In a year of growth for the syndicated loan market, two lending giants slipped in market share and left room for competitors to nudge higher.
U.S. syndicated loan volume last year increased 13% from the year before, to $1.23 trillion, after a 1.3% increase in 1999, according to Thomson Financial Securities Data.
But despite the growth, the top five arrangers of syndicated loans lost ground last year. Their combined market share slipped 1.5 percentage points, to 75.5%.
J.P. Morgan Chase & Co., formed when Chase Manhattan Corp. bought J.P. Morgan & Co., held on to first place. But the combined company garnered 34.3% of the U.S. syndicated loan market last year; a year earlier the two companies together captured 39.6%
And though it was still ahead of its rival Banc of America Securities, proceeds from the business at Morgan-Chase slipped 2.3% last year, to $417.4 billion.
Investment grade syndicated loans, which jumped 22.5%, to $827.9 billion, accounted for much of the volume growth last year.
A number of new players emerged last year in the investment grade syndicated loan sector. Among the most notable was Societe Generale, which rocketed to ninth place, from 39th in 1999. Commerzbank AG also plowed forward and ended the year at 11th place, up from 35th a year earlier.
Credit Suisse Group's purchase of Donaldson, Lufkin & Jenrette in November helped boost Credit Suisse First Boston's market share by 34%, to 3.9% of the U.S. syndicated loan market. Despite losing some share as Wall Street's biggest junk bond underwriter - which helped boost its standings in the loan market in the past - DLJ still led $4 billion in deals during the first nine months of last year.
At the same time, lending to the Swiss parent's advisory clients put the investment banking unit in some of the year's biggest investment grade deals, including the $25 billion loan package for AT&T Corp., which is preparing to break up into four smaller companies.
U.S. leveraged loan syndication slipped 1.2% last year, to $399.4 billion. The bad news for the biggest bank underwriters in the leveraged market: New issue volumes are not expected to pick up for at least six months. That is because smaller companies that make up a good portion of the business have been unable to attract interest in financing deals and have been forced out of the loan market for now.
"If you have a big, liquid, plain-vanilla deal," with an investment rating of BB, "people will pile into it," said Steven Miller, a managing director at S&P/Portfolio Management Data. Smaller, more risky loans, on the other hand, will be less attractive to both bank agents and the institutional investors that make up a growing part of the syndicated loan market, he said.
Though it retained the No. 1 spot, Morgan-Chase's dwindling command of the leveraged market was also evident. The company ended 2000 with a 23.8% market share, down from the 32.2% it would have had a year earlier.
Meanwhile, Banc of America Securities, the securities unit of Bank of America Corp. of Charlotte, N.C., barely edged higher, with a 22.7% market share last year, up 70 basis points from 1999.
But despite an outcropping of bad loans during the last few weeks, Banc of America participated as the lead agent in two of the largest leveraged deals of the fourth quarter. Together with Societe Generale it arranged a $2.5 billion credit for Calpine Construction Finance, a San Jose, Calif., power company. Banc of America also arranged a $2.175 billion credit facility for Hercules Inc., a Wilmington, Del., chemical manufacturer. (Credit Suisse first Boston led one of the three tranches for the Hercules deal.)
Deutsche Bank AG slipped to sixth from third in the leveraged loan rankings, and its market share dropped 50 basis points, to 5.2%. FleetBoston Financial Corp. rose to third from fourth place, and its market share rose 20 basis points, to 5.8%.
Wall Street investment houses generally climbed higher in leveraged syndicated lending. Morgan Stanley Dean Witter & Co. rose 11 spots, to 10th. Goldman Sachs Group inched up one spot, to 11th, as did Merrill Lynch & Co., to 14th.
Lehman Brothers was the exception. It dropped seven places, to 17th, and proceeds from its leveraged loan business plummeted by more than half, to $3.6 billion.