Syndicated loan volume in the third quarter plunged 24% below the year-earlier level as the booming public debt and equity markets continued to siphon off business from banks.
Chemical Banking Corp. maintained its first-place ranking among underwriting banks; Citicorp placed second.
According to Loan Pricing Corp., $79.7 billion worth of domestic commercial loans were syndicated in the most recent quarter, down from $104 billion in the third quarter of 1992.
Backup Lines Included
Included in the loan totals are term loans, revolving credit lines, and backup lines for the issuance of commercial paper.
Backup lines are seldom drawn, meaning the loan is never actually made. But since these lines are often run into the billions of dollars, they inflate the size of the syndicated loan market.
Despite the third-quarter fall-off, syndicated loan volume for the first nine months was virtually unchanged from the year-ago period, at $280.5 billion, compared to $281.8 billion.
That's due to this year's strong second quarter, which included the syndication of a mammoth, $18 billion refinancing for General Motors Corp. and its finance subsidiary.
Increase Had Been Foreseen
In the summer, bankers were predicting a pickup in acquisition-related financing in this year's second half, but judging by third-quarter statistics, that hasn't happened yet.
The amount of loans used to finance leveraged buyouts and recapitalizations was $7.8 billion in the third quarter, compared to $7.1 billion in the second quarter and $7.5 billion in the third quarter of 1992, according to Loan Pricing.
Much of the acquisition activity taking place right now is being financed largely with stock, rather than debt, putting a damper on bank lending.
For the remainder of the year, bankers said they expect a modest increase in the flow of deals for both investment-grade and noninvestment-grade clients.
Merger Boost Expected
"I think that, for the balance of this year, deal flow is going to increase because corporate combinations will spawn new bank financings, some of which will be funded, and some of which will be backstops," said James Lee, senior managing director at Chemical.
Said Chad Leat, head of loan syndications at Chase Manhattan Bank: "I think the fourth quarter will pick up a bit across the board."
Already, six banks have committed themselves to provide $3 billion to support QVC Network Inc.'s bid for Paramount Communications. A $1.5 billion financing was arranged by a separate bank group for Viacom Inc.'s Paramount bid.
Meanwhile, International Business Machines Corp. has been talking to banks about a new five-year, $10 billion credit line. This would be IBM's second foray into the syndicated loan market this year.
In the second quarter, the struggling computer giant got a $4.6 billion credit line, led by Credit Suisse. Much of that credit expires in less than a year.
Since then, IBM has hired a new treasurer - Frederick Zuckerman, formerly of RJR Nabisco and Chrysler Corp.
Mr. Zuckerman is said to want to put longer-term bank lines in place now, in case IBM's credit rating is downgraded again. He is also approaching the bank market at a highly propitious time, from a borrower's perspective.
Wracked by intense competition, loan pricing and other terms are under pressure.
Testing Market Tolerance
"We continue to see [maturities] extended, pricing reduced, and covenants, loosened," said Keith Barnish, head of loan syndications at the Bank of America unit of BankAmerica Corp.
Apart from the public debt and equity markets, too much lending capacity is chasing far too little borrower demand.
With each successive deal, the big underwriting banks get more aggressive on pricing and terms as they bid against each other to win mandates.
So far, the loan market has been buying these deals, but it remains to be seen how much more give there is on pricing and terms before the market rebels, bankers said.