First Chicago Corp. and Barclays Bank have begun marketing a $305 million buyout loan for highly leveraged Zeigler Coal Holding Co.
The new credit will help finance Zeigler's pending acquisition of Shell Oil Co.'s coal mining business.
This is the second time in two N?ears that First Chicago has led a buyout loan for privately owned Zeigler, which is based in Fairview Heights, Ill.
In 1990, First Chicago was agent bank on a $175 million credit backing Zeigler's purchase of Old Ben Coal Co. from BP America.
That loan, obtained shortly before a spike in pricing for highly leveraged transactions, carried a borrowing rate of 200 basis points over the London interbank offered rate.
275 Basis Points over Libor
The new credit is priced at 275 basis points over Libor,
First Chicago expanded its role in Zeigler's latest deal, coagenting a $400 million private placement of 10-year, 8.61% notes. The other coagent was Kidder, Peabody & Co.
Initially, Zeigler was only expected to raise $200 million at most in the private placement market, but investor demand ran so strong that the size of the deal was doubled. As a result, the bank credit was scaled back.
The five-year credit consists of a $160 million term loan, a $95 million revolver, and a $50 million letter of credit.
First Chicago and Barclays had been prepared to underwrite a bank credit of as much as $600 million, a First Chicago official said.
A bank meeting for potential syndicate members was held Monday in Chicago, and responses are due by the end of the month.
The underwriting banks are offering up-front fees of 1.75% on commitments of $35 million or more, 1.5% on commitments of $25 million to $34 million, and 1.25% on commitments of $15 million to $24 million.
As part of its agreement to sell the coat business. Shell will assume a 25% equity stake in Zeigler and will give the company financial support for the life of the loan.
Zeigler recently obtained an investment-grade rating, which was a big selling point for the private placement market. The same is expected to hold true for the bank loan.