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HomeBusinessSubway proposes $5 billion debt plan to make $10 billion sale, report...

Subway proposes $5 billion debt plan to make $10 billion sale, report says

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Since the beginning of the year Subway has been exploring a sale. In February, Subway announced its decision to sell and said that a leading bank would oversee the sale. A recent report by a popular outlet said that according to people familiar with the matter there was a $5 billion debt plan available so that the sandwich chain could get a deal worth more than $10 billion.

Reuters reported that sources have told them that Subway has received bids ranging between $8.5 billion to $10 billion. Now, its financial advisor JP Morgan Chase & Co. has devised a $5 billion debt financing plan that could attract buyout firms and convince them that Subway is an attractive deal even at a valuation that is above $10 billion.

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The sources also told the outlet that the debt financing plan consists of loans and bonds. The size is roughly 6.75 times Subway’s earnings for a 12-month period before interest, taxes, as well as depreciation and amortization of approximately $750 million.

The sources also called this plan a temporary one. They mentioned a cheaper option that would be to opt for financing the acquisition through whole business securitization (WBS). This would be a long-term solution and would consist of borrowing money using restaurant franchise royalties as collateral for loans. Barclays could offer a WBS scheme.

The sources also said that bidders might have to rely on the package proposed by JPMorgan or make their own financial arrangements to finalize a deal with Subway. They could opt for a WBS scheme later as this type of financing requires a lot of time and could take over a year.

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Milford, Connecticut based Subway will let bidders use a financial plan of their choice. The sandwich franchise only wants the bidders to show that they can get committed financing. It will allow bidders to form teams if they wish. The sources also said that the bidders after the second round of the auction had been narrowed to the following private equity firms.
The firms that remain in the bidding process individually or possibly through teams are the following:
Bain Capital
TPG
Advent International Corp
TDR Capital
Goldman Sachs’s buyout arm and
Roark Capital.

While the sources requested anonymity as the deal is confidential and ongoing, the private equity firms, Subway, Barclays, and JP Morgan declined to comment.

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