Volkswagen seeks €6.5 billion financing for Everllence stake sale

Investing.com -- Bankers are measuring interest for up to €6.5 billion ($7.7 billion) in financing to support the potential sale of a majority stake in Volkswagen AG's heavy diesel-engine unit Everllence SE, according to a Bloomberg report on Tuesday.

A lender education process is reportedly currently underway with several banks that could finance potential bids along with working capital.

Volkswagen is working with Goldman Sachs Group Inc. and JPMorgan Chase & Co. on the divestment, which could value the unit at more than €5 billion. With first-round bids approaching, bankers are said to be working out financing structures for the deal.

Potential lenders will receive an early look at Everllence, which manufactures ship engines and power-plant turbines, as the company needs to secure substantial borrowing lines. The unit requires around €2 billion in guarantee and revolving credit facilities, meaning any buyer will need to distribute that amount among numerous lenders.

The financing package is expected to include approximately €3.5 billion to €4.5 billion in drawn facilities. This represents about 4.5 to 6 times the firm's estimated €750 million earnings before interest, taxes, depreciation and amortization, depending on whether an all-senior financing structure is used or if it includes a payment-in-kind tranche.

The senior debt will likely take the form of leveraged loans in euros and dollars, with high-yield bonds also under consideration.

The transaction would mark the second multi-billion euro industrial carveout in Germany this year, as large corporations increasingly focus on core operations. Bankers are also currently assembling debt packages of approximately €2.5 billion to support an acquisition of Continental AG's industrial ContiTech unit.

The Everllence sale comes as Volkswagen faces pressure to increase profitability and streamline its operations. The automaker is confronting technological competition, declining demand in major markets, and growing competition all around the globe.

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