BAA, the airports operator, is set to suffer a debt downgrade by the two main credit rating agencies because of the cost of an £8.4 billion programme to expand its London airports.

A spokeswoman for the group, which owns Heathrow, Stansted and Gatwick, said that it expected both Moody’s and Standard & Poor’s to cut the credit rating on BAA’s debt by one level within the next two months. That would result in a reduction in the Moody’s rating from A1 to A2, which is still investment grade.

Moody’s said yesterday it was placing BAA’s existing £2.5 billion of long-term debt on review for a possible downgrade because of BAA’s plans to increase its debt levels substantially during the next few years. “The review will focus on the expected increased debt burden that BAA will carry as it funds its capital expenditure programme, the likely lower debt service coverage metrics and the comparatively greater exposure to losses of traffic volume that will result,” the agency said.

The rating review has emerged because BAA’s ambitious investment plans, which include the building at Heathrow of a fifth terminal — known as T5 — are likely to be 50 to 60 per cent financed by debt.

BAA’s capital spending is set to rise steeply, from £700 million, for last year to the end of March, to more than £1 billion a year for the next five years. That period represents the peak of construction at the planned T5. Most of the spending is to be devoted to Heathrow.

About £3.2 billion will be spent on building T5 and related transport links in one of the biggest construction projects in the UK, while a further £3.4 billion will be spent on improvements to existing terminals. The first phase of the T5 project is due to open in 2008.

In a statement on the review, Moody’s said that while the regulator would allow BAA to demand higher revenues per passenger and aircraft during the next five years, the cost of meeting its interest charges would also increase susbtantially.

Moody’s said that it had concerns about the possibility of cost overruns on the building programme and that the airport group’s cashflow could be susceptible to a decline in traffic throught its airports.

The credit rating agency will also monitor the company’s ability to withstand shocks, such as further terrorist activity, that may have an adverse effect on the group.

BAA’s shares fell 5¼p to 489½p.