Investment Firm Offers Loan Trading Service For Syndicated Market

Looking to become the syndicated loan market's first discount broker, boutique investment bank Meenan, McDevitt & Co. established a new loan trading and clearing service this week.

Available over the Internet (www.loansale.com) and on Bloomberg terminals, the new service provides buyers and sellers of leveraged and highly leveraged loans with continuously updated bids and offers.

For a fee of 5 basis points per transaction for leveraged loans the new service lets traders and investors in the secondary loan market buy and sell portions of the most actively traded loans among themselves, bypassing trading desks at commercial or investment banks.

There are about 30 such trading desks dealing in syndicated loans at commercial banks, such as J.P. Morgan & Co. and Chase Manhattan Corp., and investment banks, such as Goldman, Sachs & Co.

The new service "brings to the syndicated loan market what Charles Schwab brought to the stock market, namely, low transaction costs backed by the latest technology," said Tom McDevitt, a principal of the Harrison, N.Y.-based firm.

With the syndicated loan market expected to exceed $1 trillion in volume this year, the secondary market for syndicated loans has grown to about $30 billion in volume, said Mr. McDevitt.

But high assignment fees-those paid to agent banks when executing loan trades-have put a brake on the secondary market's liquidity, said observers. These fees are typically 7 basis points.

"The expenses of participating in this market as a trader are too high for the time being to really take on bond-like characteristics," said Howard Tiffen, senior vice president at Pilgrim America Group, who manages a $1.5 billion fund of leveraged bank loans.

The new system may "help flush out that issue, because what Meenan McDevitt is doing here is trying to find ways to lower the cost of dealing by narrowing the spreads as far as they can," said Mr. Tiffen.

The firm hopes the new system will "increase our market share by increasing our volume of trades, using technology to reduce the cost of trading for our buyers and sellers," said principal Kevin Meenan of Meenan McDevitt.

Mr. Meenan and Mr. McDevitt founded the first fully dedicated leveraged loan trading desk while at Citicorp in 1989 and founded Meenan McDevitt in 1991.

The firm provides trading, research, and capital markets advisory services to banks, institutional investors, and other buyers and sellers of syndicated corporate and real estate loans.

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