Syndicated lending activity remained robust in the fourth quarter after a record-shattering third quarter.
Lending volume in the fourth quarter reached $192 billion, second only to the $203 billion from the third quarter, according to Loan Pricing Corp. a New York financial data publishing company. Fourth-quarter volume was up 61% from the year-earlier period.
The sustained surge in lending represents a "continuation of investment- grade companies making strategic acquisitions," said Rod Ballek, a managing director at Citicorp.
At a time when sectors such as health care, communications, supermarkets, and railroads are undergoing continuing consolidation, bank syndications have looked increasingly attractive to corporate borrowers.
Strategic mergers and acquisitions helped drive lending volume for the entire year to $665 billion, a 71% increase over 1993.
Experts think the loan syndications market in the next year will have a lower overall volume because of less refinancing, though they anticipate intensified mergers and acquisitions lending.
In the first part of the year, much of the loan volume was driven by corporate refinancing. Mergers and acquisition financing increased appreciably through the second half of the year, and is expected to remain at a high level throughout 1995.
Some anticipate that if the pace of mergers continues, syndicated acquisition loans could climb from the $116 billion last year to $160 billion in 1995.
Chemical Banking Corp. was the top syndicator for the fourth quarter and for the entire year. Chemical acted as agent only on 91 deals in the fourth quarter, totaling over $44 billion in lending volume.
Chemical also led the league tables for the year acting as agent only in deals valued at $177 billion.
Citicorp was a close second in the last quarter, with approximately $35 billion in agent-only-led syndications, and second for the year in agent- led deals with over $111 billion.
Chemical lost some market share in the fourth quarter, slipping to 15% from 22% in the third quarter.
Part of that drop could be accounted for by Chemical's extremely active third quarter, when they led the largest deal of the year, the $10 billion facility for American Home Product's purchase of American Cyanamid.
By comparison, Chemical's largest strategic acquisition loan in the fourth quarter was a $2.5 billion facility for Cox Enterprises' acquisition of cable properties from Times Mirror.
The decrease in aggregate market share by the top 10 banks reflects the lower number of blockbuster deals. In the fourth quarter, the top 10 banks acted as agent only on about 66% of the market, down from 86% in the previous quarter.
"In the fourth quarter, the market didn't have as many of the huge deals of the third quarter," said Mr. Miller.
The third and fourth quarters both had about $43 billion in mergers and acquisition financing, for a yearly total of $116 billion. "That is far and away the highest total since 1989," said Steve Miller, a vice president of Loan Pricing.
Important strategic acquisitions dotted the lending landscape in the second half of the year. Experts say that next year may see an increase in financial buyers. "A lot of consolidation in the health care and communications fields, which was driven by economic or regulatory issues, has already occurred," said Mr. Miller.
Buyout firms have reportedly amassed tens of billions of dollars for new acquisitions.
"Conditions have been shaping up with softness in equity prices and stock multiples, which improves the likelihood of a financial buyer finding satisfactory returns," said James Lee, senior managing director and head of structured finance at Chemical.
"Acquisition financing has formed and will continue to form a significant part of our deal flow and business picture," said Mr. Lee.
Even so, other industry experts think strategic buyers will remain active because several large mergers will produce divestitures.
Banks have shown an eagerness to participate in lending, which kept prices competitive throughout the year.
Typical of the near-investment-grade deals in the fourth quarter is a loan that helped National Medical Enterprise purchase American Medical Holdings. The $2.5 billion deal attracted $5 billion. "That shows how strong the BB market has become," said Mr. Miller, referring to the credit rating of the issuer. "That has become the market standard for a strong BB name that falls in the leveraged side of things."
The deal was priced at the London interbank offered rate plus 125 basis points. The deal had strong up-front fees.
Industry sources think the pricing and up-front fees are typical for that credit class, although experts said that the price would have been Libor plus 175 basis points in 1993.
Some think that competitive pricing will continue to make headlines, which isn't necessarily indicative of a troubled market. "One reason there is more discipline in the market (in terms of pricing) is because information in the loan market has become so publicly available on a real- time basis," said Mr. Lee.
