By Adam Tempkin
NEW YORK, Feb 14 (IFR) - At least two European banks have floated the idea of applying a UK-style whole-business securitisation approach to finance the US$3.6bn overhaul of the United States' LaGuardia Airport, according to sources with knowledge of the proposals.
The overhaul project is one of the biggest so-called public private partnerships (PPPs) to be undertaken in the US airport infrastructure market.
The Port Authority of New York and New Jersey has narrowed competition down to four teams of high-profile private-sector bidders who are vying to take on the project. However, the financing options are far from being finalized.
While the type of financing has not been decided yet - and may ultimately include municipal bonds - at least two European banks have proposed the idea of securitizing the lease cashflows from a new set of shops and concessions planned for the revitalized terminal.
Additionally, income from landing fees - including penalty charges for flights taking off or landing late - may be securitized as well, the sources said.
"LaGuardia would make so much money if they chose the securitization option," said the head of ABS at an international bank. "It seems like such an obvious option. Other airports have used this concept to great success."
Additionally, developing a shopping, dining and entertainment complex at the airport - which would bring in increased lease cashflows to be securitized - would make the airport a destination for patrons other than those taking flights. Hong Kong International Airport is one example of successful execution of this type of concept, the banker said.
"Securitization would be an attractive route for LaGuardia to come to market, and it would be an interesting evolution in the US infrastructure market", said another senior UK-based DCM banker. "The same drivers exist in the US as in the UK to utilize that funding structure. It's just that the UK has a different legislative/regulatory environment, and is more creditor-friendly."
UK airports operator BAA, owned by Grupo Ferrovial, used whole business securitizations, which securitize all of the operating assets of a brand, for infrastructure projects on its airports, including Heathrow.
Similarly, The AA, a UK roadside recovery business, priced a whole business securitization last summer. "There is scope to look at these UK examples and find better solutions and funding platforms rather than a more vanilla option in the US," the DCM banker said. "However, it might have to be in an amended form, given the different regulatory environment in the US."
The main advantages of a WBS-style structure would be to provide so-called ringfencing around the assets, as well as an element of ratings uplift or leverage uplift, the bankers said.
A WBS financing would provide additional protection to creditors, and would present a non-recourse financing around the infrastructure assets.
A securitization framework would also insulate the sponsors from perceived credit risk, the bankers added.