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Cadbury Schweppes is far more likely to sell its Americas Beverages division than spin it off, according to a source close to the situation and a lending source.

In fact, private equity firms involved in the auction are looking at alternative financing sources, and one of the bidders may be close to signing a deal, according to one of the two sources.

A sell-side insider said, “it doesn’t sound like any deal is imminent”.

A Cadbury spokesperson declined comment.

One buy-side source said there is no way that banks will agree to make loan commitments to the tune of USD 8bn to USD 9bn on the deal in the current markets, and that’s the only source of financing available to private equity.

However, another source close to the situation said that there are alternative sources of financing that would allow for an LBO at a reasonably attractive price.

The two consortia competing for the deal are Blackstone Group, Kohlberg Kravis Roberts and Lion Capital, and the second is Bain Capital, Thomas H. Lee Partners and the Texas Pacific Group.

A third buy-side source said there are no high-level conversations at the moment between Cadbury and the private equity bidders, but the deal remains active.

The source close to the situation said that the private equity firms are going to have to be more creative in financing the deal in order to get something done. He said that the traditional approach will have to be discarded and that Cadbury will also have to be creative in the sale of the beverage division.

He would not give further details of the alternative financing plans for fear of spoiling the outcome.

Cadbury has recently said it is considering a demerger, while continuing discussions with buyers interested in Americas Beverages.

Cadbury prefers the sale route to a spin-off because it would bring in huge cash proceeds, said two buy-side sources and a lending source. Besides, a spin-off of Americas Beverages may not trade well in the current market, said one of the buy-side sources.

For one thing, there are flowback issues with a spin-ff, said one of the buyside sources. Cadbury shareholders, who are mostly in the UK, might dump shares in Americas Beverages, because those investors are not mandated to hold US companies.

Cadbury put off the sale process when debt financing for LBOs dried up recently. The debt being offered by lenders on Americas Beverages shrank from 9.25 to something with a 7 handle, said one of the lending sources, while interest rates on the debt kept going higher, said the lending source.

Although Cadbury would prefer a sale to a spin-off, it may not want to wait indefinitely for debt markets to recover, and the backlog in the debt markets will be around well into October at least, said the lending source.

Right now Cadbury is running a dual-track process, and preparing Americas Beverages for a spin-off will take at least two more months if not more, said two industry bankers and the lending source.

If financing markets come back in the meantime, the PE buyers can jump in and make an offer, said one of the buy-side sources and the industry bankers.

Expectations on the sale price for Americas Beverages had climbed up to USD 16bn, but when lending multiples fell to 8.25 times EBITDA, it looked like the price tag would be between USD 13bn to USD 14bn.

Officials at the private equity firms did not return calls.

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