Despite early indications of a slow first quarter in syndicated lending, market volume totaled $189 billion, down 29% from the previous quarter but still the market's busiest first quarter ever.
Bankers expect syndicated lending activity fueled by mergers and acquisitions to pick up significantly in the second quarter, putting the market on track for another record year.
But it was larger, less profitable investment-grade deals that drove up first-quarter volume. The number of deals fell about 25% from the fourth quarter, according to market sources.
"Investment-grade clients recognized an increasingly competitive bank loan market and responded with very large transactions which were all very well received by the market," said Michael H. Rushmore, head of loan syndications and trading research at BA Securities Inc., a unit of BankAmerica Corp.
The largest deals of the quarter, according to Loan Pricing Corp., were New Center Asset Trust's $12.1 billion credit for General Motors Acceptance Corp. and IBM's $10 billion loan.
"Most of the volume was refinancing by very large-cap public companies," said Peter Gleysteen, a managing director at Chase Securities Inc. "Indeed, we probably had an all time low of acquisition and leveraged finance. At the same time, market capacity for leverage business built up to record levels precisely at a point in time when there was almost no deal flow."
Chase Manhattan Corp. topped the syndicated loan rankings as expected, with an agent volume of $73.6 billion on 114 deals and a 19% market share.
BankAmerica Corp. remained in second place on the agent-only list, with $54.4 billion from 85 deals, for a market share of 14%. J.P. Morgan & Co., with $44.8 billion from 45 deals and a market share of 12%, was third.
Citicorp's volume of $26.8 billion was less than half the previous quarter's, and the bank slipped to fifth place, from third. NationsBank Corp. moved up one spot, to fourth, with volume of $29 billion on 86 deals, with a market share of 8%.
Overall merger activity was down from $195 billion in the fourth quarter to $184 billion, according to Securities Data Corp. High equity values led most companies pursuing acquisitions in the first quarter to use stock to finance deals instead of bank loans.
Syndicated loans backing mergers fell 27% from the fourth quarter, to $35.6 billion, while loans for debt repayment and general corporate purposes were strong, rising from $75 billion to $87.3 billion, Loan Pricing said.
Leveraged merger financing was also down, to $8 billion. Equity sponsors and deal firms such as Kohlberg Kravis Roberts were busy but primarily did smaller deals, market sources said.
High-yield loan syndications dropped from the fourth quarter by almost 25%, to $10.8 billion. Leveraged loans totaled only $23.7 billion. But had some of the larger leveraged deals, such as KKR's $900 million leveraged buyout of Amphenol Corp., a cable maker, closed by March 31, volume for the quarter would have been near a record.
"The fact that the high-yield market was on fire in January and February certainly didn't help new activity in the high-yield loan markets," said Jack Yang, head of loan syndications at Merrill Lynch & Co. "But there is another wave of acquisition brewing because everything is around 15% cheaper" after the stock market's recent correction.
The convergence of the bank loan and bond markets continued, pressuring spreads as crossover institutional investors sought yield from bank loan tranches.
"The spread compression that we've seen over the first quarter was more than a function of simple credit improvement," said Mr. Yang.
