Chase Manhattan Bank is playing multiple roles as financial adviser and lender in Harsco Corp.'s planned purchase of Britain's MultiServ International for about $380 million.
The acquisition agreement, disclosed Friday, provides further evidence that merger-related financing activity is picking up.
Hanson PLC's pending purchase of Quantum Chemical Corp. is expected to result in a multibillion-dollar refinancing of both companies' debt in the bank loan market, while banks are also backing Corning Inc.'s recent winning bid for Damon Corp.
In a statement Friday, Harsco said up to 28% of the MultiServ purchase would be financed internally, while the rest would come from "various committed sources."
Harsco later identified Chase as the funding source.
On Monday, Chase officials confirmed that the bank had underwritten $400 million in financing. Of that amount, it is expected that $100 million will be available as working capital for MultiServ, once the acquisition is completed.
MultiServ provides metal reclamation and other steel mill services in Europe, Latin America, and other markets outside of North America.
Final terms haven't been worked out, but the loan probably will be priced at 50 to 75 basis points over the London interbank offered rate, depending on whether Harsco's debt rating is downgraded.
Following the acquisition announcement, Standard & Poor's Corp. affirmed its A rating on Harsco's senior debt but changed the rating outlook to "negative."
Moody's Investors Service went a step further and placed its rating under review for possible downgrade.
As a result of the acquisition, Harsco's ratio of debt to total capitalization will double to 44%. But that ratio is expected to fall back within a few years to a level that is consistent with an A-rated company, said Martin Knoblowitz, an S&P analyst.
The uncertainty about Harsco's credit rating is one reason the company turned first to bank loans as a funding source.
Depending on the outcome of the rating review, some of the bank debt may later be refinanced in the public debt markets.
Chase is still working, on its syndication strategy, but the bank is expected to approach Harsco's other relationship banks and some foreign lenders.