New York, December 30, 2008 (Thomson Reuters LPC) – In 2008, the loan market, just like many other capital markets, searched in vain for a bottom. A crisis that reared its head first in the middle of 2007 finally led to the near disintegration of the entire financial system during the second half of 2008. And while the massive fiscal and monetary injections since the middle of September have helped thaw the inter-bank lending market to a degree, the loan market itself has essentially been on hiatus.

Overall loan issuance during 4Q08 fell from 3Q08 numbers by nearly 66% to just over $111 billion. But here is the real shocker: Loan issuance in the U.S. for 2008 came in at only $763.98 billion, which is down 55% from 2007. The last time the U.S. loan market saw figures like this was when annual loan issuance jumped from $665.3 billion to $816.9 billion in 1995 and syndicated loans for the first time began to be viewed as a unique segment of the capital markets.

Loan issuance contracted across all segments, but it was leveraged loans where the credit crunch hit hardest. Leveraged loan issuance decreased by 57% in 2008 to $294.45 billion as banks were more focused on repairing their balance sheets and had little appetite for underwriting riskier deals. Worse off was the fate of the institutional loans − loans purchased by institutional investors, such as collateralized loan obligations (CLOs) − which contracted in 2008 by a whopping 84% to $69.6 billion. And loans backing leveraged buyouts, which fueled the growth of the loan asset class for the last several years, were down by 80% to just $41.3 billion. The drop in U.S. high yield bond issuance was no less dramatic. Issuance during 2008 was only at $39.5 billion, a fall of 71% compared to a year ago, according to Reuters Fixed Income Data/EJV.

Investment grade lending also took a huge hit in 2008, though the real damage was felt in the latter half of the year when the effects of bank consolidation and balance sheet contraction finally hit home. Investment grade lending for the year was off by 52% and ended up at $318.8 billion. In this environment, bridge loans were the only means for key issuers to tap banks for the few strategic mergers that needed to be financed. Loaded with higher duration fees, bridge loans became the only viable route for issuers as banks were largely reticent to commit to longer-term deals. It was in this space where the loan market saw its largest deal of the year: a $14.5 billion, one-year bridge loan backing Verizon Wireless’ acquisition of Alltel Corp.

2008 proved to be a disastrous year for the loan market and the outlook for 2009 is not looking any better. Nearly 80% of respondents to Reuters LPC’s Quarterly Survey expect more consolidation in the financial sector. More ominously, nearly 54% of the respondents say their lending activity will be limited to key relationships, while 23% say they will be focused on amendments. The rest say they will be focused on restructurings and bankruptcy financings. Another potential headache might be due to the market’s indulgence in the last few years in loan-heavy capital structures, with loose or no covenants. Given this, there is a lot of speculation in the market that loan recoveries going forward might be below the historical norm of 70%. And on top of that is the nearly $200 billion that the high yield bond market and the institutional loan market might need to refinance in the next two years. The outlook is grim indeed.

Key market statistics

U.S. Total Issuance	2007 Issuance ($Bils.)	2008 Issuance ($Bils.)	Percentage change (%)
Overall***	1,686.81	763.98	-55%
Investment Grade	657.75	318.77	-52%
Leveraged***	688.5	294.45	-57%
Institutional***	425.81	69.6	-84%
LBO*	209.91	41.28	-80%
HY Bonds	136.33	39.51	-71%
U.S. New Money Issuance**	2007 Issuance ($Bils.)	2008 Issuance ($Bils.)	Percentage change (%)
Overall ***	838.95	437.9	-48%
Investment Grade	209.32	161.05	-23%
Leveraged***	471.81	193.5	-59%
Institutional***	315.09	59.46	-81%

League tables

Rank	Bank Holding Company	Volume	# of deals	Market Share
1	J.P. Morgan	$198,534,834,616	415	26%
2	Bank of America	137,434,101,826	560	18
3	Citi	115,972,721,943	129	15
4	Deutsche Bank	34,721,726,000	33	5
5	Wachovia Securities	28,313,845,000	145	4
6	Wells Fargo & Co.	23,479,389,325	165	3
7	Royal Bank of Scotland	21,929,595,361	63	3
8	BNP Paribas	17,921,375,000	61	2
9	Barclays Bank Plc	17,595,818,418	45	2
10	Goldman Sachs & Co.	15,455,503,334	20	2

Rank	Bank Holding Company	Volume	# of deals	Market Share
1	Bank of America	$59,548,992,127	318	20%
2	J.P. Morgan	50,498,081,000	206	17
3	Citi	19,835,753,443	38	7
4	Wachovia Securities	15,678,795,000	94	5
5	Deutsche Bank	14,101,476,000	23	5
6	Wells Fargo & Company	13,064,996,544	109	4
7	GE Capital Corp.	11,964,089,129	106	4
8	Goldman Sachs & Co.	11,855,503,334	17	4
9	BNP Paribas	10,188,875,000	44	3
10	Barclays Bank Plc	8,947,132,379	27	3

* 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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