After a first-quarter drop-off, the syndicated loan market staged a comeback in the second quarter, driven by multibillion-dollar refinancings for investment-grade corporations.

The volume of domestically syndicated loans surged 36% to $135 billion from $99 billion in the second quarter of last year, according to Loan Pricing Corp.

First-half volume rose nearly 13% to $201 billion from $178 billion in the first six months of 1992.

In the second half of the year, bankers expect to see more leveraged financings for non-investment-grade clients, including an increase in demand for buyout loans.

More and Bigger Deals Seen

"Our sense here is that there's a pickup in M&A activity and that acquisition-related financing volume will pick up in the second half," said Timothy Conway, head of private placements and bank loan underwriting and structuring at Citicorp.

James Lee, senior managing director at Chemical Banking Corp., said "deal sizes will also get bigger in the second half."

While high valuations in the public equity markets continue to put a damper on buyout activity, financing is now available from both banks and the junk bond market.

Leveraged lending generally is riskier but also more lucrative than the credits banks provide to their investment-grade clients, which are often just backup lines for commercial paper.

"Assuming there is more noninvestment-grade business in the second half, I think the syndication business will be more profitable," Mr. Conway said.

Giant GM Financing

Chemical Bank, which shepherded an $18 billion refinancing for General Motors Corp. through the domestic loan market, held on to first place among loan syndicators in the quarter.

Chemical was agent or coagent on $61 billion worth of syndicated loans, more than twice its first-quarter volume of $25 billion.

Citicorp ranked second, followed bv BankAmerica Corp., Chase Manhattan Corp., and NationsBank Corp.

After a February reorganization of its North American corporate finance business, Citicorp has regained some of the momentum it lost in recent years as it grappled with losses on commercial real estate loans.

All of the top 10 banks in the ranking were among the 17 socalled global arrangers of the GM refinancing, and each got full credit for the $18 billion portion syndicated in the United States.

Since most of these banks usually rank among the top 10 syndicators, the GM deal did not have much of an effect on banks' second-quarter standings, which are closely followed by banks and their clients.

A few normally high-profile banks, though, dropped out of sight in the second quarter because they did not participate in arranging the GM credit.

Landmark Syndication

First Chicago Corp., after ranking third in the first quarter, was not even among the top 20 syndicators in the second quarter.

The GM syndication was the largest ever undertaken in the corporate loan market, and it also marked the automaker's first syndicated deal.

International Business Machines Corp. also completed its first syndicated bank line in the second quarter - a $4.6 billion credit led by Credit Suisse.

GM and IBM were once able to dictate the terms of their credit lines in one-on-one dealings with their banks.

Other weakened corporate giants may also find themselves turning to the syndication market for help in refinancing bilateral credit lines.

Refinancings for both investment and non-investment-grade clients are expected to continue unabated in the second half, as borrowers take advantage of low interest rates.

Pricing Has Come Down

Banks have responded to falling interest rates in the public debt markets by cutting their own pricing.

The downward pressure on pricing is compounded by fierce competition among banks themselves, as more asset-hungry lenders reenter the market.

"Everyone who wasn't in the market [before] is back in the market now," said Thomas Bunn, head of syndications at NationsBank in Charlotte, N.C.

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