This debt refinance, is actually quite straight forward.
You have a sucessful airport that has grown to an extent that it's deemed worth to a banker is more than it's balance sheet value. It's shareholders agree to realise the additional value in the airport by raising additional borrowings against this. So say the increase in value is £100M then you take out a 80% loan over 5 years, interest only, on say an £80M advance.
The fundamental business concept is that the capital raised will be put back into the business to generate additional revenue to service the interest and raise capital towards clearing the debt when it becomes due.
However instead you have a devious MD and a bunch of greedy shareholders who "snaffle the funds advanced" by the paying of a dividend to themselves & a reward bonus to the MD, then the model becomes more vulnerable as the pressure then comes back on the airport to secure growth through it's own resources to repay both the interest and ultimately the £80M advanced.
It may even be worse in that the loan terms may be that some or more of the interest was not paid but "rolled up" into the £80M resulting in a much higher amount becoming due at the end of the term.
Now the problem with this scenario is when airport revenue growth projections don't materialise, as in a recession, banks are not lending money & indeed ideally wish to limit their debt exposure by calling in their loans at the first opportunity. Predictably the airport has insufficient funds available to make repayment and no other lenders are at hand to advance a sum of money to cover the debt, and ironically even if there were, their valuation of the airport as security will now also have decreased resulting in even higher finance costs.
Now the question I ask is when Mr Greedy & gang of shareholders snatched at the money initially, then were they acting in the best interests of the airport or simply lining their own coffers? No need to reply !
