Continuing on a record-setting pace, the 1997 volume of syndicated loans stood at $770.4 billion on Sept. 30, almost 14% ahead of where it was a year earlier, according to Securities Data Co.
Chase Manhattan Corp. topped the league tables for both broadly syndicated and leveraged loans. Given full credit for each transaction, Chase's total of $341.8 billion in 478 issues gave it a 44% market share.
Each of the five leaders on the agent-only listing-Chase, J.P. Morgan & Co., BankAmerica Corp., Citicorp, and NationsBank Corp.-claimed a market share between 17% and 24%, and no other institution was in double digits.
Meanwhile, a four-year trend of falling prices in an increasingly competitive loan market came to an abrupt end in the third quarter.
"The supply of near-investment-grade loans and investment-grade financings continued to surge, greatly outstripping appetite levels and causing pricing to either move sideways, or in some instances up, for the first time in years," said Peter Gleysteen, managing director and group head for global syndicated finance at Chase Securities Inc.
"We had a market turn in the third quarter," he added. "The question is: Is it just seasonal and specific to the supply and mix of deals in 1997, or is it something more significant?"
The trend may reflect the views of credit quality that regulators have been expressing. Earlier this month Comptroller of the Currency Eugene A. Ludwig called for greater vigilance on commercial loans.
"Over the past year, underwriting standards have continued to loosen in most lending categories," Mr. Ludwig told the American Bankers Association convention in Boston. He added that he was "uneasy about the near future of the banking system."
Lenders said the third-quarter activity, especially the lackluster performance of several thinly priced investment- and near-investment-grade loans, demonstrated that they too had found pricing and/or terms of recent deals unsatisfactory.
"I hate to admit this, but it really proves what (the Comptroller) has been saying," said Kevin Sullivan, head of loan syndications at BT Alex. Brown Securities Inc. "The quarter had six or seven deals that were all indicative of a market saying, 'we want to get paid a little more and we want to make sure the structure is right.'"
Referring to several disappointing syndications in the third quarter, Mr. Sullivan said, "People don't get stuck with $500 million to $700 million of a credit unless it's underpriced, and people don't get stuck with $200 million of a deal that's well priced unless (there is a problem with) structure."
BT Alex. Brown ranked second on the leveraged league table, for loans priced 125 basis points or more over the London interbank offered rate. It had proceeds of $26.5 billion in 74 issues for a 20% market share. That trailed Chase's $41.2 billion and 31%.
While pricing seems to have leveled off, spreads and fees paid to investors continue to shrink in the leveraged market.
"It's almost like a tale of two cities between the leveraged part of the market, where the fundamentals and the supply demand balance are in very good shape, and the investment-grade part of the market, where it has not been in such good shape," said David Nass, head of syndicate at J.P. Morgan.
J.P. Morgan ranked second in the broadly syndicated market, agenting $185.3 billion in 190 loans for a 24% share.
In the leveraged loan market, strong demand has allowed lenders to execute larger deals and tailor larger tranches to meet the needs of institutional investors, said Mr. Nass.
"We've seen, from the high-yield perspective, very strong continuing demand from institutional investors," he added. "There is definitely new money coming into that market."
Although the leveling of pricing may slow some refinancing activity, lenders said they expect loan demand in the overall market to remain high through the end of the year.
"The fourth quarter is going to be very strong across the board," said Chase's Mr. Gleysteen.
