Bankers turned out in droves Tuesday afternoon to hear details of a new $7 billion credit for Starwood Hotel and Resorts Trust-the largest credit to date for a hotel company.
Attendees at the New York meeting said it is too early to determine the bank loan market's reception of the credit, which backs Starwood's pending $13.7 billion acquisition of ITT Corp., announced last October.
"The first week of February is when things will start to shape up," one lender said.
Starwood, a real estate investment trust, announced early Tuesday that it had received loan commitments of more than $7 billion from nine financial institutions, including BT Alex. Brown and Chase Manhattan Corp.
Some market observers had questioned the REIT's ability to raise bank financing for the giant ITT deal, partly because of the departure of Japanese banks from the U.S. syndicated lending scene.
Indeed, members of Starwood's bank group said they did not expect many Japanese banks to commit to the deal, due to troubled loan portfolios at home and larger economic difficulties in Asia.
"We expect nominal interest from the Japanese," said one member of the bank group. "They'd like to do it, but they just don't have enough capital right now."
However, large Japanese banks were among the 75 institutions invited to the meeting.
The new loan will help fund the cash portion of Starwood's planned ITT merger, which is also being financed through stock and assumed debt.
BT Alex. Brown and Chase arranged the loan and committed $1.85 billion each to the new credit, while seven co-arrangers committed $500 million each. They are Bank of Montreal, NationsBank Corp., Barclays Capital, Credit Lyonnais, Goldman Sachs Mortgage Co., Lehman Brothers Holding Inc., and Societe Generale, according to a statement from Starwood.
The Starwood and ITT merger, valued at $9.956 billion, was the sixth- largest deal announced last year, according to Houlihan Lokey's Mergerstat. Phoenix-based Starwood's shares are paired and trade as a unit with Starwood Hotels and Resorts Worldwide Inc., a hotel management and operating company.
The new credit is divided into a $3 billion one-year term loan, a $2 billion five-year term loan, and a $2 billion five-year revolving credit, a source familiar with the loan said.
"This credit facility provides us not only with the funds to close ITT, but the flexibility to execute our business plan in the coming years," said Barry S. Sternlicht, chairman and chief executive officer of Starwood Hotels and Resorts Trust, in a statement.
Indeed, the $3 billion term loan is structured as a bridge loan backing the sale of several ITT assets, including the ITT World Directories division to Dutch publisher VNU NV for $2.1 billion, which is expected to close in the first half, a source close to the deal said.
Terms of the loan require Starwood to repay $2 billion of the $3 billion credit after six months, with the remaining $1 billion to be paid after an additional six months.
Pricing on the loan begins at 200 basis points over the London interbank offered rate and drops to 175 basis points over Libor after four months. Pricing is tied to Starwood's leverage ratio and corporate debt ratings. Up-front fees had not yet been set at press time.