Four months after launching a bank loan effort, Donaldson Lufkin & Jenrette is leading a $200 million credit for Thomas H. Lee Co.'s high- profile recapitalization of Rayovac Corp.

The deal makes Donaldson the first of three investment banks that entered the bank loan market this year to land a coveted lead lending assignment. The Wall Street firm is acting as documentation agent on the Lee loan while BankAmerica Corp. is administrative agent.

Donaldson also will lead a $100 million bond issue for the Boston-based buyout firm, while BankAmerica will serve as co-manager. Lee is acquiring 80% of Rayovac, the country's third-largest battery maker.

Investment banks are "in the business, there's no doubt about it," said Keith Barnish, the head of loan syndications at San Franciso-based BankAmerica.

Indeed, Morgan Stanley & Co., which also entered the loan market this year, is rumored to be close to winning its first lead position on a syndicated loan, market sources said. That loan, for a West Coast client, could be as large as $1 billion, these sources said.

Many of the investment banks in the syndicated loan business have set their sights on serving buyout firms, which regularly require expensive and sophisticated financing. Donaldson, Morgan Stanley, and Salomon Brothers Inc. each launched loan efforts this year, joining earlier entrants Merrill Lynch & Co., Goldman Sachs & Co., and Lehman Brothers.

While the entrance of investment banks brings new competitors to the hotly contested leveraged-loan market, it also presents opportunities for commerical banks, market participants said. Few investment banks in the market want to act as an administrative agent on large syndicated loans, leaving that job to commercial banks.

Administrative agents play a lead role in syndicated loans, assuming much of the back-office support functions associated with the deals.

"Our rationale for giving the administrative agency to a commercial bank is that it allows the issuer to recognize an important relationship, it gives the syndicate incremental comfort, and it is a very attractive means to build partnerships with commercial banks," said John F. Yang, a director and the head of loan syndications at Merrill Lynch, which has been active in the market for two years.

In the deal for Thomas H. Lee, Donaldson and BankAmerica are equally underwriting the $200 million loan, which will be priced at the London interbank offered rate plus 250 basis points.

The funded loan will include a revolving credit. There is also an "A" term loan, and a "B" piece of approximately $60 million with a longer tenure and higher fees for institutional buyers.

The banks are expected to launch syndication by the end of the month.

By playing a prominent role in Thomas H. Lee's deal, BankAmerica was also able to snare a co-management role in the related bond issue. Working for a client as well-known as Thomas H. Lee is expected to give BankAmerica's nascent high yield bond group - which has yet to break into the top 25 underwriters of junk debt - a much-needed push.

"We look forward to working with them on deals where we can compete and on deals where we can be the administrative agent," Mr. Barnish said.

The bonds will replace a funded bridge loan.

To be sure, commercial bankers have won some lead positions on high- yield bonds and leveraged loans without partnering with investment banks. And many said they were resigned to the entrance of these new participants.

"This week, DLJ will win a deal. Next week, it'll be Morgan Stanley, and the week after, Salomon Brothers," said a syndicated lender at a New York bank.

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