Heathrow Funding Ltd credit ratings update

24 February 2022

Heathrow Funding Ltd credit ratings update

Credit rating agency Standards & Poor's has put Heathrow Funding Limited's Class A and B debt on CreditWatch with negative implications, pending the CAA's final decision on H7 this summer. Based on the regulator's statutory duty, S&P's assessment relies on the CAA taking a balanced approach such that Heathrow can recover and sustain credit metrics in a timely manner. Following an initial credit downgrade in 2020, the agency has taken this action because of the significant uncertainty over the H7 regulatory package. S&P suggest a further rating downgrade is likely to occur if the H7 tariff is lower than £30.19 and/or other regulatory building blocks were not deliverable, meaning that Heathrow would be unable to generate the required minimum cashflows to keep credit metrics commensurate with the rating. They also deem the settlement could be less supportive in mitigating Heathrow's traffic risk exposure. Class A and B investment grade credit ratings are unchanged at BBB+ and BBB- respectively.

Heathrow reported its results for the full year ended 31 December 2021 on the 23rd February 2022. Only 19.4 million passengers travelled through the airport, the lowest level since 1972. Revenue was £1.2 billion and adjusted EBITDA was £384 million. Despite cumulative losses before tax of £3.8 billion since the start of the pandemic, liquidity remains robust with £4.0 billion of cash and committed facilities as at the year end.

Heathrow Chief Financial Officer Javier Echave said:  

"This is a disappointing and unnecessary development which is down to the ongoing uncertainty over the future regulatory settlement at Heathrow. We have proposed a plan that will deliver the easy, quick and reliable journeys passengers want for less than 2% increase to ticket prices. We flagged in our 2021 year-end results that we're anxious the CAA has materially undercooked its plans, and it's now clear that S&P are also concerned about the CAA's constant delays and approach. Heathrow's urgent return to A- credit rating is critical to financing the investments that deliver the service passengers expect - it should not be taken for granted by the regulator."

Further updates will be provided as part of Q1 2022 results which are due to be published on 26th April 2022.

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