New York, December 29, 2006 - The confluence of low default rates, strong earnings, extraordinary liquidity and the resulting unprecedented binge in M&A and LBO activity allowed 2006 U.S. syndicated loan issuance to surge to a new record of $1.67 trillion, according to Reuters Loan Pricing Corporation.

With such a benign global environment, 2006 was an auspicious time for borrowers to transform themselves. And so they began to merge. The loan market facilitated the transformational deals taking place, and 2006 saw $421 billion of merger financing. While $307 billion of this financing backed corporate mergers, it was the record setting $114 billion in loans backing LBOs that captured most of the headlines. 2006 not only saw LBO activity surpassing records set in the late 1980s, it was also the year HCA Inc. finally toppled RJR Nabisco’s 18-year reign as the issuer of the largest LBO loan. At more than $16 billion, HCA also was a trailblazer as it included an $8.8 billion “institutional” loan – the largest loan tranche ever to be sold to non-bank or institutional lenders (such as hedge funds, mutual funds and Collateralized Loan Obligations, or CLOs).

Institutional lenders played an unprecedented role in providing the essential funding to finance not only LBO loans, but also the record setting $612 billion 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. Institutional loan issuance topped $366 billion last year – 10 times that of 2001 – and more than twice the $137 billion of U.S. high yield bond issuance tracked by Reuters.

Merger financing backing investment grade companies also took off, surging from $53 billion in 2005 to more than $120 billion in 2006. However, this came mostly on the back of a few large deals, such as the $24 billion loan backing Anadarko Petroleum’s acquisition of Kerr-McGee.

The unprecedented liquidity available in the loan market allowed borrowers to do more than just construct bold mergers and private equity investors to snap up more assets. 2006 also saw a dramatic expansion in the kind of deals that can be financed in the loan market. Ford Motor, despite having been on a dramatic downward rating trajectory, was able to obtain an $18 billion-plus bank loan, although, it did so only after pledging its assets as collateral.

There was, it seems, no bad news in the 2006 loan market. And yet, when they got past exulting about the remarkable year, lenders say they do think about the quality of deals being done. The loan market is hotter than it was in the late 1990s, the last heyday, lenders say. Leveraged loans have seen their leverage levels climb even as spreads have fallen. Meanwhile, investment grade loans are running longer than they ever have before. The loan market can’t stay as strong as it currently is, lenders warn, but they also estimate the day of reckoning will be a long time coming.

Overall league tables
J.P. Morgan retained its lead spot with $458.4 billion of market volume and 27% of market share. Bank of America and Citigroup also retained their second and third slots from last year, followed by Wachovia Securities in the fourth position. Credit Suisse edged its way this year into the fifth position, moving up one slot from last year. Newcomers in the top 10 rankings consist of the Royal Bank of Scotland and UBS AG.

Rank	Bank Holding Company	Volume	# of deals	Market Share
1	J.P. Morgan	$ 458,423,995,456	858	27%
2	Bank of America	313,065,561,175	849	19%
3	Citigroup	238,510,367,668	335	14%
4	Wachovia Securities	97,563,792,610	336	6%
5	Credit Suisse	73,264,349,294	162	4%
6	Deutsche Bank	55,332,855,846	112	3%
7	Royal Bank of Scotland	36,469,854,678	57	2%
8	Barclays Bank Plc	33,599,868,856	55	2%
9	UBS AG	30,932,715,750	74	2%
10	Goldman Sachs & Co	30,380,659,861	81	2%

2006 U.S. Leveraged Lead Arranger

The top three slots in the leveraged lead arranger league tables again saw the top three slots taken up by J.P. Morgan, Bank of America and Citigroup. Credit Suisse moved up one slot to take the fourth position. The only newcomer to this list is Merrill Lynch, which came in at tenth place this year.

Rank	Bank Holding Company	Volume	# of deals	Market Share
1	J.P. Morgan	$ 122,348,766,153	347	20%
2	Bank of America	94,984,743,734	374	16%
3	Citigroup	65,584,248,000	117	11%
4	Credit Suisse	56,519,813,579	149	9%
5	Deutsche Bank	37,295,514,777	82	6%
6	Wachovia Securities	26,751,775,000	151	4%
7	Goldman Sachs & Co.	25,584,134,861	73	4%
8	General Electric Capital Corp.	18,743,314,433	159	3%
9	Lehman Brothers	17,508,721,680	57	3%
10	Merrill Lynch & Co.	14,084,051,000	70	2%

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