The bank loan market for British utilities continues to heat up, with Chase Manhattan Corp., Citicorp, and Barclays de Zoete Wedd leading a total of $3.1 billion in loans for a prospective buyer of Midlands PLC.

Two U.S. electric utilities, General Public Utilities and Cinergy Corp., have tapped the bank loan market to back their bid for Midlands. The deal comes about two weeks after the British government disallowed a proposed merger between Powergen and Midlands that used $4 billion in bank loans,

The loan packages include several deals - denominated in dollars and pound sterling - that will be syndicated in London and in the United States for the proposed $2.59 billion purchase.

The once-staid utility industry has energized the bank market both here and abroad in the past few years, as electric companies look to form strategic alliances to compete in a rapidly deregulating environment.

Bankers see an opportunity to generate fees from investment grade loans that are likely to be refinanced quickly in the bond market, and from mergers and acquisitions and financial advisory work.

Indeed, First Union Corp. late last week announced the hiring of William J. Gremp, a former managing director at Chase, to lead a new utilities group.

"This deal (for Midlands) is just the kind of thing that we would love to compete for," said Mr. Gremp.

And First Union is not the only bank leaping into the utility market.

"We are seeing increased competition coming in from people who are not traditionally in the utilities finance business," said Robert J. Munch, co- head of the Global Energy Group at Canadian Imperial Bank of Commerce. Mr. Munch said that the newcomers are trying to take advantage of the continuing consolidation, but haven't yet demonstrated the expertise to win significant lead positions on high profile deals.

"From a distribution standpoint, we welcome the new players into the market. They are another investor to sell paper to," Mr. Munch said.

"It can be tough to break into this market," conceded Mr. Gremp. "Currently, the industry is looking for a variety of information and services providers to help it with its changes and a bank like First Union is in a good position to service those needs."

Chase and Citicorp will lead a $250 million revolving credit for General Public Utilities in the United States and a $532 million term loan denominated in pound sterling, market sources said.

Market sources said the American facility would likely be similar in purpose to those of other utility acquisitions, in which one portion of the loan refinanced debt and another supported the equity involved in the transaction.

Barclays and Chase are also leading a loan that will back the joint venture in London, which is called Avon Energy Partners.

The sterling-denominated loan to Avon also is divided into tranches - of $456 million and $1.824 billion.

The borrowers, both individually and through the joint venture, are expected to have investment grade ratings, and as such, are expected to attract both utility and investment grade lenders.

A large number of banks have already gotten a firsthand look at Midlands, by supporting the $4 billion Powergen bid.

"This is a property that's very well known," said a market source.

If the joint venture succeeds in its purchase, it will reduce the number of electricity distributors in the United Kingdom - originally 12 - to four, each of which is considered a takeover target. Those four are East Midlands Electricity; Northern Electric, London Electricity, and Yorkshire Electricity Group.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.