Citicorp has elbowed aside a New York rival to lead a $1.2 billion loan for Johnson & Johnson, market sources said last week.

Some observers expressed surprise that Chase Manhattan Bank would not be leading the consumer product and pharmaceutical maker's first large syndicated loan.

Chase had served in a primary role on the approximately 10 bilateral credits the New Brunswick, N.J.-based corporation had previously arranged.

Although not acting as the lead, Chase will continue to serve a important role for the borrower, acting as coagent in conjunction with J.P. Morgan & Co. and Harris Trust and Savings Bank on the latest deal.

The loan will serve as a backstop for the company's $2.5 billion commercial paper program and will replace approximately $1.7 billion in bilateral credit agreements.

Market sources speculated that Johnson & Johnson, long known for putting together its own bilateral credit agreements with banks, had probably decided that syndicated loan pricing had come down enough to make that alternative attractive.

"Johnson & Johnson is saying it can't get any lower pricing than it would on a syndicated credit," said a bank lender who is not a part of the deal. An extra basis point it might save on a bilateral deal wouldn't change the decision because "the legal fees of having separate documentation on 10 bilaterals can kill you," said the lender.

The facility fees are expected to be three basis points for an $800 million, 364-day revolving credit, and 5 basis points for a $400 million, five-year revolving credit.

Pricing on the portion drawn hasn't yet been determined, although it is expected to be similarly low.

The AA-rated Motorola Inc. secured a fee of Libor - the London interbank offered rate - plus 12.25 basis points in August.

In June, United Parcel Service secured eight basis points for a $2.5 billion deal.

If those deals are any indication, however, pricing will not be an obstacle to syndicating the credit, since banks have supported both of them, said market sources.

A bank meeting for the new Johnson & Johnson facility is expected in late September or early October, market sources said. ***

Separately, Chase announced it closed a $1 billion syndicated credit for the Florida Windstorm Underwriting Association, a residual market provider of insurance coverage on residential and commercial property in Florida.

The loan is the first of two to hit the hurricane insurance market.

The association will use the facility to finance loss claims incurred as a result of windstorms, hurricanes, tornadoes, and other covered events.

Chase Manhattan and Chase Securities served as administrative agent and arranger of the syndicate, which included 27 other banks.

The money-center bank had pioneered the use of credit facilities to support insurance claims by arranging a $500 million facility for the Hawaii Hurricane Relief Fund. ***

Citicorp has completed the underwriting phase of syndication for the Province of Quebec's $1.5 billion revolving credit facility.

Fifteen banks committed at the coagent level, raising $1.9 billion. Combined with the commitments of administrative agents Citicorp, National Bank of Canada, and Swiss Bank Corp., it brings the total commitments to the facility to $2.8 billion.

General syndication was launched on Aug. 17, with a minimum commitment level of $25 million. Commitments are due on Sept. 1.

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