NATS, the UK-based air traffic management and solutions company, is issuing £750 million of new senior unsecured bonds to refinance its £600 million 5.25% guaranteed secured amortising bonds, which mature in 2026, as well as other secured facilities from commercial banks. The new fixed-rate senior unsecured bonds, which do not include any financial covenants, have been rated A2 by Moody’s.
Part of the proceeds from the new bonds will be used to pre-pay the £252 million of principal that remains outstanding on the existing bonds at 31 March 2021.
In addition to the notes, NATS has also entered into a new £450 million two-year syndicated bridge loan facility to facilitate funding of necessary future investments as well as a new £400 million three-year (plus two one-year extension options) revolving credit facility.
NATS hopes that the new debt issuance will refinance its existing debt as well as bolster its liquidity position as the coronavirus pandemic continues to severely affect air traffic.
NATS is the monopoly provider of en-route air navigation services through the UK airspace and the airspace that covers part of the North Atlantic Ocean that is delegated to the UK for air traffic control purposes. This makes the company a provider of a critical aviation service not just for the UK but also for transatlantic flights to and from Europe and North America.
Over the last 13 months, NATS's operating environment has been significantly affected by the coronavirus pandemic. Over the calendar year 2020, UK air traffic was roughly 60% below 2019 levels, with most recent data for the first quarter of 2021 showing total chargeable service units (which take into account the weight of an aircraft and the distance flown) remaining at only around 30% of 2019 levels in the same months. Moody's currently estimates that UK air traffic volumes may remain approximately 55-65% below 2019 levels for the full calendar year 2021. This reflects that NATS’s cash flow generation is more closely linked to number of flights than passengers.
In its rating note, Moody’s says that it expects overall air traffic to pick up slowly in the second half of 2021, but adds that the timing and profile of any recovery remains highly uncertain due to continuing travel restrictions, the deteriorating global economic outlook, and the weakened credit profile of airlines.
Moody's currently expects that the vast majority of cash flows lost during the coronavirus pandemic may be recouped over a five- to seven-year period, starting from 2023. The Civil Aviation Authority (CAA) said in a March 2021 consultation paper that it will provide further guidance on the cash flow reconciliation later this year.
The regulator considers a five- to seven-year recovery period as the current base case but will further assess airlines' ability to afford increasing charges over time. This affordability assessment will have to be balanced with the regulator's duty to ensure that NATS can finance its functions. The CAA indicated that the company's financeability may ultimately have to be supported through additional equity if airline affordability required a recovery trajectory that exceeds the current base case assumption.
In a trading update, NATS warned that the continuing shortfall in revenue receipts for its UK En route Service and Oceanic En route Service due to the reduced air traffic volumes, has impacted liquidity on a short-term. As a result, NATS expects to report impairment charges and reduced revenue in its full financial year results reflecting the continued impact of Covid-19.
However, NATS liquidity remains strong. In August 2020, the company had entered into a new £380million two-year syndicated bank facility, ranking pari passu alongside the existing £400million revolving credit facilities and the 2026 5.25% amortising fixed rate bonds. In addition, NATS received £102million of funding arranged through Eurocontrol, which was paid in several instalments over the period of July to October 2020, to compensate for the deferral in airline charging and associated cash flow losses.na