Banks move to link loans to swaps as power shifts

Citigroup Inc and Credit Suisse Group AG are among banks tying corporate loan rates to credit-default swaps, raising borrowing costs and exposing companies to derivatives accused of crippling the financial system.

Nestle SA, the biggest food producer, Nokia Oyj, the largest mobile-phone maker, FirstEnergy Corp, the Ohio-based owner of electric utilities, and at least three other companies bowed to banks' demands to link the interest rate on credit lines to the swaps, which are used to bet on borrowers' likelihood of default.

Banks are toughening terms following $678 billion in writedowns and losses, rising funding costs and a jump in companies drawing on lines they'd already negotiated. Before markets seized up this year, most rates on $6 trillion of revolving loans were based on a borrower's debt rating and priced at an amount over the London interbank offered rate.