Unocal said Friday that it is negotiating with lenders to refinance the $4.1-billion debt that it took on several months ago to ward off a takeover attempt by Texas oilman T. Boone Pickens Jr.
A spokesman for the Los Angeles-based parent of Union Oil said the company hoped to save a substantial amount of money by refinancing the debt at a lower interest rate. The average interest rate on the debt is 13%, costing Unocal about $430,000 a year.
Unocal said it could not estimate how much money it may save by refinancing, since the negotiations are preliminary.
"This doesn't mean we're committed to doing it. It just means we're investigating it," spokesman Mark Eversole said.
Unocal said it is talking to a group of banks led by Manufacturers Hanover Trust. Unocal said a refinancing would involve bank loans and privately borrowed funds.
Exploration Budget Cut
The giant $4.1-billion debt boosted Unocal's long-term debt by more than 350% to $5.27 billion, up from $1.12 billion at the end of 1984.
Unocal Chairman Fred L. Hartley previously said that heavy financing costs would force the company to reduce its exploration budget by $250 million to $2.1 billion.
Since Unocal issued the debt May 23, interest rates have fallen considerably. The prime rate, a benchmark rate for loans to major bank customers, has fallen from 10% to 9.5%.
Herbert Hart, a San Francisco analyst who follows Unocal for S. G. Warburg, Rowe & Pitman, said that, if Unocal reduced its interest costs by 2 percentage points, it would save about $40.6 million after taxes, or 35 cents a share. Last year, Unocal earned $700.4 million, or $3.50 a share.
Unocal issued the securities, worth $72 a share, in exchange for stock to top a $54-per-share bid from Pickens, the Mesa Petroleum chairman. Pickens launched an unsuccessful bid to take over the company this spring but still owns a sizable block of stock.
Pickens at one time owned 23.7 million shares of Unocal stock, or 13.6%. As part of the agreement with Unocal, Pickens exchanged about one-third of his stock for notes worth $565 million. On July 1, Pickens sold his notes for $589.4 million plus accrued interest.