For the third consecutive month, Merrill Lynch & Co. and J.P. Morgan & Co. are back in the market with their blockbuster loan backing Norfolk Southern's hostile bid for Conrail.

On Thursday, Norfolk Southern increased the bank loan to $13 billion from $12.5 billion, after raising its offer by $500 million to approximately $10.5 billion.

The loan started out at $10.5 billion in late October, when Norfolk Southern first took on Conrail's friendly suitor, CSX Corp. Last week, CSX sweetened its offer for Conrail, prompting Norfolk Southern's latest counteroffer.

Market sources said each time Norfolk Southern raised its bid, that railroad company increased the amount it would pay banks regardless of the results of the increasingly contentious battle.

This time, banks will receive a $50,000 fee for recommitting at the $500 million and $250 million levels, and a $25,000 fee for other commitment levels.

"Norfolk Southern is agreeing to pay more of the fees on a nonrefundable basis," said a banker familiar with the loan. "This new structure protects them on the down side."

The lead banks had already returned to the approximately 60 participating banks to increase the loan to $12.5 billion from its initial $11.5 billion when Norfolk Southern raised its offer to $110 per share from $100 per share on Nov. 8.

Bankers said the initial increase was more noteworthy than the most recent boost in the loan.

"The billion-dollar jump was more significant" because of the marginally larger changes in such fundamentals as interest coverage, said a lender close to the transaction.

Merrill Lynch and J.P. Morgan are seeking commitments by Jan. 8.

The bank loan also includes a working capital facility, which accounts for the difference between the size of the loan and the acquisition price.

Bankers said that the larger deal would likely result in marginally larger allocations for the banks committing $500 million and $250 million.

Observers said Norfolk Southern has incurred $33 million in bank fees so far, and said this shows its commitment to pursuing Conrail, despite recent attempts by CSX to prevent Conrail from talking to another suitor until at least December 1998.

CSX's current offer, estimated at $9.36 billion, is backed by a $4.8 billion loan led by Chase Manhattan Corp., NationsBank Corp., BankAmerica Corp., and Bank of Nova Scotia.

Separately, Merrill Lynch is preparing to launch general syndication for a $100 million loan backing the Exxel Group's $435 million acquisition of Norte SA, Argentina's second largest supermarket chain.

The investment bank underwrote the entire syndicated loan, provided a $125 million bridge loan, and raised over $200 million in private equity for the leveraged buyout.

Some experts said that commercial and investment banks were anticipating further such leveraged buyouts in Latin America and Europe.

Skeptics, however, said that, to this point, leveraged buyout firms have not shown a particularly strong interest in Latin America.

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.