BankAmerica Corp. and four other banks have secured more than $300 million in commitments for the $600 million vendor financing for Northern Telecom, surprising many syndicated lenders.
Many bankers were initially cool to the deal-which was fully and equally underwritten by BankAmerica, Bank of Nova Scotia, Barclays de Zoete Wedd, J.P. Morgan & Co., and Royal Bank of Canada. These lenders were believed to be waiting to participate in a similar but larger vendor financing package expected for Lucent Technologies.
But when the AT&T spinoff indicated it might not tap the bank market, syndicators became more interested in jumping onto the Nortel loan.
"What brought momentum to the Nortel deal was the feeling that there may not be a $1.8 billion bank deal following on the heels of this," said a banker close to the loan.
Nortel and Lucent are both seeking financing to provide equipment to Sprint Spectrum, a joint venture of Sprint Corp., Cox Communications, Comcast Cable, and Telecommunications Inc. The Nortel loan, which was launched on Feb. 12, is part of a $1.2 billion package for that purpose.
"It's going extremely well. We certainly expect it to be oversubscribed," said Robert Griffin, an executive vice president at BankAmerica. "We're nearing the end of the (syndication) process, and we think we'll wrap it up Thursday or Friday."
Still, some bankers remain reluctant to participate in a deal secured by the receivables of Sprint Spectrum. That company, a wireless communications start-up, borrowed $2 billion last summer from a consortium led by Chase Manhattan Corp.
"There's tremendous debt overhang in the market to see what Sprint Spectrum will do to raise capital," said a lender.
Another media lender said that banks may not want to jump into the Nortel transaction because of the opportunity to purchase Nortel debt in the secondary loan market.
Nonetheless, a combination of 10 banks and institutional investors signed onto the Nortel deal. The pricing, which started at the London interbank offered rate plus 300 basis points, appealed to institutional investors, even though the loan did not contain an institutional tranche per se.
The likely hold level for the five lead banks is approximately $64 million given the current commitments, and might even be reduced further.
The lead banks had originally anticipated selling approximately $225 million of the loan and holding as much as $75 million, said a banker familiar with the transaction.
Meanwhile, market participants say they now expect Lucent to tap the public markets for the majority of its vendor financing. Any bank loan to Lucent could be as small as $500 million, they say.
Neither Chase-which was expected to lead a $1.8 billion loan for Lucent- nor Lucent would comment.