September 18, 2014 / 7:57 PM / 3 years ago

UPDATE 1-ZF net debt seen at $11 bln after TRW deal -source

(Adds financing details)

FRANKFURT, Sept 18 (Reuters) - German auto supplier ZF Friedrichhafen's net debt will rise to some 8.5 billion euros ($11 billion), or about 2.4 times core earnings (EBITDA), after it buys rival TRW, a banker familiar with the deal said.

Earlier this week, ZF agreed to buy U.S.-based TRW for $13.5 billion including debt, paying $105.60 in cash for each TRW share, or nearly $12 billion based on shares outstanding.

Unlisted ZF, which is controlled by a foundation, had no long-term debt before the takeover, the banker said. ZF declined to comment for this story.

The acquisition of Livonia, Michigan-based TRW, which makes airbags, electronics, and electronic sensors, by ZF, itself a major provider of steering systems and drivetrains, will create one of the largest auto supply firms in the world.

The acquisition is backed by a 12.5 billion euro loan financing from Deutsche Bank and Citigroup, which includes a bridge loan, a revolving credit and bank loans, bankers familiar with the matter said.

All of the loans are expected to pay interest margins of 225 basis points (bps) to 275 bps, one of the bankers said.

Deutsche Bank and Citigroup will syndicate the loan to around 20 banks, including existing and new lenders, banking sources said.

Banks have been asked to commit 750 million euros each, which could be reduced if the deal is oversubscribed as expected, the bankers said.

ZF is seeking a credit rating so it can eventually replace the bank loans with investment-grade bonds.

To achieve an investment-grade rating, it needs to bring down its net debt to EBITDA (earnings before interest tax, depreciation and amortisation) ratio to about 2 times.

Net debt will be about 8.5 billion euros after accounting for existing cash and liquid financial assets of the two companies, one source said. Based on a combined EBITDA of some 3.1 billion euros for ZF and TRW in 2013, that would give ZF debt leverage of around 2.7.

Assuming ZF and TRW continue growing, their combined EBITDA would amount to 3.5 billion euros at the end of 2014, the banker said, which would bring its net debt to EBITDA ratio to 2.4.

This figure excludes proceeds from the sale of a steering systems joint venture which ZF sold to Bosch this week for more than 550 million euros, one of the people familiar with the transaction said.

1 US dollar = 0.7768 euro Reporting by Edward Taylor; additional reporting by Claire Ruckin; editing by Thomas Atkins, David Clarke and Tessa Walsh

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