Hanover Wins Agency Role Despite Chemical's Low Bid

Manufacturers Hanover Trust Co. won the coveted spot of administrative agent for a $463 million buyout loan, despite rival Chemical Bank's bid to underwrite the entire credit at a cheaper price.

The bank loan will help finance the $643 million purchase of Occidental Petroleum Corp.'s natural gas liquids business by a joint venture of Oxy and Hicks, Muse & Co., the Dallas buyout firm.

Traditional Lead Bank

Hanover has been the traditional lead bank for Hicks Muse, so to a certain extent, this latest deal was Hanover's to lose.

Known for aggressive pricing, Chemical submitted the low-ball bid in a gambit to woo an important client away from Hanover.

It was not immediately clear why Chemical's bid was not selected, though its efforts partly paid off, because Chemical was chosen, along with Hanover and the principal banking subsidiary of BankAmerica Corp., as one of three coagents.

Hanover's additional role as administrative agent confers stature, plus a modest flat fee of about several hundred thousand dollars.

5 Full Underwriting Bids

All three banks submitted full underwriting bids.

At least two other banks - Bankers Trust Co. and Credit Lyonnais - also submitted full underwriting bids, sources said.

Partially underwritten bids were submitted by a number of other banks, including Barclays Bank, Continental Bank, and Bank of Nova Scotia.

Citicorp and Chase Manhattan Corp. were said to have been working on a joint underwriting bid that never got off the ground, according to sources.

Occidental's Preference

When asked why the joint venture didn't accept Chemical's low-ball bid, an Occidental spokesman said only that, as a rule, the company wants to have several agent banks, not just one.

Hicks Muse officials did not return phone calls for comment.

In soliciting underwriting bids, the buyout firm proposed to pay banks an interest rate spread of 250 basis points over the London interbank offered rate, plus fees amounting to 2% of the loan amount.

The pricing wound up at the same spread and fees of 2.75%.

To HLT, Or Not to HLT

The proposed pricing had been based on Hicks Muse's belief that the deal is not a highly leveraged transaction. However, bankers said it remains to be seen whether the HLT designation can be avoided.

Despite the uncertainty about the HLT designation, Chemical submitted a bid that carried a lower spread than the borrowers proposed to pay. Chemical apparently felt that syndicating the loan wouldn't be a problem, even at sub-HLT pricing.

Other bankers were not so sure.

Chemical Went It Alone

Chemical was also prepared to syndicate the credit in the broad bank loan market, without taking on a coagent.

Though the strategy carried some risk, it meant that Chemical could be more aggressive on pricing because it wouldn't have had to share underwriting fees.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.