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3Q08 U.S. Loan Market Review: A Shifting Paradigm or Prolonged Downturn?
New York, September 26, 2008 – (Reuters LPC) The good news: It was an unforgettable quarter. The bad news: It was an unforgettable quarter. Loan issuance was almost a secondary issue as the last few weeks of the third quarter were marred by massive financial blowups, unthinkable bank buyouts and an unprecedented government bailout.
With the unwind in the financial markets it should come as no surprise that syndicated loan issuance in 3Q08 fell for the second consecutive quarter to $210 billion. The reduction is a 48% decline for the same period in 2007.The slight reduction from last quarter's top-line figure of $229.6 billion belies the fact that due to recent unprecedented turmoil, most senior bankers say issuance will be at a standstill for the next few weeks, and then will likely pick up only slightly. Similar to last quarter, the decline in deal activity was broad based.
Not surprisingly, the riskiest parts of the loan market – loans purchased by institutional investors, such as collateralized loan obligations (CLOs) and loans funding LBOs – continued to decline. U.S. leveraged loan issuance fell 31% in the third quarter versus last year, to $90.11 billion. Loans backing leveraged buyouts fell 61% to $21.47 billion. Institutional loans – loans sold to non-bank investors, such as CLOs, hedge funds and mutual funds – also fell 58% to $29.78 billion. The drop in U.S. high yield bond issuance was no less dramatic. Issuance during the quarter was only at $8.08 billion, a fall of 27% compared to the same time last year, according to Reuters Fixed Income Data/EJV.
By and large, the issuance outlook for leveraged loans remains weak, with only better rated, highly priced and tightly structured deals passing the mark. The leveraged market is not shut to everybody, but the new vetting process will only allow few to get through the door.
The big surprise came in merger financings which topped $106 billion, down slightly from 3Q07’s $116 billion tally. Unsurprisingly, there was a shift from LBO financings to financing corporate mergers. At $47.75 billion, investment grade merger financing held up reasonably well as investment grade borrowers exploited the evaporation of LBOs.
But with a shrinking lender base and with banks now looking to the government to pick up defunct assets, many lenders say the scarcity of capital is the most immediate challenge for the loan market. As banks look to repair balance sheets in an uncertain regulatory and political environment, lending appears not to be their main priority. Senior bankers say the turmoil of the last few weeks points to the prospect that there will be little issuance in the near term.
Key market statistics
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| U.S. Total Issuance | 3Q07 Issuance ($Bils.) |
3Q08 Issuance ($Bils.) |
Percentage change (%) |
|
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| Overall*** | 407.38 | 210.25 | -48% |
| Investment Grade | 183.48 | 84.78 | -54% |
| Leveraged*** | 129.77 | 90.11 | -31% |
| Institutional*** | 71.26 | 29.78 | -58% |
| LBO* | 55.14 | 21.47 | -61% |
| HY Bonds | 11.12 | 8.08 | -27% |
| U.S. New Money Issuance** | 3Q07 Issuance ($Bils.) |
3Q08 Issuance ($Bils.) |
Percentage change (%) |
| Overall (new money)*** | 207.01 | 146.37 | -29% |
| I-Grade (new money) | 60.49 | 56.21 | -7% |
| Leveraged (new money)*** | 103.93 | 66.68 | -36% |
| Institutional (new money)*** | 62.1 | 28.84 | -54% |
League tables
| 3Q 2008 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 | $42,811,568,000 | 89 | 20% |
| 2 | Citi | $35,222,332,500 | 22 | 17% |
| 3 | Deutsche Bank | $29,632,226,000 | 17 | 14% |
| 4 | Bank of America | $28,678,205,749 | 142 | 14% |
| 5 | Morgan Stanley | $10,770,000,000 | 7 | 5% |
| 6 | Wells Fargo & Co. | $7,061,500,632 | 45 | 3% |
| 7 | BNP Paribas | $5,519,536,500 | 16 | 3% |
| 8 | Wachovia Securities | $5,421,360,000 | 29 | 3% |
| 9 | Goldman Sachs & Co. | $5,181,820,000 | 5 | 2% |
| 10 | Royal Bank of Scotland | $5,172,303,822 | 17 | 2% |
| 3Q 2008 U.S. Leveraged Lead Arranger |
|
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| Rank | Bank Holding Company | Volume | # of deals | Market Share |
|
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| 1 | Bank of America | $16,006,291,749 | 87 | 18% |
| 2 | J.P. Morgan | $15,069,068,000 | 59 | 17% |
| 3 | Deutsche Bank | $11,656,476,000 | 11 | 13% |
| 4 | Citi | $9,107,796,000 | 7 | 10% |
| 5 | Wells Fargo & Co. | $5,400,491,489 | 33 | 6% |
| 6 | GE Capital Corp. | $3,864,878,644 | 28 | 4% |
| 7 | Wachovia Securities | $3,256,360,000 | 20 | 4% |
| 8 | Barclays Bank Plc | $2,438,750,000 | 6 | 3% |
| 9 | Royal Bank of Scotland | $1,961,000,000 | 9 | 2% |
| 10 | Credit Suisse | $1,850,750,000 | 7 | 2% |
* Excludes bridge loans
**Includes only new financings, such as M&A, LBO, dividend payments, and incremental fund raising
*** Excludes secondary institutional sell-downs
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