Instead of the usual yearend slowdown, a pipeline full of pending deals in the syndicated loan market ensures that 1993 will get off to a fast start.
Much of the activity continues to be driven by corporate refinancings, restructurings, and renewals of backup lines for the sale of commercial paper. But there is also a pickup in demand for new loans to finance acquisitions.
"We've had one of the best Decembers for some time, and there is quite a lot of activity lined up for the first quarter," said Barry Sabloff, senior vice president and head of loan syndications at First Chicago Corp.
James Lee, who runs Chemical Banking Corp.'s sprawling loan syndication business, said he expects January and February to be particularly busy."
At Nationsbank Corp. in Charlotte, N.C., the level of activity is also strong.
"Our pipeline is unusually full for this time of year," said syndicate chief Thomas Bunn. "We could have three or four deals in the market in the first couple of weeks in January."
Mark Thorum, vice president and loan syndication manager in the New York office of ABN Amro Bank, said the volume of deals at his bank is twice what it was at this time last year.
Larger Role in U.S.
The Dutch bank has become an increasingly important player in the United States.
Mr. Thorum said ABN Amro's specialized credit groups - such as structured finance aerospace, and project finance - are expected to generate a greater percentage of the bank's deal flow next year than plain-vanilla commercial paper backup lines for large corporate customers.
Loan syndicators often work on deals running into the hundreds of millions - even billions - of dollars.
Volume Up 43%
This year, loan syndication volume has soared 43% above 1991 levels to $334 billion, according to Loan Pricing Corp., a data base company that tracks the market.
Continued low interest rates this year fueled a refinancing boom, which has continued straight through December. Meanwhile, commercial paper backup lines are being renewed with increasing frequency because of the trend in recent years toward shorter maturities.
Backup lines generally are not drawn on by the borrower, so the lending commitments seldom get funded as loans. As a result, a lot of activity in the loan syndication market has no bearing on the amount of commercial and industrial loans held by banks.
Gauge of Loan Demand
The C&I loan data, reported weekly by the Federal Reserve, are closely watched as indicators of business loan demand and banks' willingness to lend.
Business loan holdings fell steadily from 1990 though much of 1992, as the runoff of old loans exceeded the inflow of new loans on banks' books.
Despite a recent uptick in the amount of outstanding C&I loans, overall business loan demand is expected to remain subdued next year.
"We're certainly at best predicting single-digit growth in C&I lending next year," said James LaVelle, senior vice president and chief credit officer at Banc One Corp., Columbus, Ohio.
Norwest Sees Modest Growth
Edgar Morsman, chief leading officer at Norwest Corp. in Minneapolis, said his bank expects only "fairly modest" growth in loan demand next year.
Norwest serves middle-market customers in the upper Midwest and is not an active player in the syndicated loan market, either as an originator or as a participant in other banks' deals.
But like corporate borrowers in the syndicated loan market, Norwest's business customers are also borrowing more to refinance or restructure existing debt than to finance an expansion of inventories or manufacturing capacity.
Although there are signs that an economic recovery may be taking hold, Mr. Morsman said businesses are taking a "show me" attitude before they commit themselves to "expansionary borrowing."
|Comfortable' About Economy
While that's largely the case in the loan syndication market, too, borrowers are getting "a bit more comfortable about the economy," said Karen Keating, head of loan syndications at Chase Manhattan Corp.
In some cases, borrowers are arranging loans now in anticipation of acquisition opportunities later, said NationsBank's Mr. Bunn.
"There are a very large number of medium-sized acquisition financings that we will be bringing into the market sometime in early 1993," said Mr. Lee at Chemical.
"That's probably one of the more significant changes this year," compared with yearend 1991, he said.
Money to Spend
Financial buyers have lots of equity capital to spend, while a number of large corporations are looking to divest unwanted businesses, noted Morgan St. John, managing director at Bankers Trust New York Corp.
Given the high multiples at which stocks are trading in the public markets, it will continue to be difficult for deal firms to fetch companies at attractive prices in the private market.
But Mr. St. John and other bankers said sellers are getting more realistic about the prices they are seeking.
Meanwhile, there are still a number of 1980s-style leveraged buyouts that could go public again.
Banks wrote billions of dollars of loans this year for leveraged companies that tapped the equity market with initial public offerings.
Companies that got shut out of the IPO market this year are expected to try again in 1993.
To almost everyone's surprise, banks flocked to refinance these reverse LBOs, even though many remained quite leveraged despite the infusion of new equity.
Banks' willingness to underwrite such credits - and their ability to syndicate them successfully - has been the most striking development in the loan market this year, said Mr. Lee of Chemical.
Meanwhile, competition is expected to intensify among banks in providing lower-risk, less lucrative credit lines to investment-grade corporations.
Competitive Pressures
Pricing of investment-grade credits is already lower than it was earlier this year, though it remains above the levels of three to four years, ago, said Chase's Ms. Keating.
"I think 1993 will be a more competitive year than 1992, and I think 1992 is finishing on a very competitive note," said Mr. Lee.
What remains to be seen, he added, is whether banks will compete on the pricing, maturity, or structuring of deals.
In recent years, for example, banks shortened the maturities of backup lines - many to under a year. That's because banks are not required to allocate capital against unfunded commitments of less than a year.
When capital was scarce, and banks were scrambling to meet new capital requirements established by the Bank for International Settlements, writing 364-day "BIS-friendly" backup lines became common.
Now, with capital ratios restored to healthy levels, banks may be more willing to stretch maturities, alleviating borrowers of the need to renew their credit lines so often.
