After two moribund months, the leveraged loan market has picked up in the last two weeks.
So far this month Standard & Poor's Portfolio Management Data has tracked $11.3 billion of new issues, $4.1 billion of which will be marketed to institutional investors. That is up from $7 billion of new issues in May, $1.1 billion of which were offered to institutional investors, and $9 billion of new issues in April, of which $1.1 billion were marketed to institutions.
One of the biggest U.S. underwriters, Banc of America Securities, which closely tracks loan market activity, said 109 leveraged deals totaling $38.9 billion were in the pipeline, yet to be closed, as of June 14. That's the industry's largest forward calendar - in terms of volume - since October.
"Supply is up sharply," said Peter Clemson, a leveraged loan research associate at the Bank of America subsidiary. "Market participants are hopeful that this development represents a fundamental shift in activity."
Meanwhile, Banc of America's forward calendar for investment-grade loans dipped slightly last week because some large deals cleared the calendar. (See chart.)
Bankers and researchers also reported evidence of a percolating leveraged loan market.
"We've seen more deals come to market in the last couple of weeks than we've seen in a long period," said Paul Trefry, a managing director and head of senior debt capital markets at FleetBoston Robertson Stephens, the investment banking arm of FleetBoston Financial Corp. He was speaking of industry volume.
"I can't tell you how many deals we got in the past three days," Babak Varzandeh, a vice president at S&P's Portfolio Management Data, said on Thursday. "We haven't been this busy in at least two months."
"I think that people are seeing more stability in the interest rate environment," said Robert Brown, a managing director at FleetBoston.
Leveraged loans - which produce the richest margins in the syndicated loan market because they carry the most risk - had tanked this year after a prosperous 1999. A slight pickup earlier in the year proved fleeting.
Industry experts attribute this year's dramatic decline to the near shutdown in high-yield bonds, which bankers typically require on many bigger financing deals.
Leveraged loan underwriters hope the recent signs of an economic slowdown will persuade the Federal Reserve Board to end its monetary tightening and let the high-yield bond market it influences bounce back. Late last week, however, Fed members indicated they may increase interest rates again.
"The optimist would say things are looking better for the summer," Banc of America's Mr. Clemson said of the leveraged loan market, "but deal flow still remains below historical levels."