LONDON, Sept 26 (LPC) - Bankers are preparing up to €7bn of debt financing to back a potential sale of German Thyssenkrupp’s elevator unit, banking sources said.
This month, Thyssenkrupp started a structured process to look for potential buyers for all or part of the unit, its most profitable division, which has a price tag of around €17bn.
The sale process is set to progress within the next two weeks, following the ousting of CEO Guido Kerkhoff this week after 14 months at the troubled €8bn German industrial conglomerate.
Investors lost confidence in Kerkhoff, no longer believing the 51-year old could deliver on a turnaround that included selling the elevator division. During his tenure, the German steel-to-submarines conglomerate struggled to cope with falling steel prices and issued four profit warnings.
Thyssenkrupp is expected to either sell the whole of its elevator business or a minority share of around 40%. In either scenario, both trade buyers and sponsors are interested.
“The departure of the CEO matters in so far as it determines which structure they go down -- whether it is a minority investment or a clean sale -- but will have very little impact on the leveragability of the business,” a capital markets head said.
Bankers are working on debt packages for both scenarios. A sale of the whole unit to a sponsor would place debt at around €7bn-equivalent, or around 6.5 times the unit’s approximate €1bn Ebitda, including undrawn facilities.
The sale of a 40% minority stake could place around €2bn of debt at the holdco level that would be leveraged, along with some €800m-equivalent of debt at an opco level, in line with Thyssenkrupp’s investment-grade rating.
Debt is expected to include leveraged loans and high-yield bonds, denominated in euros and dollars.
Thyssenkrupp was not immediately available to comment.
Ultimately leveraged finance lenders would prefer an outright sale that will present one of the largest event-driven buyout financings of the year, enabling higher underwriting fees and a decent amount of paper for cash-rich investors to deploy -- something the market hasn’t seen much of in 2019.
Servicing debt on a minority stake would be more complicated as it would entail upstreaming dividends to the holdco.
Yet, if the business relies on performance guarantees, Thyssenkrupp would be seen as a stronger shareholder than a private equity-owned business.
“The sale of everything is cleaner as you are financing a company directly and won’t need to rely on an ability to upstream dividends in order to service debt. There are always concerns that the company may not pay the dividends,” the capital markets head said.
“It is also harder to sell a deal as senior secured which is technically subordinated. People would ideally prefer to do the whole shooting match in one.”
Strong contenders for the elevator units include private equity groups KKR, Blackstone, CVC and Clayton Dubilier & Rice as well as a consortium consisting of Advent, Cinven and the Abu Dhabi Investment Authority. Strategic firms Kone and Hitachi are also strong contenders, Reuters reported.
The elevator unit is perceived to be a well established, strong company but there will be concerns over cyclicality in terms of its exposure to recession and a decline in new builds.
However, this should be mitigated by a large existing client-base, which will need their lifts updated and maintained on a regular basis, bankers said. (Editing by Christopher Mangham)