Chemical Accepts a Hanover Loan Plan
Manufacturers Hanover Corp. won a tug-of-war with former rival and now merger partner Chemical Banking Corp. over how to market a $463 million buyout loan.
While differences among coagents are commonplace when it comes to syndication strategies, the resolution this time may shed light on the larger issue of how Hanover and Chemical reconcile their different approaches to the origination and syndication of buyout loans once their own merger is completed.
In the case of the $463 million credit - which will help finance the buyout of Occidental Petroleum Corp.'s natural gas liquids business - Chemical initially favored a somewhat riskier syndication approach than Hanover.
Chemical's strategy called for the coagents to market the loan to potential members of a primary bank syndicate without first reducing the agent banks' underwriting exposure.
But Hanover wanted to bring in a half dozen or so banks ahead of the primary syndicate.
These banks, designated as lead managers, would receive higher fees than the run-of-the-mill syndicate members, in return for assuming some of the coagents' underwriting risk.
$45 Million Commitments
Bank of America, the third coagent, apparently sided with Hanover's approach. In any event, the three banks were able to settle amicably on a unified approach, sources said.
Last week, the three coagents invited about a dozen other banks known to be interested in the deal to commit $45 million apiece as lead managers.
The official deadline for commitments is today. As of Thursday, at least one commitment was said to have been submitted.
Prospective lead managers are being offered a fee of 1.75% on their final allocations.
A general bank meeting has been scheduled for Tuesday, July 23, in New York.
Chemical Bids Low
The three coagents were among a number of banks that bid to underwrite all or part of the credit for Trident NGL Inc., a joint venture of Occidental and Hicks, Muse & Co., a Dallas buyout firm. Trident is buying Occidental's natural gas liquids business for $643 million.
In what was described as a frenzied bidding process, Chemical submitted an underwriting proposal that carried lower pricing than bids submitted by the other banks.
The Chemical bid underscored the bank's aggressive lending style, as well as the bank's aim to develop a relationship with Hicks Muse, which has become increasingly active in the buyout arena. Chemical's strategy largely paid off.
For its part, Hanover - traditionally Hicks Muse's lead bank - wound up winning the role as administrative agent, making it first among equals in the underwriting group.
PHOTO : Deal at a Glance