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Unrated listed UK transportation company National Express is considering a rights issue to strengthen its balance sheet and achieve an investment grade rating, a source close to the situation told Dealreporter.
The company is currently considering raising between GBP 350m and GBP 400m in new equity to shore up its balance sheet following its abandonment of its East Coast franchises, the source said.
The source said that the company still has too much debt and large looming maturities and so it is considering using a rights issue to help it qualify for an investment grade rating. Once this is achieved, the source said, the company will issue notes to further bolster its financial position.
National Express this week rebuffed a merger proposition from rival UK transport company First Group. National Express is being advised by Merrill Lynch and Morgan Stanley and First Group is being advised by JP Morgan Cazanove.
Jez Maiden, FD of National Express, refused to rule out a rights issue and refused to comment when asked about the size of an equity call. He said the company continues to consider all options, including the bond market, as potential options for deleveraging the balance sheet.
As of 31 December 2008 the company has a EUR 540m term loan facility maturing in September 2010 and a GBP 800m revolver due June 2011. Royal Bank of Scotland, Dresdner Kleinwort, Barclays Capital and Banco Bilbao Vizcaya Argentina are lenders on both the 2010 and 2011 facilities. The 2011 loan includes seven additional lenders.
One of the lenders suggested the company could pursue a forward start or “best efforts” transaction or forward start facility to refinance its loans. A best efforts transaction is one in which there is no underwriter but a few bookrunners who, having committed some loan financing, then shop the deal to additional banks to increase the size of the facility. The lender said this option could be open to National Express, but added that the company would have to be entirely transparent with lenders, especially concerning the remaining franchises, as right now it has the worst name in the market and its credit worthiness is in question.
Maiden added however that a forward start is not being considered as it would be too costly and have limited benefits for the company.
The first source mentioned said that a rights issue, followed by bonds, is the more likely route and added that the company is still open to being acquired or merging. The source further noted that the proposition by First Group did not reflect the real value of the company and said that the company would first conduct its balance sheet repair and achieve a better position to negotiate any merger or takeover offers.
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