Loral Corp. said it agreed to buy the Federal Systems division of International Business Machines Corp. for about $1.6 billion in cash, and will finance the entire purchase price with bank loans.

A spokesman for the defense electronics firm, based in New York, said talks with banks are in progress, but he declined to elaborate.

Loral's existing relationship banks include Chemical Bank, Morgan Guaranty Trust Co., and Continental Bank.

Officials at these banks either declined to comment or couldn't be reached.

Last year, Chemical was administrative agent on a $600 million revolver for Loral.

Inherited from Hanover

Chemical inherited Loral as a corporate client through its merger with Manufacturers Hanover Corp. In late 1990, Hanover led the bank financing for Loral's purchase of Ford Aerospace Corp.

Other recent Led acquisitions include the missiles unit LTV Corp., purchased last year.

Though details of the bank financing for the Federal Systems acquisition were not available, part of it could be in the form of a bridge loan that would be refinanced later with the proceeds from a public offering.

For now, though, Loral is probably waiting to see how its debt ratings shake out.

Credit Ratings Under Review

Following Loral's announcement Monday of the planned acquisition, Moody's Investors Service Inc. placed the company's debt ratings under review for possible downgrades.

Moody's said the review would focus on the impact of the deal on Lorals balance sheet, and the company's ability to reduce the debt over the next few years. About $500 million of rated debt is affected.

Loral's senior debt currently is rated Baa1 by Moody's and BBB-plus by Standard & Poor's Corp.

The Loral financing is one of several big-ticket deals that will likely hit the bank loan market in January or February, promising an active first quarter for acquisition-related financings.

K mart, Texaco Spinoffs

Other bank deals in the works include one for Los Angeles buyout firm Leonard Green & Partners, which is buying the PayLess drug-store chain from K man Corp.

Also in the wings is a bank deal backing the acquisition of Texaco Inc.'s chemical unit by Hunstman Corp.

Loral's acquisition of IBM's Federal Systems unit is expected to close in the first quarter.

News of the deal was reported in Monday's edition of The Wall Street Journal

Federal Systems' 1993 revenues are expected to be about $2.2 billion. About 60% of its business is defense related.

The acquisition will boost Loral's annual revenues to around $6 billion.

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