Banc One Corp., First Chicago Corp., and National City Corp. have won the mandate to lead a $410 million loan for Ipalco Enterprises Inc., an Indiana utility.
The Indianapolis-based Ipalco will use the loan to repurchase 12 million shares of its own stock. The buyback, coupled with a 33% reduction in the dividend, is considered a watershed event for the utilities industry.
The loan, which was equally underwritten by all three banks, was a bit unusual for the identity of the administrative agent: Banc One.
The Columbus, Ohio-based banking behemoth has been ramping up its capital markets group, and some expect to see the bank leading more sizable syndicated loans.
"We are increasing our capabilities to serve our customers in many different areas," including syndicated lending, said John M. Buley Jr., managing director of Banc One Capital Markets, in charge of syndications and private placement.
Indeed, Mr. Buley was hired from CoreStates Financial Corp. to help lead the charge last August. "We want to be able to provide whatever services, including capital markets, that our customers need," said Mr. Buley.
Analysts said it wouldn't be a surprise to see Banc One raise its lending and capital markets profile. "For a bank their size, they'll be more visible than they've been in the past," said Anthony R. Davis, a bank analyst at Dean Witter & Co.
To be sure, Banc One is a far cry from challenging the largest syndicated lenders in the country.
Analysts said that won't change soon, because the bank has deliberate and measured plans to grow its lending and capital markets businesses.
"I don't see syndicated lending as being a major focus for them in the future," said Nancy Bush, a bank analyst at Brown Brothers Harriman & Co. "This is tactical, rather than strategic, growth."
According to utility industry experts, Ipalco's move may fundamentally alter the way utilities-long a portfolio staple for income investors-are viewed by shareholders.
"Historically, electric utilities have been perceived as safe stocks with reliable dividends," said David Burks, a utilities analyst at J.J.B. Hilliard, W. L. Lyons. "That era is behind us."
Mr. Burks said that in the past, when utilities cut their dividends, they did so from a position of weakness, when their payout ratios were around 90%. "With Ipalco now, the payout ratio is closer to 70%, so it's truly a major change for the company," he said.
Mr. Burks said many of the other estimated 80 to 85 public utilities are watching Ipalco closely, as they consider similar moves.
"This certainly increases the potential for other dividend cuts," said Mr. Burks.
