UPDATE 3-Buyout firms circle Kabel Deutschland-sources

* Private equity firms eyeing 5 billion euro offers

* Former Kabel owner Apax also mulling bid -source

* Company also working on IPO plan

* CDS spreads on Kabel Deutschland widen on bid talk

(Adds Kabel Deutschland, source comment, CDS data, background)

By Simon Meads and Victoria Howley

LONDON, Jan 27 (Reuters) - A school of private equity firms is circling Kabel Deutschland and may make a 5 billion euro ($7.03 billion) bid for the German cable operator, a number of people familiar with the matter told Reuters on Wednesday.

A successful bid by the firms, which the sources said included Apax Partners, Advent International, BC Partners and Carlyle, some working in concert, would be the biggest leveraged buyout in more than two years and highlight the resurgence of private equity firms after the financial crisis.

Any bids could also disrupt plans by Germany's biggest cable operator to raise at least 1 billion euros in an initial public offering as early as the second quarter. [ID:nLDE60K1HV].

On Wednesday, sources familiar with the situation said Advent International and BC Partners [BCPRT.UL] were mulling bids, with two sources saying BC had joined forces with buyout firm Apollo Management [APOLO.UL].

BC and Apollo last year sold Unity Media, Germany's No. 2 cable operator, to U.S. cable company Liberty (LBTYA.O) for 3.65 billion euros.

In addition, Apax Partners [APAX.UL], which owned Kabel Deutschland from 2003 to 2005, is also working on a deal.

"They have been approached from some other private equity investors to join as they know the industry very well", one source said.

All of the companies declined to comment.

BANKS LINE UP

The Financial Times on Wednesday also reported that CVC Capital Partners and Carlyle were lining up banks to finance a 5 billion euro bid for the company, which provides digital TV, broadband Internet and fixed line phone services to some nine million households in Germany.

Bankers were prepared to provide 3.5-4 billion euros of debt to finance the deal, the paper said, adding that Deutsche Bank, JP Morgan, Morgan Stanley and UBS have been appointed as advisers.

Five-year credit default swaps on Kabel Deutschland [KABLD.UL] widened by around 50 basis points to 392 earlier on Wednesday following the reported possible buyout bid, according to data from Markit.

Leveraged buyouts typically add heavy debt on the target company and push down its credit ratings, with the widening CDS spread reflecting the rising cost of buying insurance against default on the company's debt.

Kabel Deutschland is 88 percent owned by private equity firm Providence Equity Partners, 8 percent by Teachers' Pension Plan and 4 percent by management.

Revenues grew by 10 percent to 735.5 million euros for the six months ended Sept. 30.

(Additional reporting by Victoria Bryan and Simon Jessop in London and by Alexander Huebner and Jonathan Gould in Frankfurt; Editing by Carol Bishopric and David Cowell)