Bankers: Viridian Loan Package A Work In Progress

LONDON (Reuters) – Bankers are working on proposals for a loan to finance the possible sale of Northern Irish electricity firm Viridian Group by sponsor Arcapita, banking sources said on Wednesday.

Bahrain-based investment fund Arcapita hired Dresdner Kleinwort earlier this year to advise on a strategic review of the group, including the sale of Viridian or disposals of other assets, bankers said.

The loan is at a preliminary stage, banking sources said. No mandate has been awarded yet, and a lack of detail around the sale process, coupled with difficult loan market conditions, means that a sale is seen as unlikely this year.

“There are a number of moving pieces at the moment. It’s unclear how things will look going forward, we’re not even in first round bids, and there is no firm timetable”, one of the bankers said.

The battered European loan market is likely to remain closed for new business for the remainder of the year, but banks are lining up well-structured deals in defensive sectors to boost next year’s deal pipeline, and Viridian is a good candidate, bankers said.

“Utilities are companies where you would expect, even in a recessionary environment, to see stable cash flows,” one banker said.

Another was sceptical that offers would meet Arcapita’s expectations of around 2 billion euros, but another banker said that is achievable for a defensive credit like Viridian.

A sale is likely to attract strategic trade buyers as well as private equity groups, one of the bankers said. The Sunday Times reported on Nov. 9 that Germany’s RWE (RWEG.DE: Quote, Profile, Research, Stock Buzz) and Irish state-owned Bord Gais are among the parties interested in the sale.

Bahrain-based investment firm Arcapita acquired Viridian in 2007, backed with a 1.87 billion pound leveraged loan arranged by mandated lead arrangers and underwriters Dresdner Kleinwort, Barclays, Citigroup and HSBC. Dresdner Kleinwort was the sole bookrunner.

Prospective trade and private equity buyers are now facing substantially higher borrowing costs in an illiquid loan market.

“It’s too early to discuss a specific structure, but the new financing needs to be more conservative than the existing one,” one banker close to the deal said.

(Reporting by Zaida Espana, editing by Will Waterman)