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CVC's bridges with banks key to Abertis deal

AMSTERDAM/MADRID (Reuters) - Attempts by CVC Capital Partners CVC.UL to put together a multibillion-euro financing package to buy into Spanish infrastructure operator Abertis ABE.MC face a challenging environment for major infrastructure deals.

Such deals, like ACS's sale of its Spanish ports and the divestment of Endesa's ELE.MC Spanish gas grid, have run up against a reluctance among banks to provide credit approval during Spain's financial downturn.

But a deal for Abertis, which primarily operates toll roads, airports and car parks, may be helped along by what analysts see as an undemanding valuation.

Although the structure of any acquisition alongside two existing shareholders - Spanish builder ACS ACS.MC and La Caixa's investment firm Criteria CRIT.MC - is not yet clear, CVC is expected to need to raise up to 8 billion euros in debt in order to take over Abertis.

This is because most market analysts see Abertis attracting an offer from the consortium of at least 16 euros per share, meaning the group would have to put together a 12 billion euro deal, backed by a loan of up to 8 billion euros.

That amount of leverage is important. A 67/33 debt-equity split would, according to Exane BNP Paribas analysts, enable the investment vehicle acquiring Abertis to keep an investment-grade credit rating following any asset sales.

Abertis’s five-year credit default swaps traded at about 400 basis points on Tuesday, some 45 basis points wider than on Monday, according to Markit, as debt investors fretted over the leveraging up of the company in a potential takeover.

Late on Tuesday, a person close to the situation told Reuters that a financing package of between 6 and 7 billion euros was on track to close next week.

Data from Thomson Reuters Loan Pricing Corporation shows that Abertis has a relationship with at least 16 banks that have already lent to the company.

Abertis is also diversified geographically, with debt-laden Spain representing only 52 percent of 2009 consolidated revenues thanks to the purchase of French motorway concessions in 2005 and expansion in Chile, Societe Generale analysts point out.

HIDDEN VALUE

At a current price of 14 euros per share, Abertis trades at 14.5 times forward earnings, compared with road operators such as Italy's Atlantia ATL.MI and France's APRR APRR.PA, which trade at 12.3 and 10.4 times respectively, according to Thomson Reuters Starmine. Portugal's Brisa BRI.LS is at 19.5 times.

“Cash flow generation remains very solid and access to financing is still there,” UBS analysts wrote in note on Abertis on Tuesday.

“Traffic can be low for some time, inflation too, but such a strong free cash flow has a price, and in our view stocks such as Abertis or Brisa look undervalued.”

A major driver in any deal to sell part of their stakes to CVC would be quick reliable returns for ACS and La Caixa. ACS wants to raise its stake in power utility Iberdrola IBE.MC, while La Caixa seeks to boost its core Tier 1 ratio.

ACS currently owns 26 percent of Abertis and Criteria 29 percent. Were an offer for Abertis be launched at 16.5 euros per share, ACS would net 2.96 billion euros post tax on its stake and Criteria 3.052 billion euros, Exane BNP Paribas analysts suggested on Tuesday.

“Even if they both reinvest 1 billion euros into the special purpose vehicle, keeping majority control, this would leave ACS with 2 billion euros to purchase some Iberdrola shares,” the analysts wrote in a note.

The source close to the financing told Reuters that Criteria is targeting a stake of over 28 percent in Abertis after the buyout, while CVC's stake would be slightly less and ACS's ACS.MC stake would be about 20 percent.

Industry sources said the consortium could try to squeeze cash from Abertis by disposing of non-core assets and leveraging on cash flow-generative activities such as motorways, airports and telecoms.

This means that the listed stakes of Abertis in Brisa, Atlantia and Eutelsat ETL.PA, as well as the company's logistics businesses could be put under the hammer, although the divestment of some could take time, the sources said.

CVC has done several deals in Spain and its investments include hair and nail products maker Colomer and can manufacturer Mivisa, and stakes in clothing retailer Cortefiel, fast food group Zena and cable network operator Operador R.

(Editing by David Cowell)

Additional reporting by Quentin Webb, Zaida Espana and Jane Merriman in London

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