Prudential Home Mortgage said it obtained its first bank credit line -- a $1.1 billion revolver from a group of 20 domestic and foreign banks.
The 364-day credit will be used to fund the origination of residential mortgages.
Fleet Mortgage Group recently renewed a $1.75 billion credit line.
Mega-size credit lines, like the ones obtained by Prudential and Fleet, are likely to become increasingly common as a result of consolidation within the mortgage industry and the dramatic increase in origination volume.
Twice as Much Activity
Driven by refinancings, volume has more than doubled in the past few years to some $900 billion in 1992.
Virtually all of Prudential's mortgages are securitized for sale in the secondary market. As the loans are sold, proceeds will replenish the credit line.
Last year, Prudential originated $28.5 billion of mortgages, second only to Countrywide Credit Industries.
Parent Had Provided Funding
Until now, Prudential's short-term funding has come from its parent company, Prudential Insurance Company of America, and through repurchase agreements with Wall Street firms.
Unlike the repos, Prudential's new bank line was provided on an unsecured basis.
That sends an "important statement to the marketplace of our financial strength," said Larry Swedroe, head of treasury operations and risk management at Residential Services Corp. of America, the holding company for Prudential I Home Mortgage.
Apart from diversifying Prudential's source of funds, the credit will also help the company make its case for a top-tier commercial paper rating, Mr. Swedroe said.
Ratings Are in the Works
Prudential has already begun talks to obtain a credit rating from the major rating agencies and hopes to enter the commercial paper market within a year.
Credit rating agencies require borrowers to have bank lines in place as a backstop for their commercial paper programs.
Prudential's bank line carries maximum pricing of 70 basis points over the London interbank offered rate and a commitment fee of 12.5 basis points.
Members of Syndicate
Leading the credit were ABN Amro Bank, Bankers Trust Co., Barclays Bank, Chemical Bank, Credit Lyonnais, NationBanks, and Union Bank of Switzerland.
The loan was syndicated to 13 other foreign and domestic lenders.
While the credit line lessens the mortgage company's dependence on its parent for funds. it is not a prelude to a spinoff, Mr. Swedroe said.
"As far as I know, there are absolutely no plans for a spinnoff' in the foreseeable future, he said.