When credit was tight several years ago, buyout firms couldn't be too choosy about who their agent banks invited to participate in loan syndicates.
Today, with so many banks back in the business of making highly leveraged loans, it's a borrower's market.
"I'd love to be in the [loan] market financing an acquisition right now," said William Barbe, a principal at Clayton, Dubilier & Rice, a private investment firm in New York.
With the loan market Overflowing with available credit, deal firms are in a strong position not only to obtain favorable pricing, but also to exert greater influence over the size and composition of their bank syndicates - something investment-grade corporations have been doing for some time.
'Had Good Influence'
"We haven't been in the market since February, but even then, we had good influence over who got in [the syndicate] and who didn't," Mr. Barbe said.
That loan, led by Barclays de Zoete Wedd, helped finance Clayton, Dubilier & Rice's $340 million acquisition of Westinghouse Electric Corp.'s electrical equipment distribution network.
Much of the leveraged lending that has taken place in the loan market in recent years has been in the form of refinancings for buyouts that were done in the 1980s.
But the trend could slowly be turning around. One sign: Since the second half of last year, the volume of bank loans used to finance new leveraged buyouts accounted for 37% of total leveraged lending, compared with 17% for all of 1992, according to data compiled by Loan Pricing Corp.
Since the beginning of last year, Clayton, Dubilier & Rice has been one of the most active firms in terms of making new acquisitions. The firm has completed three new deals, for which it borrowed a total of $750 million in the loan market, according to LPC, the New York data base company.
Hicks, Muse & Co., the Dallas-based buyout firm, has also been busier than most other firms.
Still, overall buyout activity is way off from its heyday in the 1980s.
Kohlberg Kravis Roberts & Co., the most famous of the LBO firms, has been fairly inactive. It's mammoth buyout of R JR Nabisco in the late 1980s has provided disappointing returns for KKR's investors.
High Valuations a Hindrance
Buyout firms are sitting on billions of dollars of uninvested equity capital, but acquisition activity has been hampered by high valuations for companies.
The stock market correction has helped somewhat, but deals still generally appear to be too pricey.
Moreover, the junk bond market - a source of subordinated debt for buyout financings - has turned less receptive.
Even if deal flow picks up, it's unlikely that the increased demand for bank financing will soak up the excess liquidity in the loan market for some time to Come.
As a result, banks that have not been consistent players in the buyout loan market could find themselves shut out of loan syndicates.
That, indeed, was the message one banker said he came away with after a round of recent meetings with deal firms.
One syndication official at a major bank predicted that deal firms will also seek to limit secondary trading of their loans. Indeed, some buyout firms have always done that to varying degrees.
For the deal firms, the idea, essentially, is to keep the bank paper out of the hands of strangers. If, for example, the loan agreement needs to be amended down the road, it's easier for the borrower to work with banks that it knows.
For similar reasons, keeping a lid on the total number of banks in the syndicate also makes life easier.
Big investment-grade corporations, tired of dealing with unwieldy bank groups, have been paring the number of banks in the syndicates to more manageable levels.