June 8, 2009 / 7:52 AM / 9 years ago

UPDATE 2-Government airport proposals bad for investors-BAA

* Criticises proposed special administration regime

* Government plans will increase financing costs

* Suggests alternative model to keep airports open

(Adds CAA submission, background)

LONDON, June 8 (Reuters) - Heathrow owner BAA [FERBF.UL] on Monday scolded UK plans to introduce a special insolvency regime for big UK airports, saying the proposed rules would create extra uncertainties for investors.

The plans to ensure big airports stay open even if their operator goes bust will mean investors in airport infrastructure projects will demand higher returns, the company, owned by Spanish construction firm Ferrovial (FER.MC) said.

“Creditors have indicated that certain of the reforms would ... adversely affect their existing rights and materially shift the balance of risk and reward from the basis upon which they invested,” BAA said in a statement.

The upcoming sale of BAA-owned airports Gatwick and Stansted [ID:nLI18201] as well as worries about BAA’s 13.2 billion pounds ($20.95 billion) debt mountain have spurred government interest in the financial condition of airport operators.

BAA took on its massive debt pile when it was acquired by Ferrovial in 2006 in a leveraged buy-out.

The special administration regime would cover only Heathrow, Gatwick and Stansted airports, the government said in March.

Standard & Poor’s put BAA’s credit ratings on negative outlook in March because of uncertainty over airport regulation.

    The agency warned of a possible multi-notch ratings downgrade if BAA’s bondholders did not approve the regulatory changes and asked for repayment instead.

    BAA said its own plan to keep airports open, devised with the Association of British Insurers, would provide a better solution if an operator had financial difficulties.

    BAA bondholders, owed 4.5 billion pounds ($7.14 billion), and who recently hired advisers Reynolds Partners, believe the special regime is unnecessary and risks destabilising the company’s finances, a lender source said.

    The Civil Aviation Authority (CAA), which regulates UK airports, has also criticised the plan in its submission to the government’s consultation process, which closed on Friday.

    The CAA said on Friday the proposals would “cloud the responsibility for bearing the consequences of financial distress”, and would drive up the price of investment, with these increased costs likely to be borne by airport users.

    ($1=.6300 pounds)

    Reporting by Tom Freke; editing by Mike Nesbit

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