The leveraged loan market turned into a two-horse race in the first quarter, with Chase Manhattan Corp. and BankAmerica Corp. vying for the lead.
The two banks trounced all comers in this highly profitable segment of the loan market, together managing a majority of the volume.
Chase finished the quarter first, but the new BankAmerica emerged as a strong challenger, according to figures released last week by Thomson Financial Securities Data.
Charlotte, N.C.-based BankAmerica led $18.5 billion worth of leveraged loans in the quarter; Chase was at $20.1 billion. Their nearest rival, Toronto-Dominion Bank, led $3.7 billion of leveraged loans, a 5.5% share.
"The first-quarter results demonstrate that we have gone through the largest bank merger in U.S. history and maintained our momentum," said Thomas W. Bunn, BankAmerica's co-head of global debt origination and structuring.
Chase remained the No. 1 syndicated lender overall, leading 34.6% of the market and managing deals worth $66.1 billion. BankAmerica was a distant No. 2, managing $34.2 billion worth of deals for an 17.9% share.
But BankAmerica's challenge to Chase's perennial dominance of the leveraged lending business is significant. Leveraged loans are more profitable for underwriters than investment-grade deals. And the emerging- growth companies that leveraged loans finance are among many banks' most desirable customers.
"We plan to emphasize the debt financing business going forward, leveraging off both our nationwide franchise and building additional investment banking capabilities," Mr. Bunn said.
Though BankAmerica and NationsBank completed their merger just six months ago, executives in the new bank's debt group say they have wasted no time capitalizing on the combination. On a pro forma basis, the two controlled only 15% of the leveraged loan market in the first quarter of 1998, compared with 27.5% today.
Only a few percentage points separated BankAmerica and Chase in leveraged loan volume last quarter. But a chasm divided the two in the number of deals they managed.
BankAmerica led 98 leveraged loan packages, compared to 62 leveraged deals managed by Chase. BankAmerica tends to do more loans for small to mid-cap companies while most of Chase's leveraged clients are buyout shops and large, near-investment grade companies.
The difference between the two banks' approaches was clear in the overall market as well. The volume of deals managed by Chase was almost double BankAmerica's. But BankAmerica did 37% more deals-completing 158 financings compared with 117 for Chase.
"We are at or near all-time highs in terms of market share in the overall league table and the leveraged table," said Peter Gleysteen, Chase's loan syndications chief. "The overall table reflects our historic strength in corporate syndications generally and M&A in particular."
Overall volume in the loan syndications market declined in the first quarter for the second straight year, according to Thomson Financial Securities Data. During the first three months of 1999, $191 billion worth of deals hit the market, down from $224 billion a year earlier.
Volume in the leveraged market also fell. It totaled $67.3 billion in the first quarter, down from $70.8 billion in 1998.
But lenders say the business rebounded from the dislocation that hit it late last year, when global economic jitters made it especially difficult for lower-rated issuers to complete deals.
"Higher prices helped fuel continued strong demand in the first quarter," said Michael Mauer, head of loan syndications for J.P. Morgan & Co.
"We would expect to see continued upward pricing on investment grade loans, and downward pricing pressure on leveraged loans, though I don't expect leveraged pricing to return to pre-disruption levels," he said.
Mr. Mauer said the market will grow stronger over the next two quarters due to better capital structures on the supply side and more money on the demand side.
"But the fourth quarter could be complicated by Y2K concerns, especially regarding loans for acquisition finance," he said.
Though Chase and BankAmerica managed far more syndicated loans than any other bank last quarter, J.P. Morgan ranked No. 3. It managed loans worth $21.1 billion for an 11.1% market share.
A large part of that volume was a $7.4 billion loan that the New York bank co-led with BankAmerica and Salomon Smith Barney for TRW Inc.
This Cleveland-based auto and aerospace parts manufacturer and distributor used the financing to acquire Lucas Varity, a similar company in Britain. Morgan also advised TRW on the acquisition.
The credit facility for TRW also gave a giant boost to Salomon Smith Barney, which ranked No. 4 last quarter and led syndicated loans worth $15.2 billion, or 8% of the market.
The TRW deal-almost half the loan volume managed by Salomon-propelled the Citigroup unit ahead of Bank One Corp., which ranked No. 5 last quarter and led 5.1% of the loan market volume.
Meanwhile, health care loans, which have been ailing for over a year, recovered a bit in the first quarter. Syndicated loans for both leveraged and investment grade companies in this sector rose 111% from a year earlier, to $8.2 billion.
But some leveraged deals in the sector still face a rough reception. A $1.3 billion leveraged loan for New Jersey-based Quest Diagnostics Inc. was priced in the first quarter, but, according to market sources, was undersubscribed on March 31.