The planned US$42 billion leveraged buyout (LBO) of Canada’s BCE – parent company of Bell Canada and Bell Canada Mobility – has been thrown into doubt following news yesterday that it might not be able to meet the solvency requirements of the takeover. The firm’s auditor in the deal, KPMG, has warned that the current crisis in the world’s credit markets has led to concerns that the buyout could see the new company take on too much debt, prompting fears that buyers may back out of the deal. The deal would take the operator into private ownership and is considered one of the world’s largest-ever LBOs. It is scheduled to close on December 10, though Bell Canada may now need to renegotiate solvency terms. “The company disagrees that the addition of the LBO debt would result in BCE not meeting the technical solvency definition,” said BCE chief executive George Cope.
The buyout was first announced in June 2007 and is being led by Providence Equity Partners and Ontario Teachers’ Pension Plan. However, Wall Street Journal notes that since the global crisis began many similar deals have either been scrapped or ended up in litigation; BCE has already faced several attempts from shareholders to block the deal. The report notes that the collapse of the deal would benefit the financing banks – led by Citigroup, Deutsche Bank, the Royal Bank of Scotland and Toronto Dominion – which would need to resell the bonds and loans into a debt market trading near record lows, or else hold them on their balance sheets.