Goldman Sachs & Co.'s growing lending group is taking its biggest lead position to date, a $1.225 billion loan for Allied Waste Industries' $1.5 billion acquisition of the trash-handling business of Laidlaw Inc.
In addition to leading the large bank loan with Citicorp and Credit Suisse, Goldman will bring to market a $475 million high-yield deal with Citicorp. Goldman also acted as merger adviser to Allied.
It is the first large, leveraged transaction the investment bank has led for a borrower other than its own merchant banking arm.
Goldman, Merrill Lynch & Co., CS First Boston, and other investment banks have launched bank loan businesses in recent years to defend their profitable high-yield bond businesses against the encroachments of the likes of Chase Manhattan Corp. and Bankers Trust New York Corp.
"There is a very natural linkage (to the syndicated loan) if the lending business of the investment bank is credible," said Richard Ivers, the head of bank loan syndications at Salomon Brothers.
Investment banks have won large leveraged lending transactions because of their strong mergers and acquisitions advisory expertise. "The relationships between the investment banks and companies tends to be at higher levels and is sometimes deeper than that with banks," Mr. Ivers said.
"When those relationships are established, it's easy for the banks to be displaced by investment banks," he said.
Even among investment banks, providing mergers and acquisition advice can help a bank like Goldman displace other investment banks, such as CS First Boston.
CS First Boston led a $300 million revolving credit for Allied Waste earlier in the year.
Market sources said Citicorp became a part of the lead group because it jointly runs a $620 million bridge fund with Goldman Sachs.
Allied is using the acquisition to become a national waste-services provider, vaulting to the No. 4 position among American companies.
"Allied needs critical mass," said James Kelleher, a pollution control analyst at Argus Research.
"There are benefits from being in so many more markets," said Mihoko Manabe, a debt analyst at Moody's Investors Services.
The deal, however, will not necessarily be an easy sell for the syndicate group, because few banks have strong waste-management lending groups.
"It's a small, unknown company," said one banker familiar with Allied. He said although the company does not have a history of environmental problems, some banks might be reluctant to deal with a trash manager.
Nonetheless, market sources said that Goldman can rely on the strength of its equity analyst to present the deal to the bank market.
"Goldman Sachs is superb when it comes to getting equity analysts involved in helping people understand deal," said a loan syndicator.
The loan is divided into five parts.
The $250 million revolving credit and $475 million term loan each mature in five and a half years and are priced at the London interbank offered rate plus 250 basis points.
There are three institutional tranches, each an amortization extended loan: a $100 million, six-and-a-half-year piece, priced at Libor plus 275 basis points; a $200 million, seven-and-a-half-year piece priced at Libor plus 300 basis points; and a $200 million, eight-and-a-half-year piece, priced at Libor plus 325 basis points.
The three banks equally underwrote the $725 million portions of the loan intended for banks. Goldman Sachs and Citicorp equally underwrote the institutional portions of the loan.