BankAmerica Corp. and Security Pacific Corp. yesterday announced they would merge to create the second largest banking company in the country.

The combination would bring the new entity, BankAmerica Corp., to about $193 billion in assets, putting it at a close Citicorp, which has $217 billion in assets, according to Fitch Investors Service.

The credit implications for the banks' combined $10 billion of debt and preferred stock are mixed, with some rating analysts viewing the move negatively for BankAmerica -- which must now deal with Security Pacific's unhealthy portfolio -- and positive for Security Pacific.

Standard & Poor's Corp., on the other hand, affirmed BankAmerica's ratings at A. saying the bank's merger was in the cars. "We felt that in view of their current strategy to expand and acquire institutions, it was figured into an A-rating," said Ed Emmer, executive managing director at Standard & Poor's. "They were pro forma, if you will, for something big."

At Moody's Investors Service, the Security Pacific portfolio cast a very dark shadow. Katie Rossow, senior analyst at Moody's, said "a developing asset-quality problem" led the agency to place BankAmerica on review for a possible downgrade. The agency currently rates senior debt A2 and subordinated bonds A3.

"There problems are all throughout the portfolio, not only in real estate and highly leveraged transactions," Ms. Rossow said. "We are not comfortable that [Security Pacific] know exactly what they have on their hands."

Moody's was caught in the "highly unusual" position of having to put Security Pacific's corporate debt ratings on review, "direction uncertain," Ms. Rossow said. The assessments had been under review for downgrade since July 3, but the merger makes the final outcome to hazy to determine at this point, she said.

In the tax-exempt arena, the merger also bring together a strong presence with a slipping one. In the first half of this year, Bank of America was ranked 15th in lead managing municipal underwritings, completing 29 deals for $938 million. Security Pacific was ranked 62d, on 20 deals totaling $144 million.

Security Pacific's municipal underwriting department went through a consolidation over a year ago, where it pulled out of East Coast and Midwestern underwriting and focused on it California regional underwriting.

Yesterday's Market

The only new-issue activity yesterday was a $200 million 40-year debenture offering with a 10-year put. The bonds were sold at par with 8.4% coupon, to yield 45 basis points higher than the 10-year Treasury note.

Goldman Sachs managed the deal, and Moody's conferred an AA3, while Standard & Poor's gave it an AA minus.

High-yield prices were mixed in spotty trading. Traders said that the merger of BankAmerica and Security Pacific skewed bids, although offerings remained stable.

Investment-grade bonds were unchanged to 1/4 point lower in different sectors.

In other ratings news, Standard & Poor's placed Delta Airlines Inc.'s A-minus senior debt and A rated equipment trust certificate ratings on CreditWatch with negative implications. About $2.2 billion of senior debt and $950 million of equipment trust certificates is affected.

Separately, Delta's A2 commercial paper rating is affirmed, and is not placed on CreditWatch.

Delta's bid to acquire Pan Am Corp.'s European routes and Northeast Shuttle, and invest in a reorganized Pan Am, is considerably more expensive than an earlier proposed transaction. The remainder of Pan Am, of which Delta is to own 45%, would stand an improved chance of reorganizing successfully, but still represents a risky investment for Delta, Standard & Poor's said.

Staff reporter Sean Monsarrant contributed to this story.

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