Two separate bank teams have recently closed the syndication on a total of $14.8 billion in acquisition loans for defense companies.
J.P. Morgan & Co., BankAmerica Corp., and Citicorp secured more than $13 billion of commitments from 47 banks for their $10 billion investment grade loan to Lockheed Martin. The loan supports Lockheed's $7.7 billion purchase of Loral Corp.
Chase Manhattan Bank, BankAmerica, and Chemical Banking Corp. received more than $7 billion for a $4.8 billion low-investment-grade loan to Northrop Grumman. The loan backs the $3 billion acquisition of Westinghouse's defense business.
As two of only a handful of marquee deals in the market in the first quarter, the Lockheed and Northrop deals generated ready interest among investors.
"They're both good deals, and they both benefit from being out there without a whole lot of other deals in the market right now," said a loan syndicator.
The defense industry consolidation has led to a deeper, more liquid market, bank lenders said. In past years, some banks had lent primarily to companies that had produced defensive weaponry.
The post-cold war defense consolidation, however, has created companies with a variety of civilian and military business lines, easing the potential concerns among American and foreign banks about lending to such companies.
Indeed, the most conspicuous new lenders to defense and aerospace companies are the Japanese banks, which contributed to both new deals.
"The defense business is becoming more global," said Chad Leat, a managing director and head of loan syndications at Chase Securities. "The Japanese banks are beginning to find a reason to bank defense companies."
Mary Watkins, head of loan syndications at J.P. Morgan, called the Lockheed deal a "win-win situation" because, among other things, it brought the company new investors who were willing to hold approximately the entire amount they had committed.
The Lockheed deal brought in 26 co-agent banks at the $300 million level, and 18 principals at the $100 million level.
Allocations were expected to be slightly lower than the original commitments.
Banks participating in the Northrop deal were also expecting to have lower allocations because of oversubscription.
"The deal went well because it was fairly priced, conservatively structured, and the company has a management team with a great track record," Mr. Leat said.
Bankers said that the Northrop deal was one of only a few no-investment grade deals in the market.
The company also potentially offers lenders some much-coveted high yield bond business.
Said a loan syndicator: "Northrop Grumman was particularly well-received because it had enough juice to attract crossover high yield financing."