Over the next five years, corporate America will be renewing close to $3 trillion of loan facilities — instruments that some dealmakers call the heart and soul of a company's balance sheet. Commercial banks are sure to be cultivating these lending relationships, hoping they will generate advisory work for investment banking arms.

Many of the chief executives and chief financial officers of businesses looking to set up lines of credit will likely find that borrowing has gotten pricier and the typical terms of a facility have shrunk by a year or two.

"Loan capital goes hand in hand with subsequent bond mandates, so it's critical for us to continue expanding this part of our business," said Jennifer Powers, head of North American investment-grade credit markets at RBS Securities in Stamford, Conn.

"The initial wave of five-year facilities are coming up for renewal in the next 12 to 18 months. Clients are very much engaged in saying who is going to lead [their] bank facilities for the next three to five years."

Renewal of bank facilities allows her company to "become more relevant to clients," said Powers, who brought over a team of specialists from Credit Suisse AG's debt capital markets team to the Royal Bank of Scotland Group PLC unit in mid-2004.

That team has expanded to more than 40 dealmakers from seven. Over the past six months the group has helped arrange $50 billion worth of facilities for corporate clients.

Between now and 2016, $2.9 trillion of bank facilities will mature in the U.S., according to Dealogic.

This year, the most active industries in re-upping loan facilities will include utilities, transportation and energy, the data provider said.

Typically loan facilities are undrawn, but they can be used as a stopgap to finance mergers, acquisitions and capital expenditures, Powers said. When it comes to the cost of financing, lenders have changed their philosophy, she said; they are no longer content with providing a loan facility at their cost.

Before the financial crisis, drawn bank facilities were at the London interbank offered rate plus 20 or 30 basis points for high-quality credits, according to the RBS executive.

"Those prices didn't relate to the banks' own costs of funding. Banks expected to make money through M&A and other products such as equities, bonds and derivatives that came about as a result of the loan relationships," Powers said.

"Now no one is pricing bank facilities below markets. They have to earn their keep on their own merit."

Though the borrowing costs are situation-specific, drawn credit now generally runs at 100 to 200 basis points or more over Libor, bearing closer resemblance to a bank's own funding costs.

Powers said that before the financial crisis, banks were effectively giving capital away, even though capital charges from a regulatory standpoint were significant even back then.

"Just because a company might not draw on it does not mean it does not have real costs to the bank," she said.

Some of the top M&A advisers last year were investment banking teams within commercial banks. The top 10 advisers of mergers worldwide last year included JPMorgan Chase & Co., Deutsche Bank, UBS AG, Citigroup Inc. and Bank of America Corp.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.