Leveraged syndicated lending soared 6%, to $88.3 billion, in the second quarter from a year earlier, driven by a record number of financings for mergers and acquisitions.

Overall U.S. syndicated lending dipped 5.1%, to $276 billion. That put total loan volume at $476 billion for the year through June 30, about 6% behind last year's pace at this time, according to Thomson Financial Securities Data Co.

But leveraged lending - which generates the highest fees - is setting a breakneck pace. Through the first half of 1999, leveraged lending jumped 7.5%, to $163 billion, compared to the record $152 billion at the same time a year ago.

"It's the best quarter we've ever seen for everybody," said Peter Gleysteen, a managing director and group head of global syndicated finance at Chase Manhattan Corp. "It's because we had the best deal mix characterized by a large level of M&A deals for large public companies."

Lenders also hailed the record quarter as a sign that the loan market has fully recovered from the tumult that depressed lending in the second half of 1998.

"The sentiment has gone from one of caution to confidence and optimism," said Arrington Mixon, managing director and head of corporate loan origination at Bank of America Corp. "There's been a sharp acceleration of deal flow and liquidity."

Nevertheless, Bank of America failed to gain ground on top-ranked Chase, its biggest competitor in leveraged syndications. After moving within $5 billion of No. 1 Chase's total in the first quarter, Bank of America fell to more than $7 billion behind in the period just ended.

Chase led 145 loan packages worth $97.4 billion in the second quarter. In the same period, Bank of America led 174 loan deals, but they were worth a total of $57 billion.

Mr. Gleysteen said his company has maintained its dominant position because it has persuaded borrowers that Chase, because of its size and experience, can insure that syndications will run smoothly.

This type of marketing seems to have paid off for Chase. Since the market tumult of last October, the $361 billion-asset company has maintained a market share of 30% or more - nearly twice as much as its nearest competitor, Bank of America.

Furthermore, Chase had a key role in the quarter's most influential deal, the $33 billion syndication for Italy's Olivetti SpA. That credit, also led by Donaldson, Lufkin & Jenrette, Lehman Brothers, and Italy's Mediobanca, raised the bar for loan financing.

Though it did not count in the U.S. league tables, bankers said the Olivetti deal redefined the syndications market. "What it underscored to everybody worldwide is that (we have) a single global market," Mr. Gleysteen said. A bigger borrower can say: "If Olivetti can raise that much, I can raise $50 billion," he added.

Many of the deals in the quarter also brought, or resulted from, other business for lenders. For instance, Credit Suisse First Boston led a $700 million loan package for Express Scripts Inc.'s buyout of Diversified Pharmaceutical Services.

That deal was born out of Credit Suisse First Boston's M&A advisory role to the company and led not only to the loan but also to a $250 million note issue and a $275 million equity issue.

One-stop shopping is "a very important part of our franchise here," said Bruce Ling, a managing director and head of syndicated finance at Credit Suisse First Boston. "But we're trying to provide the financing and advice. It's something all of our clients want to buy because of the tremendous efficiencies."

Meanwhile, investor demand for leveraged loans also outpaced production in the second quarter, according to a June 25 report by Michael Rushmore, head of syndicated finance research at Bank of America.

As a result, yields on institutional loans are shrinking, and borrowers are getting low-cost financing. Consequently, banks are tightening credit, he said.

"Some institutional investors are edging modestly out on the risk curve, showing a desire for greater yield," Mr. Rushmore said. "Most banks are leaning toward more conservative credit structures."

In the investment-grade market, bankers also noticed that the bargain basement prices, which keep so many lenders from participating in loans, have eased.

Bank of America's Ms. Mixon points to two reasons for the "stabilization" in the investment-grade loan market. First, fees have finally risen to acceptable standards, and second, banks are now pushing borrowers to use their traditional investment banks to participate in those loans.

Entering the second half of the year, Ms. Mixon said she expects the widening of credit spreads in the high-yield market to continue. "That means companies will be moving to the high-yield loan market," she said.

Chase's Mr. Gleysteen agreed that economic conditions are robust worldwide and borrowers seem very intent on using syndicated loans to buy and merge their way toward competitive status in the global economy.

"Whether it's the oil industry, telecom, or supermarkets - it doesn't matter," he said. "In every industry worldwide the leaders are going for scale, and the record M&A volume we've just experienced is likely to continue."

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