In a move highlighting the further convergence of the bank loan and high-yield bond markets, Citicorp Securities Inc. has established a research group that will cover the syndications market.
The new group is the third such research team established at a commercial bank. BancAmerica Securities Inc. set up its Loan Syndications and Research group last year. BankBoston Corp. created a similar unit in May.
Rodney A. Morgan, a vice president at Citicorp Securities, heads the new unit, which will issue its first public report next month, focusing on trends in spreads and pricing in the noninvestment-grade market.
"On the investment-grade side, what we're trying to do is tell the issuer more about what's going on in the syndication market and what they can expect," said Mr. Morgan. That information should "help them understand and focus their syndication strategy as they come to market," he added.
"On the leveraged side, what we're trying to do is focus more on the investor base," said Mr. Morgan. Rather than duplicate high-yield and equity research for these companies, the loan research will build on that information, for example, by providing relative value analysis between bonds and bank loans in a given transaction.
Market research and analysis has long been an important tool in the high-yield bond market. Bond underwriters use their own research to find new financing opportunities, to determine appropriate terms and pricing of new issues, and to define the investor universe for their issues.
That research also is made available to sales desks, investors, and the public to help sell new high-yield issues.
While most commercial banks acting as agents for syndicated loans already perform some research, such as finding what terms and pricing the loan market will support, it is normally used for internal purposes only.
Investment banks in the loan business usually tap their in-house equity or fixed-income research organizations for insight into a given industry.
But these new loan research groups, like their bond market counterparts, largely perform their own research and analysis and make their findings available to competing syndicating banks, as well as to institutional bank loan investors.
"The more information the better. With time, a lot of these institutions will be setting these units up," said John Wheeler, an investment director at Massachusetts Mutual Life Insurance Co., who manages a bank loan portfolio with roughly $1 billion of assets. "Where it will be really valuable, down the road, is when they start doing some of that (research) on the smaller, middle-market credits, which tend to be less liquid."
BancAmerica Securities LS&T Research has issued reports on the loan market for grocery stores, gaming, the paper and forest products industry, and most recently, radio broadcasting.
BankBoston's group is expected to issue its first report soon, on syndications for high-technology companies.