The planned merger of two long-distance phone companies has set up a bidding contest among their existing lenders to lead a new $400 million bank credit for the combined entity.

Earlier this month, LDDS Communications Inc. and Advanced Telecommunications Corp. agreed to merge through an exchange of shares.

In conjunction with the merger, the companies have solicited bids on a new credit that would replace their existing bank lines, sources said.

Officials at the two companies could not be reached for comment.

Revolvers Total $300 Million

LDS and Advanced Telecom have revolving credit lines totaling $300 million, according to an analyst who follows both companies.

The additional $100 million that would be available under the new bank line could be used for future acquisitions, said a banking source.

Among those bidding to lead the new credit are First National Bank of Chicago, First Union National Bank of North Carolina, and NationsBank Texas.

First National, the banking unit of First Chicago Corp., is the agent bank for a $175 million revolver for LDDS. As of March 31, the company had drawn $169 million.

Preferred Placed Privately

In May, though, LDDS completed a private placement of $50 million in preferred stock. Proceeds were earmarked for repayment of bank debt.

Advanced Telecom's $125 million revolver, led by First Union, converts into a term loan at the end of this month.

In the merger, Advanced Telecom shareholders would get 0.83 share of LDDS stock for each of their Advanced Telecom shares.

Though a merger of equals, LDDS will be the surviving entity, and its operating style is expected to prevail.

First Chicago May Have Edge

As the existing lead bank for LDDS, First National might have an edge in the bidding to lead the new credit, though Nationsbank Texas is expected to make an aggressive pitch.

Since the bidding process is in the early stages, terms could not be learned. It was also unclear how may other banks, if any, have entered the bidding contest.

Robert Bolen, an analyst at J.C. Bradford & Co. in Nashville, said that LDDS and Advanced Telecom have complementary customer bases, and that the merger would produce network efficiencies and cost savings.

The merger will create the nation's fourth-largest long-distance phone company.

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