York's Banks Underwrite New Credit

Canadian Imperial Bank of Commerce and Chemical Bank agreed to underwrite part of a new $500 million loan package for York International Corp. and will begin marketing the credit next week.

York, taken private in 1988, is undergoing a major recapitalization that will improve its balance sheet. But the company will continue to be classified as a so-called highly leveraged transaction.

As such, the new York credit will be one of the biggest HLTs to be brought to the bank-loan market in months.

Meeting in One Week

CIBC and the Chemical Banking Corp. unit together committed to underwrite $300 million of the $500 million credit. An information meeting for prospective syndicate members is scheduled to be held Aug. 14 in New York.

The new bank loans will be used to pay off the remaining bank debt from a $500 million loan obtained by York in late 1988. The new credit package will also be used to pay down higher-cost public and private debt stemming from York's $750 million leveraged buyout by an investors' group led by Citicorp Capital Partners.

Unlike CIBC, which was lead bank for the 1988 financing, Chemical Bank has no prior relationship with York.

Chemical was brought in mainly on the strength of its relationship with First Boston Corp., York's financial adviser and comanager of the initial public offering of York stock.

Term-Debt Components

The new bank credit consists of a $200 million revolver, and two tranches of term debt totaling $300 million.

A $200 million tranche of term debt begins amortizing immediately and matures in 1995. A second $100 million tranche doesn't begin amortizing until 1996 and matures in 1998.

A $200 million tranche is priced at 250 basis points over the London interbank offered rate, while the smaller tranche is priced at 325 basis points over Libor, according to a banker who has seen the loan documents.

Despite the HLT designation, York will emerge from the recapitalization with a relatively strong ratio of cash flow to interest costs of 3 to 1, according to a banker familiar with the credit. In this case, cash flow is defined as earnings before interest, taxes, and depreciation.

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