Bankers pitch debt for AA and Saga sales or IPOs

LONDON Tue Sep 25, 2012 12:24pm EDT

LONDON (Reuters) - Bankers are pitching multibillion pound financing packages to back the potential sale or flotation of 107-year-old motoring services firm the AA and over-50's insurance and travel company Saga, banking sources said on Tuesday.

The two companies are owned by Acromas, which appointed Ernst & Young to carry out vendor due diligence last week as its private equity owners Charterhouse, CVC and Permira explore valuations for the companies as two separate entities.

The AA could be sold or floated on the stock market for as much as 5 billion pounds ($8.10 billion) while Saga has been valued at around 3 billion pounds, banking sources said.

Acromas was formed in 2007 though the 6.2 billion pound private equity-backed merger of AA and Saga, which was funded with a 4.8 billion pound leveraged loan at the peak of the buyout boom.

Arrangers Barclays and Mizuho tried to syndicate the buyout loan but were unable to do so after the market collapsed. Both banks were forced to hold the debt although the business has performed well in the interim.

SEPTEMBER PITCHES

Bankers pitched new debt packages to the AA and Saga in September to cover either a sale or IPO. An acquisition would require debt for either a corporate strategic buyer or a private equity-led buyout and floatations usually require either pre- or post-IPO financing.

The debt packages are expected to include loans and bonds and could be denominated in sterling and euros due to their size.

"Banks are pitching financing for two standalone businesses. Both the loan and bond market would need to be accessed for such a large deal and there isn't the capacity to raise all the debt in pounds. Euros would be needed as well," a banker said.

A sale of AA would need around 3 billion pounds of debt and Saga's debt financing would be smaller, bankers said.

Sale or flotation of the businesses would allow Acromas to return cash to its private equity owners.

A decision is not pressing as Acromas's loans are not due to be repaid until 2015. Other options include refinancing Acromas's existing debt or a fresh capital injection from a new investor. A decision is expected by mid-2013.

"As we approach the first phase of our debt maturity in 2015, shareholders of the business will inevitably want to consider their options," a spokesman for Acromas said.

The euro zone crisis has reduced banks' ability to underwrite large financing packages and difficult debt market conditions are prompting financing discussions on jumbo buyouts at an earlier stage than before the credit crisis.

Early financing discussions have also been seen recently on the potential 8 billion pound sale of UK retailer M&S, which would require a 4 billion pound debt financing.

(Reporting by Claire Ruckin; Editing by Tessa Walsh and Catherine Evans)

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