The influx of institutional money into the bank loan market has presented banks with a new problem: how to remain in control of the transactions they originate.
As recently as a year ago, institutional investors owned no more than 30% of most bank loans.
But today these investors, which include collateralized loan obligations, prime rate funds, and insurance companies, often account for 50% or more of a loan's capital structure.
That could give these investors-who typically see transactions differently than bank-lenders-the right to control the future of a deal.
"That was an issue that came up for us last week," said Kevin Burke, a managing director at Bankers Trust New York Corp. "In a couple of situations, the amount (that institutional investors held in transactions) had crossed 51%."
Mr. Burke made the remarks Monday in New York at the Syndicated Loan and High Yield Debt Symposium sponsored by American Banker and the Strategic Research Institute.
At a panel on new industry participants, Mr. Burke and other bankers said they were loath to allow institutional investors to take control of a lending group. The fear is that the investors will force bankers to remain committed to transactions with which they are uncomfortable.
"A lot of the managers of the CLOs are traditional bond people," said Glenn Stewart, managing director of NationsBanc Capital Markets. "They're taking more of a bond mind-set rather than a senior secured mind-set."
For example, what someone with a senior secured mind-set might view as a risk to a transaction-and a reason to bail out-someone with a bond mind-set would see as an opportunity to invest more.
"You're starting to see transactions that have a small revolver and an all-institutional tranche," added Mr. Stewart. "How do you deal with voting rights? How do you deal ... with a different mind-set that has more than 50% of a transaction?"
