RJR Said to Be Near Pact For a $6.5 Billion Credit

RJR Nabisco Holdings Corp. and its lead banks were close to agreement Wednesday on the terms of a new $6.5 billion credit and could strike a deal as early as today, banking sources said.

Though final details were still being hammered out Wednesday, it appeared that the banks were accommodating RJR on virtually all fronts, including pricing.

Assuming RJR receives an investment-grade designation from credit rating agencies, the all-in rate on the new bank loan would be about 75 basis points over the London interbank offered rate, or about 6.25%, banking sources said.

Huge Savings Involved

Under two existing bank credit agreements, RJR pays a blended rate of about 275 basis points over Libor, or about 8.25%.

As RJR officials entered the bank talks with the aim of shaving two full percentage points off the rate on the existing bank debt, the company will apparently get is way.

The giant food and tobacco company has been negotiating with the banking units of Manufacturers Hanover Corp., Bankers Trust New York Corp., Citicorp, Chase Manhattan Corp., and Fuji Bank of Japan.

Debt Reduction Plan

Negotiations with the banks began earlier this month, following the announcement of a debt reduction plan that is expected to transform the highly leveraged RJR into an investment-grade company.

As reported, RJR plans, among other things, to raise nearly $2 billion through an offering of preferred stock, and use the proceeds to reduce its debt to less than $15 billion.

Immediately after the $25 billion buyout by Kohlberg Kravis Roberts & Co. in February 1989, RJR's debt exceeded $29 billion, and its debt-to-equity ratio was more than 20 to 1. Following this latest debt reduction plan, that ratio would be under 2 to 1.

A New Structure

The new bank credit would be in the form of a five-year revolver. RJR and the banks have been discussing various pricing components, including the borrowing rate, as well as separate fees on the drawn and undrawn amounts of the credit line.

Most of the revolver would be used to refinance some $5.2 billion of term loans under RJR's existing bank credit agreements.

The new credit would feature so-called matrix pricing, which means that the cost of the loans would be tied to RJR's credit rating.

As a result of its debt reduction plan, RJR expects its credit rating to be upgraded to at least BBB-minus, the lowest investment grade rating.

As of Wednesday, the banks were still trying to arrive at the right pricing for each step along the rating scale.

It's expected that the five banks negotiating with RJR will serve as managing agents of the new credit. Their total underwriting commitment, while substantial, would amount to less than half the size of the credit, banking sources said.

The remainder would be raised from a broader banking syndicate.

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