Syndicated lending volume totaled $888 billion in 1996, shattering 1995's record by nearly 10%.
Most bankers expect the torrid growth, fueled by merger activity, to continue this year. But some are questioning how long the boom can last - especially if the stock market cools.
"The market just went into turbo charge in 1996, which may be difficult to replicate in 1997," said Mary Watkins, managing director and head of J.P. Morgan & Co.'s loan capital markets group.
For now, lenders are basking in the glow of a widely successful year. "1996 ranks up there as one of the better years that I've seen in this business," said James B. Lee, head of investment banking for market leader Chase Manhattan Corp. "It was a very profitable year for us." Indeed, Chase finished 1996 with a whopping 20% share of the market.
Volume was particularly brisk in the fourth quarter, which hit a new high of $265 billion, according to Loan Pricing Corp., which is to publish its league tables ranking syndicated lenders today. That's a 22% increase from $217.6 billion a year earlier.
The engine behind that heady growth was a mergers and acquisition boom. More than 2,300 deals, totaling $202 billion, were announced in the fourth quarter, according Securities Data Corp. That boosted the year's total to a record 10,253 deals with a volume of $659 billion, Securities Data said.
Even Comptroller of the Currency Eugene A. Ludwig's warning last month that some banks' underwriting was "treading close to the line of prudence" did little to squash lenders' enthusiasm. While bankers acknowledged that credit standards in the market have loosened somewhat since the tight days of the early 1990s, they said risk is being managed properly.
"I don't think we've pushed anything outside of the box as far as underwriting standards," said Mary Etta Schneider, managing director and head of the loan syndications group at BankBoston. The market is "still nowhere near the level of aggressiveness of the late 1980's.'
The year was also marked by increasing competition from investment bank newcomers to the syndications game. These entrants and long term contenders seeking greater market share combined to drive down pricing in both the investment grade, and increasingly, the near- or below- investment grade markets, too.
"I shudder to think that there's any more room for compression in pricing," said Stacy W. Cook, a managing director at NationsBank Corp., Charlotte, N.C.
For instance, Ms. Cook's bank led a $650 million loan backing Kohlberg Kravis Robert's leveraged buyout of Spalding & Evenflo in the third quarter that was priced below the LBO standard of 250 basis points over the London interbank offered rate. But the highly liquid market snatched it up anyway.
The deal also typified the one-stop shopping trend sweeping the market.
"It involved the investment banking, Section 20 and loan underwriting units of the banks involved," said Michael Zupon, a managing director in leveraged transactions at NationsBank. NationsBank also co-led an accompanying high yield bond issue with Merrill Lynch and $150 million in preferred stock bought by KKR.
Chase Manhattan's $2 billion credit and a $500 million high-yield bond issue backing Sprint Spectrum also revealed a market flooded with liquidity and willing to take risk, provided strong sponsorship and major fees are part of the package.
In addition, the deal demonstrated the growing market presence of institutional investors, who snapped up a $300 million carve-out and helped move the deal forward.
This year is starting even better than last for some. BankBoston, which deals mostly in highly leveraged transactions, finds market demand has continued to grow.
"Our deal flow is stronger than we've ever seen coming into a January," said Ms. Schneider. The bank won't reveal figures, but volume is already more than double that of last January, she said.
While Chase led 521 deals representing $301.4 billion, No. 2 lender J.P. Morgan led 179 deals totaling over $182.7 billion for a 12% market share. That moved Morgan up a spot from last year.
Rounding out the top five slots were BankAmerica Corp. which moved up one spot from last year's standings to No. 3, Citicorp, which dropped two spots to No. 4 and NationsBank, which rose one notch to No. 5.
