In Shift, Hicks Muse Deal May Be Labeled an HLT

Bank financing for Hicks, Muse & Co,'s latest deal - the $700 million purchase of Occidental Petroleum Corp.'s natural gas liquids business - may become more expensive than planned.

Dallas-based Hicks Muse, which is buying the assets through a joint venture with Occidental, tried to structure the deal so that it would not be tagged a highly leveraged transaction.

Failing to Avoid HLT Label?

However, some bankers familiar with the deal said Hicks Muse has failed to avoid the designation.

Thomas Hicks, chairman of the company, denied that's the case. He said other banks share his view that the deal will not be an HLT.

However, one banker maintained that the deal ran afoul of certain accounting rules that affect the way equity is treated in such transactions.

If the deal ultimately is classified an HLT, bankers said, Hicks Muse may have to ratchet up the rate and fees it proposed to pay on $440 million in bank loans for the acquisition.

Meetings with a Dozen Banks

This month, Hicks Muse met individually with about a dozen prospective agent banks.

At that time, the firm was apparently still confident that the deal would not be an HLT and proposed to price the loans accordingly.

Bankers said Hicks Muse proposed to pay a spread of 250 basis points over the London interbank offered rate, plus fees amounting to 2%.

Though that level of pricing is reasonable for non-HLT buyout loans, it's at the low end of the range for loans classified as highly leveraged, according to bankers.

"This deal is a good enough deal that it will get done even with the HLT tag on it," said one banker.

Pricing May Be a Problem

The agent banks, however, could have trouble syndicating the loan at currently proposed pricing levels, some bankers said.

The banks believed to be most actively pursuing the deal are Bankers Trust Co., Manufacturers Hanover Trust Co., Chemical Bank, and Bank of America.

Other potential agent banks include Continental Bank, Citibank, Chase Manhattan Bank, First Chicago Corp., Morgan Guaranty Trust Co., Credit Lyonnais, and Bank of Nova Scotia, banking sources said.

Jockeying for Position

All those banks are said to be jockeying for position and forming various coalitions among themselves.

Mr. Hicks said his company has gotten five draft commitment letters, either from individual banks or bank groups, proposing to underwrite the bank financing. The official deadline for draft commitments was Monday.

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