Magazine article American Banker

Merrill, Morgan Once Again Hike Loan for Hostile Conrail Bid

Magazine article American Banker

Merrill, Morgan Once Again Hike Loan for Hostile Conrail Bid

Article excerpt

For the third consecutive month, Merrill Lynch & Co. and J.P. Morgan & Co. are back in the market with their blockbuster loan backing Norfolk Southern's hostile bid for Conrail.

On Thursday, Norfolk Southern increased the bank loan to $13 billion from $12.5 billion, after raising its offer by $500 million to approximately $10.5 billion.

The loan started out at $10.5 billion in late October, when Norfolk Southern first took on Conrail's friendly suitor, CSX Corp. Last week, CSX sweetened its offer for Conrail, prompting Norfolk Southern's latest counteroffer.

Market sources said each time Norfolk Southern raised its bid, that railroad company increased the amount it would pay banks regardless of the results of the increasingly contentious battle.

This time, banks will receive a $50,000 fee for recommitting at the $500 million and $250 million levels, and a $25,000 fee for other commitment levels.

"Norfolk Southern is agreeing to pay more of the fees on a nonrefundable basis," said a banker familiar with the loan. "This new structure protects them on the down side."

The lead banks had already returned to the approximately 60 participating banks to increase the loan to $12.5 billion from its initial $11.5 billion when Norfolk Southern raised its offer to $110 per share from $100 per share on Nov. 8.

Bankers said the initial increase was more noteworthy than the most recent boost in the loan.

"The billion-dollar jump was more significant" because of the marginally larger changes in such fundamentals as interest coverage, said a lender close to the transaction. …

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