American Residential Mortgage Corp. will seek a $1 billion bank loan later this month as part of its campaign for an investment-grade rating.
The company has also filed with the Securities and Exchange Commission to begin a $250 million medium-term note program as part of its program to "diversify our financing," according to Judith Berry. chief financial officer of La Jolla, Calif.-based American Residential.
The bank loan, to be led by First Chicago and Bank of New York, will function as both a mortgage warehouse and commercial paper backup line. The deal will be launched at a Sept. 28 meeting of American Residential's banks, according to Ms. Berry.
Should American Residential receive an investment-grade rating -- something Ms. Berry hopes the company will achieve this fall -- it will be able to issue commercial paper to fund mortgages awaiting sale into the secondary market.
American Residential now funds such mortgages through its bank lines, at a much higher cost.
For example, North American Mortgage, which became investment grade earlier this year, now issues commercial paper for about 50 basis points less than equivalent mortgage warehouse borrowing, according to Gary Gordon, an analyst at PaineWebber Inc.
The bank loan is expected to have a 364-day maturity and will most likely contain a provision allowing it to be increased to $1.3 billion.
Commitment Fee Expected
Pricing of the deal is not set, but Ms. Berry expects that the new deal will have a commitment fee, a cost not present in the existing credit.
Commitment fees, paid on the undrawn portion, compensate banks for keeping funds available for use. As American Residential moves more toward the use of commercial paper, it will draw less on the line.
American Residential's existing deal, an $845 million credit put in place last year, is priced at 137.5 basis points above the London interbank offered rate.
The company's medium-term note program will be used to "round out" the company's financing options, Ms. Berry said.
The notes will be offered through Salomon Brothers Inc., Lehman Brothers Inc., and PaineWebber Securities.
In addition to funding loans, the notes may be used to purchase mortgage servicing rights, as well as acquisitions to increase the company's production capability, according to the SEC filing.