Reed's finance offer seen falling short

By Jui Chakravorty Das

NEW YORK (Reuters) - The financing package offered by Reed Elsevier (REL.L) in the sale of its trade publication unit might come in smaller than expected, causing bidders to re-examine their offers, a source familiar with the matter said on Monday.

Only a few bidders remain in the third-round auction of Reed Business Information, the source said, as the Anglo-Dutch publisher tries to sell the unit amid a credit crisis that started last year and has worsened over the past few months.

Now, chaos in the credit markets has led one bank in the lending consortium to back off tentatively, leaving a shortfall of up to about $200 million (114.6 million pounds) in the staple financing package of $1.26 billion, the source added.

Staple financing, so called because the details are stapled to the back of a deal sheet, is prearranged by a seller and offered to potential bidders. The package used to be a target for bidders to beat, but it is becoming a more common way to get a deal done in difficult debt markets.

Reed, which owns titles such as Variety, Farmers Weekly and New Scientist, had put together a $1.26 billion staple financing package from a consortium of banks, a source had previously told Reuters. It was also offering $330 million from its own balance sheet in vendor financing for the sale of the unit.

But the package could now be smaller than originally promised, and bidders are re-examining offers amid increasing uncertainty.

Reed declined to comment.

Reed's offer to provide a vendor loan from its own books also reflects a growing trend aimed at reducing the amount of debt a bidder needs and to bring down leverage ratios in asset sales.