By The Financial District
May 2, 20232 min
The bankers running the sale process for Subway have given the private equity firms vying for the sandwich chain a $5 billion acquisition financing plan.
Photo Insert: The debt financing is based on a mix of loans and bonds and its size is equivalent to 6.75 times Subway's 12-month earnings before interest, taxes, depreciation, and amortization (EBITDA) of about $750 million.
The proposal comes in hopes of overcoming a challenging environment for leveraged buyouts and fetching the company's asking price of more than $10 billion, people familiar with the matter said, Abigail Summerville and Anirban Sen reported for Reuters.
Interest rates have been rising and concerns about an economic slowdown have increased since Subway said in February it was exploring a sale, making debt more expensive and less available for buyout firms pursuing deals.
This is weighing on how much the private equity firms are offering to buy companies. So far, bids for Subway have ranged between $8.5 billion and $10 billion, one of the sources said.
Subway's financial adviser, JPMorgan Chase & Co., is now hoping a $5 billion debt financing package it has put forward will show buyout firms they can borrow enough to structure an attractive deal even at a $10 billion-plus valuation, the sources said.
The debt financing is based on a mix of loans and bonds and its size is equivalent to 6.75 times Subway's 12-month earnings before interest, taxes, depreciation, and amortization (EBITDA) of about $750 million, the sources added.
It is possible that this financing will serve only as a temporary solution.
This is because a cheaper option for a private-equity buyer of Subway would likely be to finance the acquisition long-term through a so-called whole business securitization (WBS), the sources said. This would involve borrowing using the royalties of restaurant franchises as collateral.