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Rating Action:

Moody's affirms Baa1 ratings of Manchester Airport Group Funding Plc; stable outlook

26 Oct 2017

London, 26 October 2017 -- Moody's Investors Service, ("Moody's") has today affirmed the (P)Baa1 rating assigned to the Multicurrency Medium Term Note programme of Manchester Airport Group Funding Plc (the "Issuer"), and the Baa1 rating assigned to the notes issued thereunder. The outlook remains stable.

The Issuer is a financing vehicle for The Manchester Airport Group Plc ("MAG") which owns Manchester Airport, London Stansted Airport, and East Midlands and Bournemouth airports.

RATINGS RATIONALE

The affirmation of the ratings recognises MAG's resilient operational and financial performance and Moody's expectation that it will continue to demonstrate credit metrics commensurate with the current ratings, notwithstanding the significant investment programme the company has embarked on. The affirmation additionally reflects the flexible nature of the investment programme, which can be re-phased in line with market conditions if required, as well as MAG's fairly conservative financial policy, with investments expected to be financed through a mixture of additional indebtedness, shareholder contributions and the proceeds from the sale of non-core assets. Furthermore, Moody's projections do not assume a significant negative impact from Brexit.

The Baa1 rating reflects as positives:

(1) the strength of the catchment areas of MAG's key airports in terms of size, complementary fit and relative affluence of the population; (2) the growth strategy being pursued by management, which has been successful at regaining lost market share, particularly at Stansted Airport; (3) the fairly conservative financial policy and the nature of its owners which suggests an interest to manage the company to ensure the strengthening of the business over the longer term rather than simply maximising financial returns over the shorter term; and (4) the financing structure which provides for minimal rating uplift to reflect debt structural features but does provide for the formal subordination of shareholder loans.

The ratings are, however, constrained by (1) relatively high airline concentration risk and (2) expansionary investment to be brought forward following recent robust growth, but phased according to operational and commercial needs.

Over the next few years, as investment levels increase, we expect MAG's management will continue to target a strong investment grade rating and seek to maintain its financial profile through a flexible dividend policy and, if required, through balance sheet strengthening measures.

RATIONALE FOR STABLE OUTLOOK

The stable outlook assigned to the rating reflects Moody's expectation that MAG will remain within the current rating guidance for at least the next 12-18 months.

WHAT COULD CHANGE THE RATING -- UP/DOWN

Upward rating pressure could develop if (1) MAG's credit metrics strengthened on a sustained basis with its funds from operations (FFO)/Interest coverage ratio consistently above 5.5 times and its FFO/Debt ratio consistently in the high teens in percentage terms; and (2) greater diversification of airline carrier base is secured across MAG's airports.

The rating could come under downwards pressure if (1) MAG's credit metrics weakened on a sustained basis with FFO/Interest coverage ratio consistently below 4.5 times or its FFO/Debt ratio was consistently below the low teens in percentage terms; or (2) key airlines pursued different operating strategies impacting the route network offered and therefore traffic at MAG's airports.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Privately Managed Airports and Related Issuers published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CORPORATE PROFILE

The Manchester Airport Group Plc, the second largest airport group in the UK, is the owner and operator of Manchester Airport ("MAN"), London Stansted Airport ("STN"), East Midlands Airport and Bournemouth Airport. MAN and STN are the UK's third and fourth largest airports respectively and MAG airports handled 55.9 million passengers in last twelve months ending March 2017.

MAG is ultimately owned by IFM Global Infrastructure Fund ("IFM"), Manchester City Council and Greater Manchester Borough Councils with economic ownership split 35.5%, 35.5% and 29.0% respectively (voting rights are however split evenly between IFM and Manchester City Council).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Xavier Lopez Del Rincon
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Andrew Blease
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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