3.24 The new deal was very challenging to negotiate because of the number of parties involved. In particular the Groups involved were not homogeneous. Not all of the four banks were equally amenable to meeting the requirements of NATS and the Department, and similarly some of the seven members of the Airline Group had to be convinced of the need to support the solution, particularly through price rises. Though NATS and its advisers conducted the face-to-face negotiations, the Department and its advisers performed an active supporting role by drafting some of the necessary documentation for NATS, meeting representatives of the banks and the Airline Group and by sending out clear signals that the Government's contribution was conditional on others doing their part and stressing the possibility of administration.
3.25 NATS made good use of its advisers, in particular:
■ Through its direct involvement in negotiations it had observed a need to replace its initial financial advisers, Schroder Salomon Smith Barney (SSSB) with new advisers, in October 2002; and
■ The new advisers, UBS Warburg, were selected in competition and part of their fee was based on achieving a successful outcome for NATS. NATS and other participants told us that they consider UBS did a very good job.
3.26 The banks were in a strong negotiating position as a result of their rights over NATS' finances in the original PPP structure. Though many of the elements of the Composite Solution, such as concessions from the CAA, had reduced the risks to which the banks were exposed; following September 11th banks perceived aviation as a riskier industry and were resistant to making concessions. But some useful concessions were extracted:
■ In order to retain access to its bank facilities NATS will have to meet less onerous financial covenants. In addition, the financial forecasts that the Company is required to provide will, in the event of a dispute, now be reviewed by an independent arbitrator rather than a bank nominee;
■ Part of the new investment by BAA plc and the Government will rank equally for interest payments with bank debt in most circumstances; and
■ Margins and fees are subject to the Company's credit rating in the financial markets, as opposed to being subject to a pre-defined upward ratchet. This resulted in a reduction in the margins and fees that were payable before syndication of the NATS loans to other institutions.