The bank loan syndication market is widening as foreign investors look to the United States for high-yield opportunities.
So said two leading experts in international syndications at the American Banker/Strategic Research Institute's Syndicated Loan and High Yield Debt Symposium in New York this week.
"A traditionally separate loan syndication market is going to become transnational and accommodate an increasing amount of cross-border capital flows," said Jeff Stuart, a managing director and head of syndications for North and South America at Deutsche Morgan Grenfell Inc.
"Loans will follow the capital," Mr. Stuart added.
One impetus of that has been the entrance of foreign institutional investors into U.S. syndications. In the last six years, most foreign investors were from Canada, the United Kingdom, Mexico, and Bermuda. By 1996, the foreign investor base had widened and diversified dramatically, and Latin American investors made up 40% of all foreign investors.
Clarence Plummer, a managing director and head of Latin American syndications at Merrill Lynch & Co., pointed to the astounding growth of the syndications market in Latin America.
Syndications have grown from $4 billion in 1992 to $25 billion in 1996, Mr. Plummer said.
Since the devaluation of the Mexican peso in 1994, investors have regained confidence in Latin America and Mexico, and the bulk of syndicated loan activity has occurred there.
Cross-border mergers may be another big driver of this internationalization; this activity has nearly doubled to about $375 billion in 1996 from $130 billion in 1992, Mr. Stuart said.
As a result, a very liquid loan market has developed not only in the United States but also throughout Asia and Europe, in addition to strong equity and fixed-income capital markets.
The nascent high-yield market developing overseas is also driving the globalization of markets.
With a handful of nondollar-denominated, high-yield issues executed by American investment banks, there is the potential for an actively traded junk market "that is clearly a driver of cross-market flows," Mr. Stuart said.
The European market has become more sophisticated and more focused on structuring deals where they had used only sovereign and "plain vanilla" instruments before.
But the investors and issuers don't see eye to eye just yet. Differences in accounting and tax systems, in governing corporate laws, and in evaluating international operations still keep the international capital markets distinct.
One thing that does transcend country borders is relationships, Mr. Stuart said.
"People's relationships in one country will draw on those relationships when they go across borders," he said. "Flows of loan capital work both ways, and relationships from home companies also cross borders."
