Merrill Lynch & Co. and J.P. Morgan & Co. are putting together an $11 billion financing package for Norfolk Southern Corp., backing its plan to acquire and split Conrail with CSX Corp.
The financing is expected to include a $7 billion syndicated loan and a $4 billion bond. It will mark the third time since October that Merrill has revamped the loan backing Norfolk Southern's bid for Conrail.
Norfolk Southern and CSX this month announced a friendly resolution to their six-month hostile bidding war for Conrail.
Norfolk, Va.-based Norfolk Southern is set to pay $5.9 billion for 58% of Philadelphia-based Conrail, while Richmond, Va.-based CSX will pay $4.3 billion for 42%. The restructured plan includes shares of Conrail already purchased by the two buyers.
Merrill launched a $10.5 billion loan for Norfolk last October. It raised the loan in November to $12.5 billion when Norfolk upped its bid for Conrail by $500 million, to $10.5 billion.
Nearly 60 banks committed to the loan yet again in December when it was raised to $13 billion. The loan had been oversubscribed at each new entry into the market.
Those lenders that committed to the loans have reaped healthy fees from Norfolk. Those who committed at the top tier, $500 million, received a $1 million flat fee, although they were allocated only $317 million.
The revised, smaller loan is expected to increase the scarcity value of Norfolk's debt and raise the value of the fees on a percentage basis.
The two railroads would divide Conrail's lucrative routes and dominate rail freight in the Northeast if the Surface Transportation Board approves the new plan, which the two firms said they will jointly submit in June.
Norfolk Southern filed with the Securities and Exchange Commission to sell as much as $3 billion in securities last March, bringing the total amount it could raise via debt securities, preferred stock, depository shares, and/or common stock to $4.3 billion.