The weaker economy and market volatility could actually be a boon for banks and other participants in the syndicated lending market, according to experts addressing a conference in New York Wednesday.
Plenty of opportunity exists to work with distressed companies to restructure debt, according to Donald H. McCree 3d, co-head of the North American credit markets group at J.P. Morgan Chase & Co. He spoke on a panel at the 31st annual Bank and Financial Analysts Association conference, singling out Lucent Technologies and Federal Mogul as recent examples of the kind of companies that will need guidance.
The panel sought to address what is seen by some as a mature market for syndicated lending in the United States.
But there are opportunities elsewhere, said Mr. McCree, who has recently returned from a post in Europe and pointed to the range of opportunities available across the Atlantic. There is huge potential in the leveraged market, as well as in cross-border opportunities that will continue to arise, he said.
Donald E. Pollard, co-head of global syndicated finance at Credit Suisse First Boston, said the real source of market stability has been a growing base of institutional investors, which accounted for 56% of the demand for highly leveraged loans in 2000.
Further evidence of a maturing marketplace, Mr. McCree said, is the move to market-flex pricing, which has reduced the risk of lending for underwriters, he said.
Loans are more conservative and better priced, Mr. Pollard said, and, referring to lenders, the market is paying them to play.
The conversation later turned to investment banks ability to maintain their position in the syndicated loan marketplace, as companies pressure banks to maintain significant loan commitments, if they are to win the coveted underwriting portion of the business.
That is a tough request for investment banks institutions that are traditionally risk averse, and have less capital to lend than commercial banks. Without revealing specifics, the bankers said a couple of investment banks have been successful in this realm, but others have not put up enough capital to compete effectively.
Syndicated loans in the telecommunications sector are the wild cards to watch, the panel said. These loans have experienced leveraging in the market over the past few years. While it is still unclear how loans made to competitive local exchange carriers will fare, the panelists said some lenders to wireless companies will not get paid back.