Westinghouse-CBS deal attracts eager backers

September 14, 1995|By Bloomberg Business News

NEW YORK -- As Westinghouse Electric Corp. puts the finishing touches on its $7.5 billion loan for the acquisition of CBS Inc., traders looking to own a piece of the loan are paying a higher price than expected.

Westinghouse finished lining up the loan yesterday, signing documents with a syndicate of 50 banks led by Chemical Banking Corp. and J. P. Morgan & Co.

"It points to enthusiasm and a level of confidence in the deal," said Roy Morrow, director of media relations at Pittsburgh-based Westinghouse.

Westinghouse expects to complete the $5.4 billion CBS acquisition by the end of the year, he said.

Bankers were willing to lend Westinghouse several billion dollars more than the $7.5 billion it needed, although the company has been steeped in debt in recent years and its senior debt is rated "Ba1" by Moody's Investors Service Inc., one notch into junk bond territory.

Loan traders are snapping up $25 million pieces of the Westinghouse loan in the secondary market at about 99.25 cents on the dollar -- above the expected level of about 98.5 cents -- said Edward Hamilton, a loan trader at Bank of Boston.

Banks in a syndicate often sell portions of their loan commitments, and most traders thought there would be plenty of selling by bankers anxious to limit their exposure to Westinghouse.

That hasn't happened. Several banks in the syndicate that were expected to sell as much as $100 million of their $200 million loan commitments are holding on to their Westinghouse loans, traders said, thus reducing supply and driving up the price of the loans.

"It's a decent name and it's well-priced," Mr. Hamilton said.

Banks are being well compensated for lending to Westinghouse. They're earning fees of about 2 percent of their loan commitments, and interest on the loans is set at 175 basis points more than the London interbank offered rate, or Libor, the rate international banks charge each other for loans.

By comparison, Federated Department Stores, which has the same credit rating as Westinghouse, is paying interest that's 100 basis points higher than Libor on a $2.8 billion loan arranged by Chemical.

Even with the fat interest margins, traders aren't likely to keep their Westinghouse loans beyond their customary holding period of about 90 days, said Mr. Hamilton.

Demand for the Westinghouse loans from longer-term investors such as commercial banks, insurance companies and other nonbank buyers "should give support to prices for about the next two to three weeks," he said.

After that, demand could slow and traders may have to mark their Westinghouse loans down to about 98.5 cents on the dollar in order to sell them, Mr. Hamilton said.

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