Chemical Markets $4 Billion Hanson Loan

Chemical Bank handily syndicated a $4 billion credit for Hanson Industries, attracting more than $7 billion in commitments from over 50 banks.

Despite complaints that the credit was too thinly priced, bankers were not surprised that the deal was vastly oversubscribed.

"We knew it would be a blow-out," one banker said, because of Hanson's favored standing in the banking community.

"This is a prestigious deal," another banker observed, and banks want to be associated with it. Indeed, Hanson is often compared to RJR Nabisco Holdings Inc. and Philip Morris Cos. in its ability to obtain bank financing on highly favorable terms.

Hanson Industries is the U.S. arm of the Anglo-American conglomerate Hanson PLC.

The credit consists of a $3.4 billion term loan, priced at 75 basis points over the London interbank offered rate, and a $600 million revolver, also at 75 basis points over Libor on a "used basis."

That's well below the standard borrowing rate for a credit classified as a highly leveraged transaction. HLT pricing generally ranges from 250 to 300 basis points over Libor.

Commitment fees on the Hanson credit range from 12.5 basis points to 37.5 basis points, also far below standard HLT pricing.

Notwithstanding the HLT designation, banks traditionally have been willing to differentiate Hanson from other highly leveraged borrowers. "It's a weird duck," said one banker of Hanson.

Although Hanson Industries is highly leveraged, its parent company in London has some $12 billion in cash on its balance sheet.

Technically, however, banks in the U.S. syndicate have no recourse to the parent's deep pockets if the credit gets in trouble. However, it is assumed that the parent company would bail out the credit, if necessary.

Many banks in the U.S. credit, which was underwritten by a group led by Chemical, are also participating in a parallel credit for the parent company in London.

The $5.1 billion credit for the parent is priced at 37.5 basis points over Libor.

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