City fought off a challenge from NationBank to lead a new $500 million credit for Carnival Cruise Lines, market sources said.

Citibank traditionally has served as lead bank for the Miami-based company, so the loss of the Carnival business would have been a blow.

NationalBank, which also has a lending relationship with Carnival, has been bidding aggressively to win new lending mandates.

A NationsBank account officer in Miami declined to comment on the new credit. NationsBank's syndicate chief at the bank's headquarters in Charlotte, N. C., did not return a phone call for comment.

It was not immediately clear whether other banks also bid to lead the new credit.

Syndication Materials Prepared

Citibank was in the process Wednesday of distributing terms and related information on the credit to potential syndicate member, so market information about the deal was scarce.

The new five-year credit replaces $500 million of existing Citibank-led credit lines, including a $300 million multiyear revolver that was put in places less than a year ago.

With half a dozen new ships on order, including two for its Holland America subsidiary, Carnival faces outlays of over $1 billion over the next four years, said John Maxwell, an analyst at Standard & Poor's Corp.

The new deal effectively extends the maturities of the existing credit lines. The $300 million revolver was scheduled to expire in 1995, while the new credit line will expire in 1998.

Citibank set the initial pricing of the 1992 credit at 37.5 basis points over the London interbank offered rate, based on the company's debt ratings at the time.

|Implied' Rating of BBB-Plus

Carnivals "implied" senior debt rating remains unchanged at BBB-plus suggesting that there is no fundamental reason why the pricing of the new credit line should be different than it was under the 1992 credit agreement.

Loan pricing in general, though, has been under pressure in recent months, affecting investment-grade and noninvestment-grade credit alike.

Officials at Citibank and Carnival declined to comment.

Mr. Maxwell said S&P maintains a positive outlook on Carnival.

"We could see the rating going up in the next one to three years," he said, citing the company's strong operating performance, even during the recent economic recession.

Past Successes

In the past, Carnival also has successfully integrated new ships with its existing fleet, using older vessels to test routes in new markets, Mr. Maxwell noted.

It is possible, though, that with the latest batch of new ship orders, Carnival could reach the saturation point in terms of its ability to absorb new capacity.

Moreover, price discounting in the cruise industry is still "pretty severe," Mr. Maxwell said.

Adding additional capacity in a weak pricing environment could erode Carnival's operating performance, he added.

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