1
6
In
19.
this case, project debt, which is assumed to be made up primarily of syndicated loans, is maximized at $37 billion at money of the day prices and Government paid-up equity is fixed at $16.6 billion. Wardley have advised that they believe $37 billion to be the maximum amount which could be supported for this project, having regard to -
(a) the level of debt which can be supported by
the predicted cashflows; and
(b)
to the amount of debt available in the market in view of the scale of the project and the fact that lenders are unlikely to accept repayment periods in excess of twelve years.
20.
Wardley have also advised that they consider that the minimum debt service cover ratio* of 1.37, as derived in the "base case", will provide lenders with the necessary assurance that the AA will have sufficient resources at all times to meet its debt service obligations. With this in mind, they have advised that it will be feasible to maximize project debt at $37 billion if certain measures are taken to enhance the capacity of the AA to service debt. These are
(a)
(b)
(c)
introduction of a Passenger Terminal Charge of $50 (in March 1991 prices) to be levied on each passenger using the airport;
deferral of dividends to the shareholder (the Government) until such time as lenders are satisfied that such payments can be made without placing at risk the ability of the AA to service its debt obligations (i.e. no later than 2005 when it is expected that all project initial debt will have been repaid); and
deferral
by Government of the requirement for the AA to make payment for air traffic control and meteorological services (see paragraph 12 above)
with the deferred charges to be repaid in full, with interest, as soon as this can be done without placing at risk debt service obligations.
* Footnote
the debt service cover ratio in any period is Net cashflow before financing + cash balances Principal repayments + interest payments + financing fees due