The banks overseeing the sale of Subway have provided the private equity firms vying for the sandwich chain with a $5 billion acquisition financing plan in the hopes of achieving the company’s asking price of over $10 billion, Reuters has reported.
Since Subway announced in February that it was exploring a sale, interest rates have risen and concerns about an economic slowdown have increased, making debt more costly and less accessible for buyout firms pursuing deals. This has an impact on how much private equity firms propose to pay for companies.
One of the sources quoted by Reuters stated that proposals for Subway have ranged between $8.5 billion and $10 billion thus far. JPMorgan Chase & Co., Subway’s financial adviser, hopes a $5 billion debt financing package will demonstrate to buyout firms that they can borrow enough to structure an attractive transaction at a valuation of $10 billion or more.
Barclays Plc, a significant player in the WBS financing market, is one of the banks involved in discussions regarding long-term financing.
According to sources, JPMorgan’s financing package includes the option of a preferred equity component with an approximate 15% interest rate. This is a more costly option that private equity firms may not choose, according to three sources.
Subway allows bidders to use any financing method they choose, so long as they can demonstrate they have committed financing.