As far as lenders are concerned, the development of a more liquid market for bank loans can't happen quickly enough.
With mutual funds, pension funds, and insurance companies now buying into corporate loans, bank lenders are launching intensive research efforts and specific loan indexes. The research activity is expected to fuel investors' interest in the loans and filling their need for information.
BankAmerica Corp. recently brought six professionals into a new loan syndication and trading research group, which will provide the same kind of research on loans as provided by the bank's high-yield bond and corporate bond groups. Bankers Trust New York Corp. is expected to unveil a new index on Thursday showing the historic returns on leveraged loans.
The convergence of the bond and loan markets "has pushed all of us toward mimicking the public markets," said Robert C. Griffin, an executive vice president for loan syndications and trading at BankAmerica.
"There will be any of a number of ideas that come out of the research area that end up in bottom-line profitability for BankAmerica, as well as issuers and investors," Mr. Griffin said.
The BankAmerica executive estimates that the base of investors buying loans from BankAmerica has increased more than 10% in the first four months of the year, following more than 10% growth last year.
BankAmerica is not the first financial institution to provide research to the market. Citicorp has provided monthly market summaries since 1988, and has had a loan index since 1993.
And at Chase Manhattan Corp., an official said the bank has had a staff of researchers dedicated to the loan market for more than two years. "To date, the research has been used internally in developing syndications for clients," the official said.
While Mr. Griffin did not estimate how much new business bank loan research might have added to BankAmerica's loan distribution efforts, he expressed confidence that such research would provide intangibles first, and profitability next.
"By approaching investors with information about the marketplace and the industries, we will cement and improve our relationships so that when the market dynamics are not as robust as they are now, we'll have a leg up in doing business with them," Mr. Griffin said.
BankAmerica tapped Michael H. Rushmore, a 12-year veteran of the bank and former manager of investor relations on the loan syndication desk, to lead the new group.
"The market isn't mature yet with respect to embracing the idea of research," Mr. Rushmore said. "We need to spend time in the market educating investors about the value and use of research."
To that effect, BankAmerica issued a report this month explaining the relatively new bank loan ratings issued by Moody's Investors Service, Standard & Poor's Ratings Group, Fitch Investors Service, and Duff & Phelps, and their effect on the market.
One of the report's conclusions is that loan ratings are generally not needed to increase investor interest in the loans. "However, it is our view that when the supply-demand balance returns to the market, loan ratings will be a key component of the market," the report said.
BankAmerica's reports are not publicly available.
Mr. Griffin said the bank has used the research to inform investors of opportunities in such areas as middle-market insurance.
Mr. Rushmore reports to Keith Barnish, who conceived of the research idea and heads U.S. loan syndications and trading in New York.
The new group includes Steve Oldham, formerly a steel analyst at Salomon Brothers; Frank Chang of Anderson Consulting; Vik Thadani of BankAmerica's syndication group; Martha Klesson, formerly of Loan Pricing Corp.; and Jeff Ryan, a recent graduate of Notre Dame.
One industry observer noted that the group does not have a great deal of lending expertise. But Mr. Griffin said that is by design.
"We see an area of disciplined expertise and thought that needs to be migrated into the loan syndication area," Mr. Griffin said. "All the benefits that the public securities markets get from dedicated research is designed to help issuers or investors make better decisions."
To be sure, bankers said that institutional investors in general account for only 1% to 5% of the overall loan market.
Nonetheless, bankers said that area was growing and that investors are beginning to embrace loans as an asset class.
Hans Christensen, a vice president and porfolio manager at Citicorp, said it is increasingly commonplace for investors to weigh loans against bonds when they are making their porfolio decisions.
