April 21, 2008 1:35 pm

GE Rail Services for sale, auction in first round

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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GE Rail Services, a unit of General Electric’s GE Equipment Services, is understood to be for sale, and is in the first round of bids, mergermarket reports.

The railcar leasing company is thought to be slightly smaller than its publicly listed competitor, GATX. NYSE-listed GATX has a USD 1.8bn market cap.

On 17 April, CIT Group announced that it would explore strategic alternatives for its USD 4bn railcar leasing business, which directly competes with GE Rail Services.

It was agreed that potential buyers for GE Rail Services were expected to look at CIT’s railcar leasing business as well.

This news service previously reported that CIT Group was garnering robust attention for some of its selected assets, including the transportation leasing and corporate finance businesses. It was reported that GE, Blackstone, JC Flowers, Wells Fargo, Citadel, and at least two other hedge funds were believed to be browsing the assets.

It was further explained that financing is expected for both these transactions because financiers tend to be comfortable lending against railcars. Based on the stability of the business, lenders would likely offer a 60% to 85% loan-to-value (LTV), it is understood.

In comparing GE Rail Services assets and CIT’s railcar leasing unit, it was said that although GE’s fleet of railcars is older than CIT’s, it is considered a higher margin business. The depreciation of newer equipment is higher in the first year compared to the lease rate, whereas for older assets this does not hold true, it was explained.

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