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Rating Action:

Moody's assigns (P)Baa1 rating to Brussels Airport Holding SA/NV's senior secured debt; stable outlook

Global Credit Research - 13 Jun 2013

First time rating

London, 13 June 2013 -- Moody's Investors Service has today assigned a provisional (P)Baa1 senior secured rating to the following senior secured bank debt facilities to be entered into by Brussels Airport Holding SA/NV ("BAH"):

• EUR350 million term loan facility maturing three years after the drawdown date -- (P)Baa1;

• EUR500 million term loan facility maturing five years after the drawdown date -- (P)Baa1;

• EUR250 million term loan facility maturing five years after the drawdown date -- (P)Baa1;

• EUR50 million term loan facility maturing five years after the drawdown date -- (P)Baa1;

• EUR500 million bonds maturing seven years, or later, after the issuance date -- (P)Baa1

The outlook on the ratings is stable. This is the first time Moody's has assigned a rating to BAH.

Moody's issues provisional ratings in advance of the signing of documentation and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will assign definitive ratings to BAH's senior secured debt. A definitive rating may differ from a provisional rating. The provisional ratings are assigned on the basis that BAH will borrow a total of approximately EUR1.35 billion, under the term loan facilities and by issuing bonds at refinancing date, to refinance its current outstanding debt and finance swap breakage costs and fees.

BAH is the owner of The Brussels Airport Company SA/NV ("TBAC"). TBAC is the owner and operator of Brussels airport whose main assets consist of three runways, a terminal and car parking that can accommodate 18,000 cars. It is envisaged that BAH will merge with TBAC as part of the proposed refinancing.

BAH is 25% owned by the Belgian state (Aa3 negative), 36% by Macquarie European Infrastructure Fund I and Macquarie European Infrastructure Fund III, and 39% by Ontario Teachers' Pension Plan. The outlined shareholdings are based on economic rights.

RATINGS RATIONALE

The assigned (P)Baa1 rating reflects (1) the strong business profile of Brussels Airport, which is the largest airport in Belgium; (2) a young but transparent regulatory regime that includes a five-year price agreement between the airport and airline customers until 2016; (3) BAH's high leverage; (4) the largely constraint-free environment in which TBAC operates, which provides management with the scope to efficiently meet the needs of airlines and passengers, and the company's modest capital expenditure (capex) programme; and (5) debt structural features that provide for the treatment of BAH's shareholder loan as fully subordinated for credit rating purposes and include an element of senior debt protection, but provide no uplift to the rating.

The rating is constrained by BAH's debt level, which reduces the company's ability to withstand unexpected stress. Moody's notes that BAH plans, absent unforeseen market conditions, to refinance debt of approximately EUR 350 million in the first year following the assumed financial close of its refinancing programme, and this is an important element in the rating. The provisional rating further assumes that BAH will merge with TBAC as part of the refinancing programme. Although BAH is a government related issuer under Moody's definition, there is no uplift to BAH's provisional rating to reflect the possibility that the Kingdom of Belgium may step in with extraordinary support to avoid a payment default in the event this were required.

The assignment of the (P)Baa1 rating to BAH's senior secured debt recognises that the company has somewhat limited contractual protections and a rather aggressive financial policy whereby it can fund up to 70% of its capex through debt and seeks to distribute 100% of its annual free cash flows.

TBAC is subject to a light-handed framework of economic regulation, which is considered to allow a fair return on invested capital. The current regulatory approach came into effect in 2006 and thus is fairly new. In the first instance, a negotiation process between the airport and the airlines takes place in order to reach a consensus on the level of aeronautical charges and approach to capex over the period. The current five-year regulatory period, valid until 2016, has been established through a negotiated settlement. Moody's considers this a credit positive for the company as it shows that there is consensus between the major parties and provides visibility on aeronautical charges until the expiry of the regulatory period. The company is gradually transitioning from a single till to a dual till system of setting aeronautical charges over a 20-year period, a process that should be completed by 2026.

Brussels Airport is ideally located in the centre of Belgium, and it is the only major airport serving the country. Given that approximately 18.97 million passengers passed through the Brussels airport in 2012, it is comparable to other large regional airports in Zurich, Vienna and Copenhagen. Brussels is close to other major European cities and the airport is easily accessed by road and rail. The company's strategy is to continue to focus on developing its transfer and transit traffic and to increase its non-aeronautical revenues by improving its retail offering. The company's annual maintenance capex is modest and its planned capex programme is flexible as major capex plans can be postponed if actual passenger traffic is lower than projected.

Brussels Airport is predominately an Origination & Destination (O&D) airport (which represents around 84% of TBAC's passenger traffic). O&D passengers are generally less dependent on airline decisions regarding airport choice than transfer passengers. O&D traffic is also much less volatile than transfer traffic and provides for resilient stable revenues. Nevertheless, the airport has material exposure to Brussels Airlines, which is the flag carrier airline of Belgium. The airline accounts for around 30% of the flights to and from the airport and is therefore an important component of the airport's route network. Brussels Airlines reported net losses in 2011 and in 2012. A collapse of Brussels Airlines could have a material short-term impact on the airport's revenues.

The company will benefit from a sound liquidity position as a result of positive operating cashflows, a 12 month interest reserve account and sizeable undrawn banking lines established through the proposed refinancing. The company's refinancing strategy is to pursue diversity in terms of sources of credit and to achieve a spread of maturities.

The stable outlook assigned to the rating reflects the visibility provided by the current regulatory settlement until the next review in 2016 and a traffic profile that is proving somewhat resilient in the face of a tough economic environment.

WHAT COULD CHANGE THE RATING UP / DOWN

To consider a rating upgrade, Moody's would require evidence that BAH had transitioned to a less leveraged capital structure that provided greater financial flexibility to deal with severe stress scenarios, and was intent on retaining more cash within the business. However, upwards rating pressure is unlikely in the short term given uncertainty regarding near-term economic developments and the company's current financial policies.

The rating could come under downwards pressure if BAH's FFO/interest coverage ratio were to fall below 4.5x and its FFO/debt ratio had or was expected to decline below the low teens, in percentage terms, on a sustained basis. In addition, negative pressure on BAH's rating could develop as a result of a bankruptcy of Brussels Airlines.

PRINCIPAL METHODOLOGIES

The principal methodologies used in rating BAH were Operational Airports Outside of the United States published in May 2008, and Government-Related Issuers: Methodology Update, published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Johan Verhaeghe
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
SUBSCRIBERS: 44 20 7772 5454

Andrew Blease
Senior Vice President
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns (P)Baa1 rating to Brussels Airport Holding SA/NV's senior secured debt; stable outlook
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