Deals

HSBC rail sale could reach commercial close late October

An agreement to sell the bank’s rolling stock unit could be signed later this month or in early November, with financial close expected a month after. A Morgan Stanley/3i consortium is trying to raise £1.2bn in bank debt and £500m in bonds to fund the acquisition.

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The sale of British bank HSBC’s rolling stock unit to a consortium including infrastructure funds managed by 3i and Morgan Stanley as well as UK-based investment firm Star Capital could reach commercial close later this month or in early November, a source familiar with the negotiations said.
Financial close would then follow a month afterwards, the source added.
HSBC is seeking to net around £2 billion (€2.3 billion; $3 billion) from the sale of its rail unit – one of the UK’s three major rolling stock leasing companies that were privatised in the early 1990s. The rail unit owns a fleet of over 4,000 trains and its sale has been planned since 2008. But the financial crisis and its impact on the price of bank debt led the bank to temporarily shelve the sale.
To enable the purchase of the rail unit, the Morgan Stanley/3i/ Star Capital consortium is seeking to raise about £1.2 billion of commercial bank debt and around £500 million of bonds.
Credit Agricole, HSBC, ING, Lloyds, Royal Bank of Canda, Royal Bank of Scotland, Societe Generale and Sumitomo Mitsui Financial Group are part of the bank club that will provide debt for the deal, the source said.
The £1.2 billion in loans will include a four-year tranche paying a starting price of 200 basis points over the benchmark lending rates and a six-year portion with a starting margin of 225 basis points, according to Bloomberg.
The sale of HSBC rail attracted widespread market attention with media reports mentioning the likes of CVC Capital Partners, Terra Firma, Macquarie, JP Morgan and RREEF as some of the firms that had potentially looked at the deal or initially expressed interest in it. 
UK rolling stock companies have proved popular with investors due to their long-term contracts and steady cash flows. In June 2008, Royal Bank of Scotland sold its rolling stock leasing firm, Angel Trains, to Australian investor Babcock & Brown for about £3.6 billion. Following Babcock & Brown’s demise, Angel Trains is now a portfolio company of Babcock & Brown spinout Arcus Infrastructure Partners. 
Later that year, Deutsche Bank, Lloyds and Antin Infrastructure – a fund sponsored by French bank BNP Paribas – paid £2 billion for Porterbrook, Abbey National’s rolling stock firm. Abbey National is now part of Spanish bank Santander.