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Bank Group to Provide $1.7-Billion Package : Texaco Expected to Sign Loan Deal

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From Reuters

Texaco and a 30-member bank syndicate are expected to sign a $1.7-billion loan package today, banking sources said Thursday.

Talks between Texaco and the syndicate, which is headed by New York-based Manufacturers Hanover, had been stalled for the past two days as the oil company haggled over the terms of the loan, sources said.

Spokesmen for Texaco and Manufacturers Hanover declined to comment.

Although Texaco pressed for lower interest rates on the loan, banking sources said it finally agreed to the banks’ original terms, which include an up-front fee of $2.1 million and a charge of 0.375 percentage point on the portion of the loan that remains unused.

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The loan’s charges are higher than what a company would pay under normal circumstances, the sources noted.

“But these aren’t normal circumstances,” one source said, referring to the $11.1 billion that Texaco has been ordered to pay Pennzoil.

A Texas jury awarded Pennzoil $10.53 billion in actual and punitive damages Nov. 19, after Pennzoil sued, claiming that Texaco acquired Getty Oil despite an agreement for Pennzoil to acquire Getty. The award, the largest in U.S. history, was later upheld, and interest added to result in a total award of $11.1 billion.

Some terms of the loan protect the banks if Texaco files for creditor protection under Chapter 11 of the U.S. Bankruptcy Code, he added.

Texaco is seeking the loan to meet short-term cash needs, sources said. According to banking sources, the loans are to replace the oil company’s commercial paper that has matured or soon will.

Commercial Paper

Commercial paper refers to promissory notes, usually unsecured but backed by unused bank credit lines and issued for short-term credit needs.

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Texaco, the nation’s fifth-largest company, has $2.4 billion of commercial paper outstanding but was recently shut out of the commercial paper market partly because Moody’s Investors Service and Standard & Poor’s slashed their ratings on the company’s commercial paper.

The two major rating agencies cited the recent upholding of the Pennzoil damage award against Texaco when they cut the oil giant’s debt ratings.

On Wednesday, a U.S. District Court judge in White Plains, N.Y., near the oil company’s headquarters, temporarily restrained Pennzoil from taking any action to collect the award.

In a separate development in Houston on Wednesday night, a retired Texaco employee and his wife sued Texaco Chairman John McKinley, its board and investment banker, Goldman, Sachs & Co., charging that they failed in their responsibilities to the company and its shareholders by undermining the Pennzoil-Getty deal.

Dana Kirk of Houston, acting as attorney for his parents C. J. and Dorothy Kirk, said Texaco “should not be responsible to pay damages” or legal expenses but instead those costs should be paid by the directors or their insurers.

“We’re suing to recover funds for the corporation, from the people involved,” he said.

The suit was filed in a Texas district court.

He said his parents depend on the dividends from their Texaco stock adding that the company has said it might be forced into bankruptcy to carry out appeals of the November decision.

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