If the deal goes ahead it will be the first of a new generation of super-jumbo leveraged buy-outs in Europe — a development that has been expected since Philip Green's attempt to buy UK retailer Marks & Spencer last year.
The entrepreneur's bid may have failed, but by securing the debt finance for a £9bn leveraged buy-out, he brought a swathe of much bigger companies, with enterprise values of at least Eu8bn-Eu12bn, within range of the private equity funds.
The price being discussed for Wind would make it more than twice as big as the previous largest leveraged buy-out in Europe, the Eu5.7bn sale of Seat Pagine Gialle, the Italian directories business, in 2003.
"It will be a truly amazing deal," said one head of loan distribution. "The equity contribution still leaves a huge amount to raise in the market."
Bankers said the financing was likely to include high yield bonds, as well as a carefully structured package of leveraged loans.
In another sign of the intense bull run in leveraged finance, Seat Pagine Gialle returned to the market this week to refinance its Eu3.2bn of senior debt — not to raise leverage and take money out, but to reduce its cost of funds. The firm has mandated BNP Paribas to arrange the refinancing.
ABN Amro, Deutsche Bank and SanpaoloIMI are arranging the financing for Weather Investments.
The consortium is led by Naguib Sawiris, the Egyptian entrepreneur. His family is believed to have pledged between Eu2.5bn and Eu3bn of its own money as equity for the bid. The consortium also consists of Philippe Nguyen, head of French private investment group IPE, and Wilbur Ross, the US buy-out investor.
The news of Weather's success reversed previous market expectations that a consortium led by Blackstone would win the auction.
Blackstone was backed by seven banks, led by Lehman Brothers. The others were BNP Paribas, Citigroup, Credit Suisse First Boston, JP Morgan, Mediobanca and Royal Bank of Scotland.
Careful structuring needed
Deals that require as much debt as the Wind buy-out do require some financial engineering.
Philip Green's bid for Marks & Spencer was thought to include £1.05bn of his equity, with another £405m of equity coming from banks, leaving around £7.5bn of debt. Green had loan financing in place from five banks: Barclays, HBOS, Goldman Sachs, Merrill Lynch and Royal Bank of Scotland.
Bankers predicted at the time that Green would have to make sure the leverage used for the acquisition would put the UK retailer in the rating range of BB to BB+ — higher than the typical LBO — to keep banks comfortable with the credit risk.
Also, the term bank debt was expected to be reduced by structuring some of it as a bridge to a property securitisation or high yield bond. Some tranches might have also been kept as bilateral loans from the lead banks.
But because the M&S deal never materialised, the market did not have the chance to see and evaluate the exact structure. Therefore, bankers will pay careful attention to the structure of the Wind buy-out, which will be a test case for the future of ultra-large European LBOs.
Wind has about Eu7bn of existing debt which will need to be refinanced through the new debt structure.
"Banks had very large hold levels on the most recent deals and will need to increase those levels a lot for a new deal to happen," said a banker familiar with the transaction. "It will make life very interesting in the leveraged loan market."
The biggest chunk of Wind's existing debt is a Eu5.5bn 10 year project financing for its development of high speed broadband networks.
That transaction, signed in 2001, includes a Eu4bn term loan and a Eu1.5bn revolver and pays a margin of Euribor plus 175bp, sliding down to 65bp based on leverage levels.
Wind has another 10 year project financing facility from 2001, of Eu1.5bn, which was for developing Italy's mobile phone network and a fixed-line network. It pays a margin of Euribor plus 175bp.
