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1Q07 U.S. Syndicated Loan Lending:
These are the good old days?
New York, March 30, 2007 – U.S. syndicated loan issuance came in at a relatively flat $380 billion for 1Q07, though the numbers belie a massive jump of 65% to $216 billion in leveraged loan lending. This surge in leveraged lending came from record LBO financing, according to Reuters Loan Pricing Corporation. Meanwhile $38.7 billion of funds were raised in the U.S. high yield bond market during the last quarter, according to Reuters. This brings overall 1Q07 issuance in the leveraged capital markets to approximately $254.7 billion.
The robust growth in leveraged loans – loans backing companies with a rating of less than BBB-/Baa3 and with a loan margin of at least 1.5% over LIBOR – was due largely to the $100 billion raised for M&A, with a record $50 billion of this coming from just LBOs. If this binge continues, LBO loan issuance can easily surpass the record $114 billion in LBO loan issuance set just last year.
And again non-bank or institutional lenders (such as hedge funds, mutual funds and Collateralized Loan Obligations, or CLOs) played a central role in providing the bulk of the loans needed to finance these LBOs by buying $157 billion of overall leveraged loans – also a record in institutional loan issuance for a quarter.
Not only did borrowers close on a massive number of leveraged loans, they also obtained them at some of the best terms ever seen in the syndicated loan market. On the back of very strong investor demand, loan spreads continued to compress to historic lows. But it was financial covenants where borrowers managed to extract the most from a still very willing pool of institutional lenders. The number of loans issued with no maintenance financial covenants, which limit, among other things, the amount of debt a company can incur, was a record $29 billion during the last quarter. The “covenant-lite” loan was not just a popular feature adopted by borrowers financing LBOs; a number of borrower returned to refinance expensive existing debt with new covenant-lite loans.
While the recent vulnerability shown in other capital markets on the back of an expected economic slowdown and sub-prime lender woes has yet to make a dent in the loan market, many lenders think the loan market may be getting closer to a turn in the credit cycle. But thanks to a still benign default environment and strong liquidity, the bulls continued to rein in 1Q07.
The other key development in the first quarter was a much broader acceptance of credit default swaps written against loans (or LCDS). The number of LCDS quoted has climbed significantly, the launch of a loan CDS index is imminent, and Reuters LPC can now track more than 300 LCDS daily. The explosion of LCDS facilitates arbitrage between loans and other asset classes (like bonds and CDS), which could fundamentally change the face of the $3 trillion syndicated loan market.
Overall league tables
J.P. Morgan was the leading bank loan arranger in 1Q07, with $123.6 billion and a 27% market share. Bank of America led $66.59 billion and racked up a 15% market share. Citigroup was third ($58.93 billion); Credit Suisse was fourth with $30.42 billion, followed by Deutsche Bank, which took in $26.68 billion.
| 1Q 2007 U.S. Lead Arranger |
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| Rank | Bank Holding Company | Volume | # of deals | Market Share |
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| 1 | J.P. Morgan | $ 123,623,879,755 | 185 | 27% |
| 2 | Bank of America | 66,597,480,000 | 168 | 15% |
| 3 | Citigroup | 58,928,485,000 | 77 | 13% |
| 4 | Credit Suisse | 30,417,694,700 | 69 | 7% |
| 5 | Deutsche Bank | 26,682,465,612 | 34 | 6% |
| 6 | Goldman Sachs & Co | 19,889,640,624 | 34 | 4% |
| 7 | Wachovia Securities | 19,503,752,000 | 76 | 4% |
| 8 | Merrill Lynch & Co. | 17,631,400,000 | 20 | 4% |
| 9 | Lehman Brothers | 12,598,850,000 | 23 | 3% |
| 10 | Morgan Stanley | 10,567,637,500 | 162 | 2% |
Leveraged Lending
The top leveraged lead arranger league table slots mirrored the overall lead arranger league tables underlying the fact that leveraged loan volume was the primary driver in syndicated loan issuance last quarter. J.P. Morgan led the charge with $65.34 million and 23% market share. Bank of America took the second slot with $35.6 billion and 12% market share. The remaining top five slots were filled by Citigroup, Credit Suisse and Deutsche Bank.
| 1Q 2007 U.S. Leveraged Lead Arranger |
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| Rank | Bank Holding Company | Volume | # of deals | Market Share |
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| 1 | J.P. Morgan | $65,336,349,755 | 90 | 23% |
| 2 | Bank of America | 35,601,500,000 | 90 | 12% |
| 3 | Citigroup | 32,205,335,000 | 40 | 11% |
| 4 | Credit Suisse | 28,942,694,700 | 66 | 10% |
| 5 | Deutsche Bank | 24,999,965,612 | 31 | 9% |
| 6 | Goldman Sachs & Co. | 19,339,640,624 | 33 | 7% |
| 7 | Merrill Lynch & Co. | 16,396,400,000 | 19 | 6% |
| 8 | Wachovia Securities | 9,833,743,000 | 39 | 3% |
| 9 | Lehman Brothers | 9,723,850,000 | 22 | 3% |
| 10 | Morgan Stanley | 6,917,637,500 | 14 | 2% |
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