Dominion announced Thursday that it closed on a $1.45 billion revolving credit facility with JP Morgan that features a unique pricing mechanism, called relative value pricing, which adjusts interest payments based on reference to bond market pricing. Dominion and JP Morgan said they expect the new financing method to “win widespread popularity…attract more lenders to the market and serve as a model for future unsecured short-term credit for investment grade companies.”

“This innovative technique will help transform the syndicated loan market because it further provides a relative value link between the syndicated loan market and other capital markets,” said G. Scott Hetzer, Dominion senior vice president and treasurer.

According to Dominion, it is the first time that widely distributed, syndicated loan facilities for investment grade companies have linked the level of bank interest payments to bond market credit spreads. This new facility will backstop Dominion’s commercial paper programs. Dominion would only draw on the facility in the event that the commercial paper market becomes unavailable to the company.

The $1.25 billion senior unsecured revolving 364-day credit facility for Dominion and the $200 million three-year senior unsecured revolving facility for Dominion Virginia Power will link interest payments under the facilities to the then current yield on the companies’ pre-selected bonds, bounded by a range determined by the applicable ratings, the company explained. The facilities were more than 30% over-subscribed at closing, obtaining commitments from a wide range of lenders.

“Calibrating the borrowers’ spreads to market based levels at the time of a drawdown attracts more potential lenders because they will be better compensated in the event a borrower’s credit strength and ratings were to fall,” said Susan Stevens, a JP Morgan managing director. “Dominion’s foresight in coming to market with a novel pricing structure should boost capacity for facilities of this type since the interest rates will be more directly linked to the market movements of a company’s credit spreads.”

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