Morgan Stanley/3i in advanced talks for HSBC Rail

The consortium, which also includes Star Capital, is now in advanced negotiations to purchase HSBC’s rolling stock unit – valued at about £2bn. The sale is expected to be concluded by the end of summer with a club of over 10 banks providing a staple finance package to the winner.

A consortium comprising infrastructure funds managed by 3i and Morgan Stanley as well as UK-based investment firm Star Capital is now in advanced negotiations to buy HSBC’s rail unit, a source close to the deal told
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 which 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 shelve the sale at the time.
The Morgan Stanley/3i/Star Capital consortium is also holding talks with the bank club that is said to be providing a £1.7 billion staple package, split into £1.2 billion of short-term bank debt and £500 million in long-term bonds. HSBC, Lloyds, SMBC and Societe Generale are some of the banks involved in a club which is thought to include more than 10 banks.
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 REEFF as some of the firms that have potentially looked at the deal or initially expressed interest in it. However, none of them are thought to have proceeded further, the source indicated.
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.
HSBC, Star Capital and Morgan Stanley declined to comment on the reports while 3i could not be reached for comment at press time.