DEALTALK-Alltel deal not your typical quick flip

By Megan Davies

NEW YORK, June 5 (Reuters) - The $28.1 billion sale of Alltel Corp. just seven months after two private equity firms bought the wireless carrier isn't a typical 'quick flip', more an opportunistic deal amid a tough credit market.

TPG Capital [TPG.UL] and Goldman Sachs Group Inc.'s (GS.N) GS Capital Partners bought the phone company in November in a $27.5 billion leveraged buyout -- the largest-ever private equity investment in the U.S. wireless industry.

Under the deal announced on Thursday, Verizon is paying $5.9 billion for the equity part of Alltel, making a $1.3 billion profit for the buyout firms, which invested $4.6 billion equity in the original deal, two sources close to the deal said.

That works out to their earning about 1.3 times their equity investment -- which may sound juicy for such a short time but is below the typical two-to-three times earnings that private equity firms usually require.

"Three to five years is a normal frame for a private equity firm to hold an asset," said David Stone, a lead partner at law firm Neal Gerber Eisenberg LLP, who was not involved in the deal. "In a sizzling market, they'll do turns in a year or two. This is anything but a hot market."

But in Alltel's case, the owners were not marketing the company for sale, two of the sources familiar with the deal said. It happened because Verizon's Chief Executive Ivan Seidenberg approached Goldman Sach's CEO Lloyd Blankfein a few months ago, one of those sources said. Talks began in earnest in the past few weeks.

Verizon has been long seen by analysts as a natural buyer for Alltel, so when the approach was made, Alltel's owners took it seriously, the two sources said.

One of the sources described it as a difficult decision to sell now, as opposed to hanging on.

DEBT MARKET

The deal was done amid a backdrop of turbulent debt markets. Taking the view that tougher credit is here to stay, it was seen as harder for Alltel to raise capital for investment or acquisitions under the company's existing debt structure, the first source said.

Alltel's junk-rated debt surged in active trade, indicating expectations of stronger credit quality for the company. Alltel's 7 percent bond due 2012 jumped 5.25 cents to 104.25 cents on the dollar, according to MarketAxess.

For the banks, which had lent money for the leveraged buyout, there also appeared a reason to move the loans.

"This is not a typical flip. This appears to be all driven by unloading the debt," said Stone.

Most of the debt Verizon is acquiring is bank debt and is to be paid at closing, said a third separate source familiar with the deal.

Another chunk of debt is a bridge loan of $6.7 billion, two sources said. Verizon said it agreed take on about $5 billion of the bridge loan before the deal closes and would buy the loans at a discount.

Verizon declined comment on the details of the debt beyond the face value and the discount.

The banks, which financed the deal in November, were Goldman Sachs, Citigroup (C.N), Royal Bank of Scotland (RBS.L) and Barclays (BARC.L), according to Alltel's filings at the time.

While the majority of the bank loan had already been syndicated -- sold by the banks to investors -- the bridge loan was still sitting on banks' books, a fourth source familiar with the deal said.

The bridge loan will be sold at a price of 93 cents and 96 cents, according to the third source. While that's below par, it is above the amount the banks would have received in the open market, which the source estimated to be 90 cents or less.

Investment banks have been writing down the value of loans stuck on their balance sheets, so to offload them at above market price is seen as a coup, another source familiar with the deal said.

The U.S. leveraged loan derivative index, a measure of credit risk in the leveraged loan market, rose to 99.25 cents on the dollar, from 98.87 cents at Wednesday's close, according to Markit, indicating greater confidence in the market.

The banks and private equity firms declined comment.

(Additional reporting by Jessica Hall, Sinead Carew, Karen Brettell and Joseph Giannone in New York, editing by Leslie Gevirtz)