Heathrow6.45% S Regulatory News (88BX)

18 December 2020

Heathrow Funding Limited

Heathrow Finance plc

Publication of December 2020 Investor Report

On behalf of Heathrow Airport Limited, Heathrow Express Operating Company Limited, Heathrow (AH) Limited and Heathrow (SP) Limited, LHR Airports Limited (as 'Security Group Agent') is today distributing its semi-annual Investor Report to various parties pursuant to the terms of the Common Terms Agreement entered into on 18 August 2008 (the "CTA").

The Investor Report is also being distributed by Heathrow Finance plc to various parties pursuant to Heathrow Finance plc's £250 million 5.75% Senior Secured Notes dated 13 October 2014 and due 2025, £275 million 3.875% Senior Secured Notes dated 5 June 2017 and due 2027, £300 million 4.75% Senior Secured Notes dated 31 October 2018 and due 2024 and the £300 million 4.125% Senior Secured Notes dated 12 November 2019 and due 2029 (the 'Heathrow Finance Bonds'), a note purchase agreement dated 14 September 2018 (the "Note Purchase Agreement") and pursuant to Heathrow Finance plc's facilities agreements dated 22 November 2018, 23 November 2018, 1 February 2019, 8 May 2019, 16 August 2019 and 2 December 2019.

The Investor Report contains information relevant to creditors of both Heathrow (SP) Limited (and its subsidiaries) and Heathrow Finance plc.

The attention of potential readers of the Investor Report is drawn to page 2 of the document which contains an Important Notice, including in relation to certain forward-looking statements included in the Investor Report, and contains a description of the basis on which the operational and financial information included in the document has been prepared.

The Investor Report includes an updated forecast for 2020 and 2021 for the financial performance of Heathrow (SP) Limited prepared on a consolidated basis, forecast nominal debt and financial ratios for Heathrow (SP) Limited and Heathrow Finance plc. Heathrow (SP) Limited, through its indirect subsidiary, Heathrow Airport Limited, owns Heathrow airport.

COVID-19 continues to represent a seismic challenge for the aviation industry, including Heathrow. The pandemic drastically reduced air travel as governments around the world closed their borders and airlines dramatically cut capacity. Whilst we welcome the progress made by the Government's Global Travel Taskforce in establishing an initial testing regime, the speed of recovery remains uncertain and depends on making further progress with passenger testing to replace restrictive quarantine measures.

We anticipate traffic to be 22.3 million in 2020, which is 0.3 million down on our Q3 results announcement to reflect the impact of the November lockdown. In 2021, we expect traffic volumes to reduce by 54% versus 2019 levels to 37.1 million. Our focus remains on protecting people's safety and the financial resilience of Heathrow, preserving our cash position and reducing costs. Despite our deteriorated traffic outlook, we do not forecast any covenant breach in 2021.

In 2020, we forecast Adjusted EBITDA to decline 86.8% to £254 million compared to 2019 as a result of reduced passenger numbers, somewhat mitigated by £300 million of cost reduction initiatives. In 2021, Adjusted EBITDA is forecast to increase by 94.1% to £493 million, driven by the recovery in passenger traffic and additional cost reduction initiatives.

Our liquidity position remains strong with £4.6 billion of cash and committed facilities available to the business as at 30 November 2020, sufficient to meet all obligations until 2023 under our traffic forecast. Cost savings initiatives will continue into 2021 to protect our cash position. Given the deteriorated traffic outlook, Terminal 4 will be non-operational until the end of 2021. Work also continues to ensure all salaries are aligned to market rates.

We have restored the ADI Finance 2 level of our capital structure with £750 million of notes issued to private international lenders. Net proceeds have been injected into the Heathrow Finance Group with £600 million pushed into the Heathrow SP Group. These proceeds have been used to optimise our working capital in the short-term, such as reprofiling swap payments and bringing forward some operating expenses due in 2021 to reduce costs. These steps will help creating more headroom to our group covenant levels.

Our RAB is forecast to be £16.5 billion at the end of 2020 and £19.4 billion at the end of 2021. Our 2021 RAB forecast assumes the CAA proceeds with Heathrow's proposed RAB adjustment of £2.7 billion in 2018 prices.

We are submitting today our Revised Business Plan ('RBP') to the CAA. Our plan outlines our approach on H7 given the uncertain traffic recovery path ahead. The CAA will use the RBP to inform their proposals for setting the H7 price control. We expect the CAA to publish their initial proposals in summer 2021.

Since the suspension of the Airports National Policy Statement (ANPS) in early 2020, we progressed our appeal to the Supreme Court. We were successful when the Supreme Court passed a unanimous judgement on 16 December 2020 lifting the suspension of the ANPS and confirming that it is lawful Government policy. This is the right result for the country, which will allow Global Britain to become a reality. As passenger numbers recover, our immediate focus will be to continue to ensure their safety and to maintain our service levels while we consult with investors, government, airline customers and regulators on our next steps regarding the expansion project.

As at the date of this report, (a) a Forecasting Event has occurred; (b) a Trigger Event has occurred in relation to the forecast ICR for senior and junior debt for the year ending 31 December 2020, tested in June 2020; and (c) a Trigger Event has occurred in relation to the forecast ICR for senior and junior debt for the year ending 31 December 2020, tested in December 2020. This means a distribution lock-up will remain in place, preventing cash from leaving the Heathrow SP Group.

Heathrow secured a waiver from Heathrow Finance's creditors in July 2020. As a result, Heathrow Finance's ICR covenant is waived for 2020. In addition, Heathrow Finance's RAR covenant was revised from 92.5% to 95% in 2020 and 93.5% in 2021.

The December 2020 Investor Report document is available in pdf format at the following link:

http://www.rns-pdf.londonstockexchange.com/rns/0910J_1-2020-12-17.pdf

The Investor Report is available from today via the Heathrow Investor Centre at https://www.heathrow.com/company/investor-centre/reports/investor-reports

By way of reminder, pursuant to the CTA, the Heathrow Finance Bonds, Note Purchase Agreement and the Heathrow Finance Facilities Agreements (as appropriate), the following is available on the Heathrow Investor Centre:

- consolidated financial information of Heathrow (SP) Limited for the year ended 31 December 2019

- consolidated financial statements of Heathrow Finance plc for the year ended 31 December 2019

For investor enquiries please contact Christelle Lubin, Head of Debt Investor Relations and Corporate Finance, on +44 7764 805761

(1) Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, BREXIT contingency and exceptional items