Estimation of the debt beta of the bond issued by Nats (En-Route) plc

Ania Zalewska

Research output: Book/ReportCommissioned report


This report has been written at the request of NERA Economic Consultants (NERA). Its aim is to estimate the market risk of the bond issued by Nats (En-Route) plc on 18 August 2003, ticker ED1004032 Corp (henceforth the NATS-bond). In particular, the aim is to assess whether there is any evidence that the market risk of NATS-bond is higher than 0.1. All the
data used in this report were provided by NERA. The analysis covers the period August 2003 – February 2019. The analysis was performed within the CAPM framework using OLS, ML with GARCH(1,1) effects and Kalman Filter estimates. In order to assess the market risk of the NATS-bond
several alternative definitions of the market portfolio, as well as of the period of assessment, were adopted. In addition, to test reliability of the estimates, the market risk of six bonds issued by Heathrow Funding Ltd. were analysed. Heathrow Funding Ltd. was chosen because it belongs to the same sector as Nats (en-Route) plc. The six bonds issued by Heathrow Funding Ltd were selected because of the similarity of the issuance characteristics to those of the NATSbond. The results strongly support the thesis that the NATS-bond’s beta is statistically significantly negative for most of the investigated period, and statistically insignificantly different from zero in the last few years. These results are robust across various specifications and methods of estimation. Statistically insignificant from zero betas indicate, according to the CAPM, that the returns on the NATS-bond are determined by the risk free-rate and the idiosyncratic risk of the
bond (e.g. default risk) but not the performance of (returns on) the market portfolio.
Original languageEnglish
PublisherCivil Aviation Authority
Number of pages24
Publication statusPublished - 30 Apr 2019


  • cost of capital
  • bond pricing
  • market risk
  • regulation


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