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Tight credit markets have so disrupted the nearly $2 billion auction for Reed Business Information that seller Reed Elsevier plc is now offering part of the financing itself to attract private equity buyers.
The Times of London reports that staple financing for the £1 billion-plus ($1.98 billion-plus) auction has run into trouble.
This week the electronic information giant began to send out non-disclosure agreements for interested parties to sign after it managed to arrange enough loans that could be used by a potential buyer. However, it could not persuade banks to provide enough financing that would be attractive to a private equity group - by far the most likely buyer of the business. It has been forced to offer its own top-up loan to sweeten the deal.The banks, led by UBS, agreed to provide £450 million in financing, while Reed Elsevier would chip in another £100 million, the Times said. In June The Deal's Richard Morgan wrote: Reed Elsevier Group plc, is already making concessions to sell the business segment it previously believed would sell itself. The first concession is staple financing to the tune of £750 million, or nearly $1.5 billion. That amount falls just short of 6 times the $253 million that RBI posted last year in adjusted operating profit. It's also nearly 90% of RBI's $1.7 billion in annual sales. Still, a multiple between 9 and 11 times adjusted operating profit would require a single buyer for all of RBI to come up with an additional $750 million to $1.25 billion. And that's a lot of coin for B2B buyers in a market currently defined by its credit constraints.With the staple financing in place, the auction should see plenty of interest from private equity firms. The Times listed financial sponsors such as Advent International Corp., 3i plc, Candover Investments plc, Cinven Ltd., Providence Equity Partners Inc., Permira Advisers LLP and Apax Partners Worldwide LLP as likely participants. Reed Elsevier isn't the only publisher troubled by the credit markets. American Media Inc., owned by buyout shops Thomas H. Lee Partners LP and Evercore Partners Inc., needs to refinance at least $389.5 million of a $400 million series of notes due by February 2009. Richard Morgan writes: If it can't, a so-called springing maturity in AMI's credit agreement will force the same maturity date on two other company obligations....[resulting in] a huge maturity representing the bulk of AMI's $1.1 billion in outstanding debt. And for a company with fiscal 2008 Ebitda of $123.2 million refinancing the equivalent of 7.4 times Ebitda or amending its credit agreement to accommodate maturity extensions could prove an insurmountable challenge.Inability to refinance debt at anywhere near the favorable terms seen in 2006-2007 has been a albatross around the neck of many highly leveraged private equity portfolio companies. It has also spurred a shift of money into distressed asset funds in the expectation of a flood of opportunities. Nevertheless, the loose debt terms buyout shops secured over the past two years has kept a flood of bankruptcy filings at bay. - George White See Times of London story See The Deal.com story on Reed Elsevier See Auction Block entry on Reed Elsevier See The Deal.com story on American Media Categories Deal Video
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