J.P. Morgan & Co., BankAmerica Corp., and Citicorp have won the lead on a $10 billion loan for Lockheed Martin Corp.'s acquisition of Loral Corp.
The loan is the second huge defense deal in a week. It supports Lockheed's $7.7 billion purchase, refinances some existing debt, and provides extra liquidity.
Last week, Northrop Grumman Corp. announced its $3 billion acquisition of Westinghouse Corp.'s defense business. Chase Manhattan Corp., BankAmerica, and Chemical Banking Corp. are leading a $4.8 billion loan for that purchase.
The two deals underscore the continuing consolidation in the defense and aerospace industries.
"There is excess capacity relative to the demand. You have to reconstitute part of the industry, because the cold war is over," said Peter Aseritis, a defense analyst at CS First Boston.
The Lockheed Martin deal will reach the bank market about a week earlier than the Northrop Grumman deal. Bankers said the deals would not be competing for investors.
The Northrop loan is "near investment grade" and is expected to have a price of approximately the London interbank offered rate plus 175 basis points.
The Lockheed deal will remain investment grade, and will probably have lower fees, including a single-digit up-front fee.
Bankers said a similar situation arose last summer, when a loan to Walt Disney for the acquisition of Capital Cities/ABC reached the market at about the same time as a loan to Westinghouse for the purchase of CBS Broadcasting Corp.
The higher-rated Disney loan carried lower fees, and the lower-rated Westinghouse loan higher fees.
For the Lockheed loan, J.P. Morgan is the syndication and documentation agent, BankAmerica is the administrative agent, and Citicorp is a managing agent.
J.P. Morgan and BankAmerica each underwrote $1.375 billion, and Citicorp underwrote $750 million.
The deal is expected to start out divided evenly between one- and five- year pieces. The one-year piece could get substantially larger and the five-year piece smaller.
The company is expected to refinance more than half the deal with other forms of debt within the year.
Lockheed's chairman, Daniel M. Tellep, said at an analysts meeting that the company would remain investment grade, with an A-minus or BBB-plus debt rating.
Because the blizzard closed its New York office, Standard & Poor's Ratings Group has not yet commented on the transaction. Moody's Investors Service Inc. did not change its outlook.
"There's no reason the company shouldn't be investment grade," said Mr. Aseritis. The combined company should have cash flow of approximately $1.5 billion to $2 billion a year, he said.
A bank meeting is anticipated within the next two weeks, market sources said. The lead banks will be looking for commitments from 50 to 55 banks.
Citicorp had been the lead bank for Loral, while BankAmerica and J.P. Morgan had been the leads for Lockheed Martin.