Borg-Warner Corp. has informally selected lead banks for two separate loans totaling $600 million, sources said.

Chemical Bank and Bank of Nova Scotia have been tapped to lead a $400 million credit package, while Bankers Trust Co. is said to have beaten out other bidders to lead a $200 million deal.

Arrangements are also being made for bank financing totaling $250 million or more in letters of credit and an asset securitization. It wasn't immediately clear whether mandates had been awarded, even informally.

Company Being Divided

The new credits are part of a broad recapitalization of Chicago-based Borg-Warner, involving, among other things, an initial public offering of stock, the spinoff of the company's automotive unit to present private shareholders, and the refinancing of existing bank debt.

The subject of a $3.8 billion leveraged buyout in 1987, Borg will emerge from the recapitalization with one business - protective services - under such trademarks as Wells Fargo and Pony Express.

BW-Automotive will be spun off as a separately capitalized entity, in which Borg-Warner will have no equity interest.

Of the two, BW-Automotive will have the better-looking balance sheet. Its cash flow will exceed debt costs by more than three times, compared to about two times for Borg-Warner after the recapitalization is completed.

Widely Different Deals

The profiles of the two credits are so different that - at least in theory - the deals shouldn't compete against each other when they come to market early next month, bankers said.

The $400 million credit for BW-Automotive, to be led by Chemical and Bank of Nova Scotia, consists of a revolver and term loan, priced at 100 basis points over Libor, according to a market source. Borg-Warner's new $200 million revolver, for which Bankers Trust will be the agent, is priced at 250 basis points over Libor.

The company pays just 75 basis points over Libor on its existing bank debt, obtained three years ago in a $1.15 billion refinancing led by Bankers Trust, First National Bank of Chicago, and Morgan Guaranty Trust Co. Those banks also led the financing for the buyout, by Merrill Lynch Capital Partners.

First National of Chicago is said to be working on a securitization deal for BW-Automotive.

Whittled Down Outstanding Bank Debt

Morgan, meanwhile, was not invited to bid on any of the various financings, a source said. A Morgan spokeswoman declined to comment. Officials at Borg-Warner and Merrill Lynch Capital Partners didn't return phone calls.

As of June 30, 1992, Borg-Warner has whittled its outstanding bank debt to $327 million and total debt to $895 million. At the time of the buyout, total debt was a staggering $4.4 billion.

Even though the recapitalization will further reduce Borg-Warner's debt levels, the company warned in a prospectus for the stock offering that there could be no assurance that it would continue to be able to meet its debt payments.

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