UPDATE 1-RLPC-Banks prepare debt packages for Avio sale or refinancing

Wed Nov 21, 2012 12:14am IST

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* Bankers working on debt if Avio sold to buyout consortium

* Refi, dividend payment also on cards if sale falls through

By Claire Ruckin

LONDON, Nov 20 (Reuters) - Bankers are preparing up to 2 billion euros ($2.6 billion) of debt to back a buyout of Avio as private equity owner Cinven presses ahead with its sale of the airplane parts supplier, banking sources said on Tuesday.

Avio asked regulators for authority to list in October 2011 and again in May 2012, after market conditions deteriorated. The company has until May 2013 to launch an IPO but is also working on a sale as one of its alternative options.

Bankers are pressing ahead with debt packages in case a private equity consortium of CVC Capital Partners, Clessidra and state-backed Fondo Strategico Italiano (FSI) lands the sale, despite General Electric emerging as a front runner to buy the company..

French group Safran, which has interests in airplanes, aerospace and defence, has also been close to Avio, some analysts say.

Bankers are also working on options in case the sale falls through, including refinancing the company's debt and allowing Cinven to pay itself a dividend, known as a dividend recapitalisation, bankers said.

"In its current form Avio is a strong credit and it could do a dividend recapitalisation if other options fall away. It is obviously on people's radar screens," one of the bankers said.

A second banker added: "There are a lot of options available to Cinven including the equity markets, a sale or a dividend recap. Avio has been on and off the block for a long time and bankers are waiting to see what route the seller takes.

"Anything is viable."

If a sale to private equity goes ahead, the buyout will be backed by between 1.5 and 2 billion euros of debt accessed through leveraged loans and high-yield bonds.

The Italian company has a large revenue stream from the United States so a significant part of the debt will be denominated in dollars.

The deal is also likely to be "covenant lite", similar to other deals in the United States at the moment and typical of a strong market. They are more favourable to borrowers as they do not contain as many restrictions on servicing the debt.

Avio, based in Turin in northern Italy, supplies engine parts for the Eurofighter Typhoon and for General Electric and Rolls Royce.

It had 2011 revenue of more than 2 billion euros and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 384.2 million euros.

Cinven bought Avio in 2006, backed by 2.1 billion euros of debt, according to Thomson Reuters LPC data. Cinven owns 81 percent of the company, state-controlled defence company Finmeccanica owns 14 percent and other shareholders own 5 percent.

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