A $4 billion backup line for Sears Roebuck Acceptance Corp. was significantly oversubscribed in the loan market last week, despite exceedingly favorable terms for the company.
"We went out with pricing that was unprecedented" for a company of Sears' credit rating, said Alice Peterson, treasurer of parent Sears, Roebuck and Co.
Annual fees were cut nearly in half from where they were under an existing $4 billion credit, put in place just last August.
The lower fees will save the company about $3 million a year.
Highly Competitive Market
Like many other borrowers, Sears is taking advantage of a highly competitive, extremely liquid loan market. But even Ms. Peterson seemed a bit taken aback by the strong market reaction.
"Despite the fact that we knew it might be difficult for banks to see their way clear to accept this pricing, [they] came back in full force," she said.
Morgan Guaranty Trust Co., the banking unit of J.P. Morgan & Co., led the credit, in keeping with its long-standing role as Sears' agent bank.
Chemical Bank was officially designated by Sears as "special adviser," providings guidance to the company on pricing and overall market conditions. Those functions generally are associated with the lead bank.
"Chemical was very useful, very instrumental, in helping us -- and helping us with Morgan -- to get the deal right," said Ms. Peterson.
$6 Billion in Commitments
By late last week, Sears had raised over $6 billion in commitments for the $4 billion credit line, which will serve as a backstop for the issuance of commercial paper.
Given the market response, Sears might increase the size of the credit somewhat. But in a telephone interview Friday, Ms. Peterson said a final decision had not yet been made.
Sears issues short-term debt through its Acceptance Corp. unit. That's why the bank credit is issued to the subsidiary, rather than to the parent company.
The commercial paper rating of both the parent and the subsidiary is A2. Sears' senior debt is rated BBB-plus.
Sears will pay annual fees of 12 basis points on the five-year credit line, based on the company's current senior debt rating. That would amount to $4.8 million if the credit line were to remain at $4 billion.
Purely a Backup Line
The old credit had two parts -- a $3 billion tranche maturing in four years, and a $1 billion, 364-day tranche. Sears paid annual fees of 22.5 basis points on the $3 billion, and 15 basis points on the smaller tranche.
Since Sears has no intention to draw on the new credit line, the borrowing rate -- 33.75 basis points over the London interbank offered rate -- is of no practical significance.
