More than $11.25 billion of collateralized loan and bond obligations have been issued this year-nearly as much as the record $11.5 billion in all of 1996.
Furthermore, two securitizations of bank loans expected to close this quarter - from NationsBank Corp. and Canadian Imperial Bank of Commerce - could boost the total by $7.5 billion.
The 1997 total of collateralized loan obligations (CLOs), structures used to bundle large loans into securities, and their bond counterparts, collateralized bond obligations (CBOs), could go as high as $35 billion, according to Fitch Investors Service Inc., which has rated about 45% of this year's volume.
Supply and demand factors, including investor interest and issuers' recognition of the securities' benefits, are fueling the rapid growth.
"I think it's going to be even bigger in the second half," said Robert J. Grossman, executive vice president in Fitch's loan products group. "It's going to include, in addition to the regular high-yield CBOs, investment- grade loan securitizations that are all queued up and close to going."
He declined to discuss specific deals.
Though no American bank has yet issued a large securitization of corporate loans from its own portfolio, several major institutions are considering using the instruments as a tool to free up capital that would otherwise be held against the loans, said market sources.
NationsBank Corp. is working to securitize about $5 billion of investment-grade loans this quarter, while Canadian Imperial of Toronto is near to closing a $2.5 billion securitization made up of its loans, said sources familiar with the deals.
Officials of the banks have not made their plans public.
The Dutch bank ABN Amro is reportedly planning to securitize more than $5 billion in investment-grade U.S. bank loans, said a Bloomberg News report.
CLO and CBO growth is driven in part by the increased familiarity of both issuers and investors.
"Every year that goes by, investors are gaining comfort with the asset class," said Mr. Grossman.
For example, Merrill Lynch & Co., which structures and places these securities, conducted a worldwide education program last year to familiarize investors with them.
Meanwhile, premiums paid for the securities are falling "as the market becomes more accepting of how the deal works and (understands) the limited risk in these highly rated transactions," said Barry Finkelstein, director in Merrill Lynch's structured finance and credit derivatives group.
For the second half "the outlook is pretty strong, but it is always subject to the vagaries in the underlying asset classes," said Mr. Finkelstein.