Bankers Upset At Pricing on Unocal Credit

Bankers are complaining that a new $1.4 billion credit for Unocal Corp. is underpriced, and some lenders may seek to extract better terms.

But they will be butting heads with a company regarded as a hardliner when it comes to pricing bank lines.

Unocal Meant to Be Aggressive

Darrell Chessum, Unocal's treasurer, acknowledged that the deal "was designed to be aggressively competitive." But he said he was unaware of any grousing by the 50 or so banks invited to participate in a broad syndicate. Most of those banks are in Unocal's existing bank group.

The new credit, led by the bank unit of Manufacturers Hanover Corp. and by Bank of Nova Scotia, would consolidate two facilities obtained by the company several years ago.

While acknowledging that a few banks have complained about pricing, a Hanover official suggested that most think the terms fair. That assessment was at odds, however, with reports from other bankers who attended a meeting outlining the deal last week in Los Angeles.

Despite widespread grumbling, though, no one apparently spoke up.

Courage to Stand Up

"It takes a lot of guts to stand up and say anything at a bank meeting," said a banker who attended the session.

Still, at least one prominent member of Unocal's existing bank group is considering a tactic used recently to force the repricing of a $900 million credit for Burlington Northern Inc.

For that line, some banks submitted commitments conditioned on the deal's being repriced. Eventually, Burlington and Chemical Bank, its agent, were forced to reprice the deal by increasing the fees.

In the case of the new Unocal credit - a five-year backup line for the company's commercial paper program - attention is focused on the borrowing rate, which is 25 basis points over the London interbank offered rate. That's the same rate that Unocal pays under its existing credit agreement.

Facility Fee Doubled

The annual facility fee offered in the new credit is 25 basis points, compared to 12.5 basis points under the existing credit agreement.

The borrowing rate under the new credit would rise to 37.5 basis points over Libor if Unocal actually uses more than half of the committed $1.4 billion, but several lenders said the deal should be priced at the higher rate at the outset.

One reason that attention is focused on the borrowing rate is that Unocal began actively drawing on its existing bank credit line in the latter part of 1990 because of disruptions in the commercial paper market for borrowers with less than stellar credit ratings.

As a result, Unocal kept popping up on banks' internal reports of new loans at a time when most banks were trying to shrink their assets.

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