A multinational group of six banks will lead an aggressively priced $2 billion loan to Portugal.

The government will use the loan for "general operational purposes" said a source close to the deal.

The terms of the Portugal loan and several sovereign credits last year lead some observers to believe that pricing is nearly as low as it can get. "If it isn't, some loans become less attractive," said a market source.

Chemical Bank is the only U.S. agent bank on this credit, and is joined as an equal underwriter by Natwest Markets, Banco Comercial Portugues, Banco de Fomento e Exterior, the Industrial Bank of Japan Ltd., and Swiss Bank Corp.

If the credit line is tapped, the Portugal credit is priced at the London interbank offered rate plus 7.75 basis points. The facility fee is 3.75 basis points per year, with an interest rate of Libor plus 4 basis points. That is even less than the pricing for last year's credit for Sweden.

In December, J.P. Morgan and Citicorp led a facility for Sweden that started out at $5 billion. The banking community's enthusiastic reception, despite the thin price of Libor plus 8 basis points, encouraged Sweden to raise the facility to $6 billion.

Although pricing for the new facility to Portugal was extremely aggressive, a source close to the deal pointed out that the price was close to that for the Swedish loan, which was more than the Libor plus 7 basis points the market anticipated.

"The price is within spitting distance of the Swedish credit. Once you start getting to these price levels, a basis point is quite a bit, while a quarter of a point is much closer," this source said.

Competition and pricing for sovereign credits, in general, tend to be intense since those credits have a zero capital weighting, as compared to 100% for business loans. The weighting determines how much capital must be held against a bank's assets.

Additionally, these kinds of transactions put the agent banks in a preferred position for other business opportunities, such as underwriting.

Such opportunities for Portugal are few and far between. The last syndicated Portuguese loan was in 1988, when Citicorp and the Bank of Tokyo led a five-year $250 million facility initially priced at Libor plus 12.5 basis points.

The new facility is a five-year revolving credit. The Industrial Bank of Japan is the Japanese coordinator, while Swiss Bank is the documentation agent. Chemical and Natwest are jointly responsible for the books, and Chemical is also the facility agent.

Chemical has been active in the last year in a market where J.P. Morgan and Citicorp have typically been the U.S. lending leaders in Europe.

Chemical led a $7.2 billion credit for the Kingdom of Spain in August. That facility was also competitively priced at Libor plus 10 basis points.

The joint arrangers will approach the major relationship banks early this week to find underwriting lead managers. General syndication will be in two weeks.

Market sources do not expect the facility to be increased, regardless of syndication interest from the banking community.

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