Magazine article American Banker

Loan in Hostile Bid for Conrail Oversold

Magazine article American Banker

Loan in Hostile Bid for Conrail Oversold

Article excerpt

At least 35 banks have signed on to the latest and largest version of the blockbuster loan for Norfolk Southern led by Merrill Lynch & Co. and J.P. Morgan & Co.

The total commitments now exceed the value of the $13 billion loan designed to support Norfolk's hostile offer for Conrail. Norfolk has been locked in a bidding war for the railroad with CSX Corp. since late October.

The banks that have stepped to the plate are doing so for the third time. The loan started out at $11.5 billion and was increased to $12.5 billion in early November. The $13 billion version was launched the week before Christmas.

While more than half the original bank group has already stepped up for the latest incarnation of the railroad loan, some bankers are beginning to express concerns about their exposure to Norfolk.

A bank's allocation, or portion of the commitment for which it is accountable, grows by several million dollars each time a loan expands. Moreover, the bigger deal puts Norfolk's AA debt-rating in jeopardy.

"Every time they increase the facility, the allocations change," said a banker contributing to the deal. "At some point, lenders will be uncomfortable with the allocation, especially when the company starts to look less and less like investment grade."

For banks committing $500 million as senior managing agents, allocations have increased to $317 million from their original level of $304 million, said market sources.

Sources close to Norfolk Southern said the railroad is actively watching the effect increasing the bank loan is having on its leverage. …

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