent Instructions after the Consent Fee Deadline and up to 10:00 a.m. (London time) on 6 August 2021 (such time and date with respect to each relevant Class, as the same may be extended, the Expiration Deadline) in favour or against the Extraordinary Resolution, but any Noteholder from whom a valid Consent Instruction is received after the Consent Fee Deadline will not be eligible to receive the Consent Fee. Payment of the Consent Fee in relation to a Class is conditional on the satisfaction of the Consent Conditions in respect of such Class.

The Investment Association

The Proposals described in this Consent Solicitation Memorandum have been considered by a special committee (the Special Committee) consisting of Noteholders which has been convened by The Investment Association at the request of the Issuer. The members of the Special Committee, who hold in aggregate approximately 58.78 per cent. of the outstanding principal amount of the HFP 2024 Notes, approximately 32.52 per cent. of the outstanding principal amount of the HFP 2025 Notes, approximately 33.03 per cent. of the outstanding principal amount of the HFP 2027 Notes and approximately 46.76 per cent. of the outstanding principal amount of the HFP 2029 Notes have examined the Proposals. They have informed the Issuer that they find the Proposals acceptable; that, subject to client and other approvals, they intend to vote in favour of the Proposals in respect of their holdings of Notes.

Please bear in mind that while Noteholders of the Special Committee are asked to confirm, to the best of their ability, the amount of their holdings they are able to commit to vote in favour of the Proposals, any indication given by a Noteholder of its intention to vote is not binding on the Noteholder.

The Special Committee has advised the Issuer that this recommendation relates only to the proposals set out in this Consent Solicitation Memorandum with respect to the Notes and not to any future offers or proposals which the Issuer may make.

Review by other creditors of the Issuer

The Issuer has engaged with the lenders and investors which are party to the agreements documenting the Issuer's other Permitted Borrower Debt with a view to implementing a waiver of the interest cover ratio included in the terms of such Permitted Borrower Debt, an increase in the minimum liquidity covenant and the removal of the right to bring the Waiver Period to an end prior to 1 July 2022 on the same terms as the Proposals (the PBD Proposals). Such lenders and investors have reviewed the PBD Proposals and lenders and investors representing approximately 95.76 per cent. of the aggregate principal amount of the Issuer's Permitted Borrower Debt (excluding the Notes) have informed the Issuer that they find the PBD Proposals acceptable and that, subject to final credit and/or investment committee approvals, they intend to approve the PBD Proposals in respect of their facilities.

Overall creditor support

Taking into account the position above in relation to the review by the Special Committee and the support from other lenders and investors of the Issuer, at least 70.87 per cent. of the aggregate principal amount of all of the Issuer's Permitted Borrower Debt (including the Notes) have indicated that subject to client, credit or investment committee or other approvals, they intend to approve the Proposals or the PBD Proposals (as applicable).

Consent Solicitation Memorandum

This announcement does not contain the full terms and conditions of the Consent Solicitation, which are contained in the Consent Solicitation Memorandum. Subject to the restrictions described under "Solicitation and Distribution Restrictions" below, Noteholders may obtain a copy of the Consent Solicitation Memorandum from the Tabulation Agent, the contact details for which are set out below. Noteholders are advised to carefully read the Consent Solicitation Memorandum before any decision is made with respect to the Consent Solicitation.

Timetable for this Consent Solicitation

Set out below is an indicative timetable showing one possible outcome for the timing of the Consent Solicitation, which will depend, among other things, on timely receipt (and non-revocation) of Consent Instructions, the rights of the Issuer (where applicable) to extend, waive any condition of, amend and/or terminate the Consent Solicitation (other than the terms of any Extraordinary Resolution) as described in the Consent Solicitation Memorandum and the passing of each Extraordinary Resolution (and satisfaction of the Consent Conditions) at the initial Meeting for the relevant Class. Accordingly, the actual timetable may differ significantly from the timetable below.

THE NOTES

Terms of the Consent Solicitation

Noteholders should note that if an Extraordinary Resolution is passed and the Consent Conditions are satisfied, the terms of the Extraordinary Resolution will be binding on all Noteholders of the relevant Class, whether or not they choose to participate in the Consent Solicitation or otherwise vote at the Meeting.

If an Extraordinary Resolution is passed at the relevant Meeting in respect of any Class and the Consent Conditions in respect of such Class are satisfied, the Issuer will announce the effective date for implementation of the Proposals in respect of such Class as soon as reasonably practicable after the Meeting.

Noteholders are advised to review the form of Supplemental Trust Deed, which sets out the Proposed Amendments and Waiver to the Conditions and is available from the date of the relevant meeting Notice to the conclusion of the Meetings (or any adjourned Meetings).

Meetings

At each Meeting, Noteholders will be invited to consider and, if thought fit, approve the Extraordinary Resolution relating to the relevant Class, with any implementation of that Extraordinary Resolution being subject to the satisfaction of the Consent Conditions (as described below) relating to that Extraordinary Resolution, all as more fully described in the relevant Notice.

In accordance with the procedures for participating in the Consent Solicitation and at the Meetings each Noteholder must make certain confirmations in order to participate in the Consent Solicitation or otherwise participate at the relevant Meeting. A Consent Instruction which does not include such confirmations will be treated as not having been validly submitted and will be rejected.

The Consent Conditions

The implementation of each of the Proposals in respect of a Class and the related Extraordinary Resolution will be conditional on:

(a) the passing of the relevant Extraordinary Resolution in respect of that Class; and

(b) the execution of the relevant Supplemental Trust Deed in respect of that Class by the relevant parties,

((a) and (b) together, the Consent Conditions).

If the necessary quorum for any Extraordinary Resolution is not obtained, the relevant Meeting will be adjourned and the adjourned Meeting held at such time as will be notified to Noteholders of the relevant Class in accordance with the relevant Conditions and the relevant Meeting Provisions. If the Extraordinary Resolution is passed at the adjourned such Meeting, the amendment to, and waiver of, certain provisions of the Conditions and the Trust Deed in respect of such Class described in the Consent Solicitation Memorandum will be implemented as soon as reasonably practicable after such adjourned Meeting and insofar as the Consent Conditions in respect of such Class are satisfied.

Noteholders are advised to check with any bank, securities broker or other intermediary through which they hold their Notes when such intermediary would need to receive instructions from a Noteholder in order for such Noteholder to participate in, or (in the limited circumstances in which revocation is permitted) validly revoke their instruction to participate in, the Consent Solicitation and/or the relevant Meeting(s) by the deadlines specified above. The deadlines set by any such intermediary and any applicable Clearing System for the submission and (in the limited circumstances in which revocation is permitted) revocation of Consent Instructions will be earlier than the relevant deadlines above.

Unless stated otherwise, all notices in connection with the Consent Solicitation will be made by the Issuer by delivery of a notice to the Clearing Systems for communication to Direct Participants and by publication on the website of the London Stock Exchange. The Issuer may also make announcements in connection with the Consent Solicitation via the RNS and/or the relevant IGM Screen Insider page IILN and/or by the issue of a press release to a Notifying News Service. Copies of all announcements, notices and press releases can also be obtained from the Tabulation Agent, the contact details for which appear below. Significant delays may be experienced where notices are delivered to the relevant Clearing Systems and Noteholders are urged to contact the Tabulation Agent for the relevant announcements during the course of the Consent Solicitation. In addition, Noteholders may contact any of the Solicitation Agents for information using the contact details on the last page of the Consent Solicitation Memorandum.

Noteholders are advised to read the Consent Solicitation Memorandum carefully for full details of, and information on the procedures for participating in, the Consent Solicitation.

HSBC Bank plc or J.P. Morgan Securities plc are acting as Solicitation Agents and Lucid Issuer Services Limited is acting as Tabulation Agent.

Questions and requests for assistance in connection with the Consent Solicitation may be directed to the Solicitation Agents:

Questions and requests for assistance in connection with the delivery of a Consent Instruction may be directed to the Tabulation Agent:

This announcement is released by Heathrow Finance plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (UK MAR), encompassing information relating to the Consent Solicitation and the Proposals described above. For the purposes of UK MAR and Article 2 of Commission Implementing Regulation (EU) 2016/155 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018, this announcement is made by Sally Ding, Director of Treasury and Corporate Finance.

DISCLAIMER This announcement must be read in conjunction with the Consent Solicitation Memorandum. The Consent Solicitation Memorandum contains important information which should be read carefully before any decision is made with respect to the Consent Solicitation. If any Noteholder is in any doubt as to the action it should take or is unsure of the impact of the implementation of any Extraordinary Resolution, it is recommended to seek its own financial and legal advice, including in respect of any tax consequences, immediately from its broker, bank manager, solicitor, accountant or other independent financial, tax or legal adviser. Any individual or company whose Notes are held on its behalf by a broker, dealer, bank, custodian, trust company or other nominee or intermediary must contact such entity if it wishes to participate in the Consent Solicitation or otherwise participate at any Meeting. None of the Issuer, the Solicitation Agents, the Tabulation Agent or the Trustee expresses any opinion about the terms of the Consent Solicitation or the Extraordinary Resolutions or makes any recommendation whether Noteholders should participate in the Consent Solicitation or otherwise participate at the Meeting(s) applicable to them.

SOLICITATION AND DISTRIBUTION RESTRICTIONS

General

The distribution of this announcement and/or the Consent Solicitation Memorandum in certain jurisdictions may be restricted by law, and persons into whose possession this announcement and/or the Consent Solicitation Memorandum comes are required to inform themselves about, and to observe, any such restrictions. Nothing in this electronic transmission constitutes an offer to buy or the solicitation of an offer to sell securities in any jurisdiction in which such offer or solicitation would be unlawful.

Nothing in this announcement or the Consent Solicitation Memorandum constitutes or contemplates an offer of, an offer to purchase or the solicitation of an offer to sell any security in any jurisdiction and participation in the Consent Solicitation by a Noteholder in any circumstances in which such participation is unlawful will not be accepted.