Chemical Bank has been tapped to lead a $3 billion credit line for Columbia Healthcare Corp., which agreed earlier this month to acquire HCA-Hospital Corp. of America for $5.7 billion in stock.
The credit, likely to be one of the biggest syndicated loans in the fourth quarter, consolidates existing Columbia and HCA credit lines.
By winning the deal, Chemical has effectively pushed aside Morgan Guaranty Trust Co., which had been HCA's lead bank.
The new credit line illustrates the role commercial banks have been relegated to in the recent spate of corporate mergers. Most deals are being paid for with stock rather than debt. So rather than financing the merger itself, banks are having to settle for related debt refinancing and consolidation.
Chemical declined to comment on the new credit, which is divided into a 364-day portion and a multiyear tranche.
The credit line will be used as a backstop for the issuance of commercial paper by the new entity, to be called Columbia/HCA Healthcare Corp. One market source said Chemical is proposing a facility fee of 8 basis points on the 364-day portion, and 12.5 basis points on the multiyear part. That is said to be in line with the pricing of A-rated credits like Columbia, though this source felt Columbia should pay a premium, because of the size of the credit line and the uncertainty facing the health care industry.
Pricing is tied to Columbia's debt rating, so it is subject to adjustment. Columbia's commercial paper currently is rated A1 by Standard & Poor's Corp., one notch below the highest rating of A1-plus.
But after the merger announcement, S&P placed Columbia's commercial paper rating on its watch list for a possible downgrade.
Columbia's senior debt rating of A is an implied rating, because Columbia does not actually have any outstanding senior debt.
As Columbia Healthcare's existing lead bank, Chemical was well positioned to play the same role for the combined entity.
A morgan spokeswoman said the bank had no comment on what role, if any, it would play in the new credit for the merged companies.
Morgan helped finance a leverage buyout of HCA in 1980, becoming an equity holder in the process. When HCA went public again last year, Morgan was a co-manager of the company's stock offering.
In its third-quarter earnings, reported last week, Morgan recorded a $152 million after-tax gain on the sale of equity investments, including part of its HCA holdings.
Columbia Healthcare and HCA both obtained new credit lines in recent months, led by Chemical and Morgan, respectively.
Each bank reportedly participated in the other's deal, and there was also a lot of crossover among the co-agents. Indeed, the major relationship banks of Columbia and HCA are expected to be invited to participates as co-agents in the new credit.
An Ongoing Consolidation
Chemical probably will start marketing the $3 billion credit in another few weeks.
The pending merger of Columbia Healthcare and HCA is part of an ongoing consolidation in the health care industry.
Indeed, Columbia Healthcare itself is a product of the recent merger of Columbia Hospital Corp. and Galen Health Care Inc. Galen, in turn, is the successor company to Humana Inc.
Chemical was Humana's lead bank, and later assumed that same role for Galen. When Galen merged with Columbia Hospital, Chemical retained its position as lead bank.Deal at a GlanceBorrower: Columbia Healthcare Corp.Amount: $3 billionPurpose: Backup lineLead bank: Chemical Bank