Britain's Cadbury Schweppes is unsure of the value of bids it will receive for its U.S. drinks arm as a result of turbulent debt markets, a source familiar with the matter said on Thursday.

The auction will test to what extent the recent turbulence in debt markets has reduced the ability of buyout firms to offer compelling terms, the source said.

The Times newspaper earlier said Cadbury could be forced to delay or even abandon the multi-billion pound sale of its U.S. drinks business.

The Times said the sale, which is being handled by Morgan Stanley, Goldman Sachs and UBS, could run into trouble after the banks were forced to lower the amount of debt -- called staple debt -- available for the deal.

"The bottom line is the structure that we had before wouldn't have worked," the newspaper quoted an unidentified source as saying.

Corporate debt markets have been convulsed by fears over fallout from the troubled U.S. subprime mortgage market, unwinding of leveraged positions by hedge funds and the amount of LBO loan and bond funding that needs to be raised.

Kohlberg Kravis Roberts & Co. is locked in talks with its banks on the terms of debt of 9 billion pounds ($18.54 billion) backing the buyout of Alliance Boots, the largest-ever buyout in Europe.

Bank balance sheets are creaking under the strain of already committed financing, naturally reducing their appetite for providing further funding until the backlog clears.

Many of the existing deals were agreed with highly aggressive structures before trouble arose in the credit markets, making them hard to sell to nervous investors.

The Times said the price tag for Cadbury's U.S. arm was believed to have dropped by as much as 1 billion pounds to around 7 billion.

Cadbury declined to comment.