Though commercial banks still dominate the top ranks of lenders to the leveraged buyout community, investment banks are gaining ground. Chase Manhattan Corp., Bankers Trust New York Corp., and Citicorp were the leading lenders to firms controlled by LBO shops in the first half of this year, according to data from Loan Pricing Corp./Gold Sheets. But Goldman Sachs & Co., Credit Suisse First Boston, Lehman Brothers, and Merrill Lynch & Co. gained ground. Meanwhile, Bank of New York, Banque Paribas, and First Union Corp. dropped off the list. Observers say that commercial banks' efforts to build transaction development groups-to bring new ideas to LBO firms-have helped them to maintain their market share. This function used to be the sole province of investment banks. "Commercial banks have really kicked their idea-flow business into high gear," said Michael Levitt, a partner with Hicks Muse Tate & Furst, "and Chase is clearly leading the charge." As for the investment banks, "the idea-generation business is going to drive their progress in the leveraged lending business," Mr. Levitt said. "The major investment banks have been in some bank (loan) business for us, and that was a reward for good idea coverage." Chase and Bankers Trust continued to lead the pack, but the gap between the two narrowed. Chase agented $10.6 billion from 37 deals in the first half of 1997, and Bankers Trust agented $9.7 billion from 34 deals, for an 18% market share. Last year Chase agented $10.2 billion in deals, with a 33% market share from 29 deals, and Bankers Trust had agented $5.7 billion from 16 deals, for an 18% market share. "Bankers Trust is doing a better job at integrating Wolfensohn & Co., and it will be interesting to see what they will do with Alex. Brown & Sons," said one leveraged buyout executive. "We're very happy with the overall mix of business," said Kevin Sullivan, a managing director at BT Securities Corp. "A lot of the creative solutions in the first half of this year really helped fuel the business." Bankers Trust recently completed a $280 senior secured credit facility and a $100 million issue of senior subordinated notes for Cambridge Industries Inc., a company owned by Bain Capital Inc. Still, commercial banders say they are clearly feeling the presence of the investment banks. Tom Doyle, a managing director who heads the acquisition finance effort at Citicorp-which jumped into the top three this year after starting a LBO coverage group in 1996-said: "There is absolutely more competition from the investment banks that have strong M&A practices. This is a cash-driven M&A business. " Still, "the rankings are not the real barometer," Mr. Doyle added. "The real barometer is what's important to our target customers." Chris Ryan, a managing director who heads syndications and fixed-income at Lehman Brothers Inc., said his group is "very much in a growth phase." "We're increasingly able to do business that is value-added for our clients," Mr. Ryan said, "and consequently our clients are selecting us to do their loan business." Lehman recently led a $275 million syndicated loan and a $225 million high-yield-bond offering for L-3 Communications Corp., an electronics and defense spinoff of Lockheed Martin Corp. The bank won the mandate through its equity investment in L-3. "We're doing a better job with respect to the linkages we create between the M&A deal flow and the loan business," said Lehman's Robert Redmond, a managing director who heads high yield, leveraged loans, and coverage of the LBO community. "We've turned what used to be capital markets and advisory clients into good loan clients."
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