Chemical Bank has agreed to underwrite a loan of over $500 million to help finance what would be the biggest leveraged buyout in a year, banking sources said.

Texas billionaire Robert Bass has teamed up with Haas, Wheat & Partners to acquire a collection of privately owned specialty food brands for a little over $1 billion, the sources said.

Chemical declined to comment on its financing role. A Bass spokesman also had no comment, while a spokesman for Haas Wheat said the firm has "not announced any deals."

The buyout, if completed, would mark the biggest LBO since the $1.4 billion acquisition of American Re-Insurance Co. by Kohlberg Kravis Roberts & Co., announced in April 1992.

Drop-Off Since the 1980s

There have been just four LBOs worth $1 billion or more that have been completed so far this decade, according to Securities Data Co.

In 1988, when the buyout boom was still in full swing, there were 16 completed deals worth $1 billion or more, including KKR's $30 billion buyout of RJR Nabisco Inc.

While no one is predicting a return to the overheated environment of the 1980s, the buyout market does appear to be warming UP, and financing seems readily available.

The junk bond market is on a roll, and banks have been returning to leveraged transactions in droves.

So far, most leveraged loans have been refinancings for companies that are taking advantage of today's low interest rates to replace high-cost buyout debt taken on in the 1980s.

Watched as an Indicator

The new Bass deal likely will be closely watched as an indicator of the bank loan market's ability to digest sizable new buyout loans. as opposed to refinancings of old deals.

Bankers suggest that more buyout loans are in the pipeline.

The final amount of the Bass credit has not been set, but sources said it probably will be about $540 million, consisting of a term loan, revolver, and a bridge loan that will be replaced with an asset securitization.

Pricing is said to be 275 basis points over the London interbank offered rate.

In addition to the bank loans, other financing will include senior and subordinated notes.

Donaldson, Lufkin & Jenrette Securities Corp. is said to be underwriting at least one of the note issues.

Inviting Co-Agents

Chemical, meanwhile, is said to have invited about a dozen Bass relationship banks to participate as co-agents on the bank credit. The required commitment is $40 million.

A bank meeting will be held this week, a source said Friday.

The specialty food brands to be acquired -- about eight in all -- include B&G Pickles, Mother's Cookies, and San Francisco Sour Dough Bread. All are said to be strong regional brands.

The products will be grouped in a new entity called Specialty Foods Corp.

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