American Telephone and Telegraph Co. is arranging a $6 billion credit line with its banks to replace an expiring line of the same size.
Taking advantage of intense price competition in the loan market, AT&T will play a scant 8 basis points in fees for the 364-day facility, which will be used as a backup line for the issuance of commercial paper. Chemical Bank is the agent.
Last June, AT&T paid a facility fee of 10 basis points for its existing 364-day credit line, which expires in two weeks.
Compared with other deals, though, pricing of the AT&T credit looks almost rich.
Loan pricing is often heavily influenced by the borrower's bond rating. But Sara Lee Corp., which has a lower debt rating than AT&T, is said to be paying a facility fee of just 7.5 basis points on a $440 million, 364-day credit line led by First Chicago Corp.
AT&T's senior unsecured debt is rated AA by Standard & Poor's Corp., while Sara Lee's debt is rated AA-minus.
Despite the huge size of the AT&T deal, which may warrant a premium to market pricing, the company probably could have gotten away with paying a lower fee, said one source.
An AT&T spokeswoman said the company considers the pricing both "favorable and fair."
Loan pricing in general has been under siege for month, affecting fees and borrowing rates on both investment-grade and noninvestment-grade credits.
"There's too much damned liquidity in the market and not enough deals," said a major bank's head loan syndicator.
The pricing pressure affecting investment-grade deals became particularly apparent in late April, when Chemical Bank began marketing a $750 million credit line for Aluminum Company of America.
The Alcoa deal marked the first time since 1990 that the facility fee for an A-rated credit fell into the single-digit range, said Steven Miller, an analyst at Loan Pricing Corp.
Alcoa's credit, which was oversubscribed, included a $375 million 364-day tranche paying a facility fee of 8 basis points--the same level that higher-rated AT&T is paying.
A bank meeting on the new AT&T credit was held Monday at Chemical, and commitments are due by June 18.
Separately, AT&T canceled a $2 billion three-year credit line put in place a year ago. The company's AT&T Capital Corp. subsidiary is arranging its own credit line through Morgan Guaranty Trust Co., lessening the parent's overall credit needs.