Magazine article American Banker

Citi, Morgan Lead $5B Loan to Sweden; Razor-Thin Fees Show Hot Competition in Loans to Countries

Magazine article American Banker

Citi, Morgan Lead $5B Loan to Sweden; Razor-Thin Fees Show Hot Competition in Loans to Countries

Article excerpt

Razor-Thin Fees Show Hot Competition in Loans to Countries

Citibank and J.P. Morgan on Wednesday were nearing completion of the primary syndication for an extremely competitively priced $5 billion loan to the kingdom of Sweden.

Operating out of their London offices, the two U.S. banks are collaborating to provide a five-year loan that will enable the Sweden to pay down maturing debt from two earlier loans.

In addition to being the year's second-largest loan to a foreign nation (Chemical led a $7.2 billion credit earlier this year to Spain), this loan is conspicuous for its price.

The $5 billion loan has a facility fee of Libor (the London interbank offered rate) plus 4 basis points, and an annual fee on the amount drawn of 4 basis points. The combined total of fees is only Libor plus 8 basis points.

The price is even tighter than the thin Libor plus 8.75 basis points arranged for Spain this summer.

"I doubt they would have gotten this price a year ago," said Brian Woolley, a vice president in Citibank's London office. "Spreads have been coming down across the boards."

A direct comparison with a $9.6 billion loan led by JP Morgan two years ago to Sweden reveals just how much loan prices have come down. In 1992, Sweden received a $9.6 billion facility at a rate of Libor plus 18.75 basis points. This year's loan represents a greater than 50% fee reduction.

The same factors pushing prices down in the United States are at work in Europe: liquidity in the bank market and an eagerness to issue loans to high credit quality borrowers.

Prices for sovereign nations, however, tend to be lower than those for corporations, since regulators have assigned a zero capital weighting to the sovereign nation loans, compated to a weighting of 100% for business loans. The weighting determines how much capital must be held against a bank's assets.

Because of the higher capital weighting for business loans, an inexpensive loan for a corporate borrower in Sweden is approximately 18. …

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