Merrill Lynch & Co. is applying American structures to a $1.522 billion acquisition loan for the Swedish machinery maker, Atlas Copco AB.
The New York investment house is expected to be in the market this week with the syndicated loan for Atlas' $1.16 billion purchase of Prime Service Inc. of Houston, the second-largest machinery rental company in the U.S.
The loan is one of the first large revolving credits to an investment- grade European company in which the interest rate will fluctuate on the basis of on the borrower's debt rating.
Pricing on a corporate debt ratings-based grid is common in the U.S., but "represents a significant evolution in the European syndicated loan market," said Michael Zupon, a managing director in leveraged finance at Merrill.
The pricing technique offers the borrower "the ability to achieve improved pricing during life of the facility, while offering the lender some modest pricing protection," said Mr. Zupon.
A $10 billion Citicorp-led loan currently in the market, backing the merger of British Telecommunications PLC and MCI Communications into a company to be known as Concert, is also priced on a grid and has features uncommon in Europe.
Where most European credits have longer tenors of seven or eight years, both the Atlas Copco and Concert loans have a standard U.S. tenor of five years. And unlike most European credits, neither carries up-front fees.
The U.S.-style credits emerging in Europe reflect the syndication market's increasing globalization, said observers.
"As the markets pull together, and as people look at syndication and distribution more on a global basis, you're going to see a crossing over between the two markets," said a U.S. syndicator.
The Merrill Lynch-led loan will be used primarily as a backstop for Atlas Copco commercial paper, to be issued for the acquisition. Atlas Copco will pay $32 per share, or $900 million for Prime Service, and assume $260 million in debt.
Merrill is acting as the arranger and syndication agent, with Swedish bank Oestgoeta Enskilda Bank as facility agent and co-arranger, and Citicorp as swingline agent and co-arranger of the deal and arranger of overnight borrowings.
A bank meeting will be held in London on Wednesday.
Commitment fees for the loan are 6.5 basis points for a double AA rating, 7.5 basis points for a single A rating, and 10 basis points for a triple BBB. Interest rate spreads are set at the London interbank offered rate plus 15 basis points, and Libor plus 20 basis points and Libor plus 22.5 basis points, respectively.
There is also a 2.5 basis point utilization fee if the borrower draws more than 50% of the loan.
