BAA refinancing takes shape with bond exchange

LONDON (Reuters) - British airports operator BAA will ask investors to vote on a bond exchange, a major step in its long-awaited plan to refinance debt after it was bought by Spain's Ferrovial (FER.MC) in 2006.

The refinancing has been in the works for over a year but has been hobbled by the global credit crunch. In recent weeks, however, it has gained traction as Ferrovial won backing from banks for a 7.65 billion pound loan and BAA started talks with debt investors.

BAA said it would exchange existing euro and sterling bonds totalling 2.5 billion euros (2 billion pounds) and 2.8 billion pounds respectively for new securities with the same expected maturity.

It said a special committee of bondholders at the Association of British Insurers had informed the company the proposed refinancing was acceptable.

The new securities will pay higher interest and will also rank as senior secured debt, while the current bonds are unsecured. In addition, the new debt is expected to be rated A- by both Standard & Poor's and Fitch Ratings, the company said, versus current ratings of Baa2 from Moody's Investors Service, BBB- from S&P and A- from Fitch.

BAA said it will guarantee certain of the new bonds to ensure that holders of credit default swap contracts continue to have an underlying deliverable bond.

Holders will also be paid a fee if they agree to swap the bonds before July 29. Bondholder meetings are scheduled for August 5 and the results are due to be announced on August 7.

(Reporting by Richard Barley; Editing by Paul Bolding and Erica Billingham)