Syndicated lending volume soared to $253 billion for the second quarter, shattering the previous mark of $228 billion set in the second quarter of last year.
The second-quarter total stands as the record for activity during the 10 years that Loan Pricing Corp. has tracked the market.
Fueled by a combination of refinancings, restructurings, and leveraged lending activity, volume was up an eye-popping 75.7% from the sluggish first quarter, according to Loan Pricing Corp.
"After the first quarter, I didn't think we could come close to duplicating the volumes we've had over the last two years," said Keith Barnish, a senior managing director at BankAmerica Corp. "Based on the activities in the second quarter, I'm not as pessimistic, and I believe the third quarter could be active as well."
Volume in the more profitable and increasingly competitive leveraged lending market also rose for the quarter, to $37.2 billion, up 51% from the first quarter, Loan Pricing Corp. reported.
The blistering pace of second-quarter activity put lending activity firmly back on track with last year's. At $397 billion, volume for the first half of this year was only $21 billion behind last year's first half.
But while the impressive volume may have allayed one set of concerns for bankers, they continued to worry about loan pricing.
"The story for the year won't be the league tables," said Bruce Ling, head of loan syndications at Credit Suisse. "It'll be profitability. There's been a significant decline in spreads and fees, which has made it a great year for borrowers to tap the market."
Mr. Ling said the current market is a cyclical peak for borrowers.
Indeed, Kevin Petrovcik, a director at Loan Pricing Corp., said a significant number of borrowers had refinanced leveraged transactions at lower prices in the second quarter.
"A number of companies that had borrowed at higher than the London interbank offered rate plus 150 basis points were able to come back to the market at less than that," Mr. Petrovcik said.
For example, Centerior Energy Corp. of Cleveland borrowed $125 million at Libor plus 175 last year. The company was able in the second quarter to refinance its Citicorp-led deal at a cost of Libor plus 112.5 basis points.
In a number of such deals, "there has been no dramatic change in the company's fundamentals" to explain its ability to refinance on more advantageous terms, Mr. Petrovcik said.
But there was also no dramatic shift or easing in underwriting practices. Bankers said the depth of the market and a sensitivity to portfolio management are steering the industry clear of immediate credit concerns.
"The market has been reasonably disciplined over the last four or five years" relative to the amount of debt banks wish to hold, said Mr. Ling of Credit Suisse.
For the second quarter, Chase Manhattan led all banks, with 119 deals, $106 billion of volume, and a 24% market share.
Chase's deal volume was more than three times what it totaled in the first quarter.
J.P. Morgan & Co. jumped from fourth place in the first quarter to second in the most recent quarter, with 55 deals, $67 billion of volume, and a 15% market share.
BankAmerica Corp. held steady at third, with 71 deals, $43 billion of volume, and a 10% market share.
Citicorp dropped to fourth from second, with 70 deals, $39 billion of volume, and a 9% market share.
NationsBank Corp. rounded out the top five, leading 91 deals worth $37 billion, for an 8% market share.
Bankers almost universally pointed to the successful syndication by Chase Manhattan of Kmart Corp.'s $3.7 billion financial restructuring package as a noteworthy deal.
"That was clearly a huge success for Chase," said a loan syndicator at a money-center bank.
The biggest deal of the quarter was a $10 billion loan led by BankAmerica and Morgan for Lockheed Martin Corp.'s acquisition of Loral Corp.
