RJR Nabisco Bank Credit Gets a Warm Reception

Marketing a $6.5 billion bank credit for RJR Nabisco Holdings Corp. should be a cakewalk for the giant food and tobacco company's five lead banks.

In an early and critical test of the credit's appeal, all but one of 16 other lenders accepted invitations by the lead banks to join the underwriting group as so-called managing agents.

Each of the 16 banks was asked to commit $250 million, or a total of $4 billion. The five lead banks committed $500 million apiece, or $2.5 billion in all.

The lead banks are units of Manufacturers Hanover Corp., Bankers Trust New York Corp., Citicorp, Chase Manhattan Corp., and Fuji Bank of Japan.

Waiting in the Wings

On Friday, there were several potential substitutes for the one bank that declined the managing agent slot, sources said.

The response represents a "powerful statement" about the credit's appeal, said one banker associated with the deal. Others agreed that the credit appears likely to win broad support.

A bank meeting for prospective members of the general syndicate was held Thursday in New York, at which the terms of the deal were officially unveiled to the broad market. Officials from about 100 banks attended.

Yield Disappoints Some

Some yield-conscious bankers were disappointed with the pricing of the new RJR revolving credit line, which will be used mainly to refinance about $5.2 billion outstanding under the company's two existing term loan agreements.

Under the new credit agreement, RJR is likely to start out paying an effective borrowing rate of 75 basis points over the London interbank offered rate.

That's below some banks' hurdle rate for triple-B-minus credits - the rating RJR is expected to be awarded once it completes its pending debt-reduction program.

RJR has been paying a blended rate of about 275 basis points over Libor on its two term loans.

The actual borrowing rate under the new revolving credit line is Libor plus 62.5 basis points, assuming RJR is upgraded to a triple-B-minus credit rating. However, there is also a "usage fee" of 12.5 basis points that gets tacked on to the borrowing rate if RJR draws down more than half of the $6.5 billion.

Rate Could Drop Further

RJR's borrowing rate would fall further under the new credit agreement, if its credit rating continues to improve.

At last count, there were 114 banks in RJR's existing lender group, and the company made no secret of its desire to have a smaller number of banks participate in its new credit agreement.

For that reason, RJR wants each of its 21 underwriting banks to hold at least $100 million of the credit on their books, rather than reducing their exposures further through sales to other banks.

Initially, RJR also wanted to impose a minimum commitment of $100 million for those banks wishing to join the general syndicate. The company was persuaded to lower the figure to $50 million.

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