The $9 billion acquisition of Salomon Brothers Inc. by Travelers Group would create a securities titan, but the outlook for the lending strength of the merged institution is less clear, lenders say.
Both Salomon and Travelers' Smith Barney Holdings Inc. are relative newcomers to the syndicated loan market, and neither has established itself as a major player in the highly competitive field.
But several syndicated lenders say the deal would create a significant player in the leveraged loan market. Smith Barney's three-member loan group is known for its origination strength, while Salomon's larger loan shop has considerable sales and distribution muscle.
"This could be a really good fit," said one loan market observer. "It seems like a pretty good combination if you can manage to keep them all on the same team."
"There's going to be a boatload of volume, so I think it bodes well for everyone," said another market participant.
Following the lead of investment banks such as Goldman Sachs & Co., Credit Suisse First Boston, Merrill Lynch & Co., and Lehman Brothers Inc., Salomon started its loan group in July 1996. Like many of the new investment bank entrants, Salomon focused its efforts on noninvestment grade credits used in conjunction with its high-yield bond business.
The firm hired Richard Ivers, who was the managing director of leveraged finance at CS First Boston, in July 1996 to head its new loan group. Subsequent high-profile lending hires that fall included Mavis Taintor, a highly regarded leveraged lending specialist, and Nazan Clohesy, a veteran syndication sales star, both from Chase Manhattan Corp.
Chad Leat, another Chase alumnus, was hired last year to lead the high- yield capital markets group at Salomon. He quickly established Salomon's $1.2 billion Millennium Fund, one of the largest so-called bridge funds used to make short-term loans before a high-yield debt issue.
Smith Barney got into the lending act this February, bringing in veteran syndicator Glenn Marchak from Natwest Markets to start a lending group focused on leveraged loans. Caesar Wyszomirski and David Wirdnam followed Mr. Marchak from Natwest to Smith Barney this May.
The three have yet to complete any major loans.
The closely related acquisition finance effort at Smith Barney is led by Michael S. Klein, head of the 40-member financial entrepreneurs group, and James Zelter, head of high-yield finance debt.
Smith Barney also has its own bridge fund, the $1.15 billion Interim Financing Alliance, to help win financial sponsors' leveraged buyout business.
Salomon and Smith Barney are "both start-ups from a lending perspective, so the missing piece in this is any kind of commercial bank capability," said one syndicated lender familiar with both firms' loan groups.
If they decided to adopt "a totally defensive strategy" they could still succeed in lending without having a commercial bank, this lender said, but only as a boutique operation.