The six-year bull run in syndicated lending is showing signs of coming to an end.

Domestic lending volume dropped 5.4% in the third quarter from the same period a year earlier, according to statistics released Friday by Securities Data Co. It was the second straight down quarter.

The report provides fresh evidence that rapid changes in a once-stodgy business have ended an unprecedented bull run. Lenders said it is becoming clear that loan volume for 1998 is likely to fall below last year's $1 trillion.

"It's been so strong for so long it's just inevitable," said Carolyn Thomas, managing director of syndications and trading for BankBoston Corp.

Since 1991 lending had steadily increased almost fivefold to $1.12 trillion in 1997 from $234 billion, according to Loan Pricing Corp., a New York firm that has kept statistics on the industry since 1987. Securities Data, Newark, N.J., began tracking the market in 1995.

"We've crossed into a new era," said Peter Gleysteen, head of global syndicated finance for Chase Manhattan Corp., the perennial market leader.

Lending volume during the three months ending Sept. 30 was $241 billion, down from $255 billion a year earlier, according to Securities Data. Those results bring the year-to-date volume for lending to $754 billion, 3.4% behind last year's record pace, according to Securities Data.

Bankers and analysts pointed to several factors in explaining the decline. Foreign banks and institutional investors have scrambled to sell low-yielding loan paper, putting pressure on prices in the secondary market. The global financial crisis has also dampened borrowers' hunger for capital.

Another major factor in this year's decline: the loss of refinancing business.

Michael A. Rushmore, an analyst with BankAmerica Corp., Charlotte, N.C., said higher prices have driven up the cost of refinancings, making them unattractive to borrowers for the first time since the early 1990s. A BankAmerica study shows there were 220 refinancings in 1997, compared with only 78 in the first half of this year.

"Pricing has rebounded. Opportunistic financings are a thing of the past," Mr. Rushmore said. "As a result, there's a tendency to leave existing financing in place."

Also underscoring the seismic shift in the business this year is the fall of Chase from its long-uncontested position as the biggest all-round lender. The banking company saw its overall participation in the loan market drop 7.3%, or $25 billion, for the year through Sept. 30.

Chase, in fact, fell further behind the new BankAmerica Corp., which merged with NationsBank Corp. at the end of the quarter, on a pro forma basis in overall loan participation this year.

BankAmerica and NationsBank had participated in 705 deals worth $328 billion during the first three quarters of the year. Chase was in 437 deals worth $316 billion, though it maintained its lead in structuring and pricing deals.

The top five book managers in the third quarter were Chase, with 113 deals worth $53.7 billion; BankAmerica, 150 deals worth $49.7 billion; J.P. Morgan & Co., 22 deals worth $30.7 billion; Citicorp, 37 deals worth $24.6 billion; and First Chicago NBD Corp., 44 deals worth $13.8 billion.

Only four years ago, new competitors, including investment bankers, set up loan shops, eager to grab a piece of a burgeoning market. But with volume slowing down, many lenders on the margins may be forced to rethink their commitments to the business.

Some players, however, are counting on leveraged loans-those priced at 125 basis points or more over the London interbank offered rate-to pick up the slack.

Leveraged loan volume was $75.2 billion in the third quarter, up 49%, or $24 billion, from the same period a year earlier. Through Sept. 30, 1,010 leveraged deals worth $227 billion were underwritten, up 40% from the same period a year earlier.

Because they are richly priced, leveraged deals are considered the best indication of which lenders are the most profitable. Chase led that category in the quarter by structuring and pricing 53 loans worth $14.8 billion. BankAmerica finished second, with 72 loans worth $11 billion.

"The decrease in overall volume is good because what we have is a richer mix of excellent value and good returns reflecting M&A and leveraged deal flow," Mr. Gleysteen said.

Rounding out the top five in leveraged lending was J.P. Morgan & Co., with three deals worth $9.32 billion; Bankers Trust Corp., with 20 deals worth $6.09 billion; and Lehman Brothers, with 10 deals worth $4.95 billion.

Mr. Gleysteen said he believes three factors will drive leveraged lending during the next six months: increased leveraged buyout activity, more all-cash corporate merger-and-acquisition deals, and the return of borrowers who had sought financing in the bond market.

Corporate bond issuance has slowed in recent weeks, especially in the high-yield sector, where the spread of junk bonds to Treasuries have widened to the highest levels in years.

Some bankers, however, cautioned that much of the quarter's leveraged lending occurred during July and early August, before the ramifications of the global financial crisis hit the lending market.

BankBoston's Ms. Thomas, who specializes in leveraged lending, said there will be some opportunities for lenders in coming months. But, she added, leveraged lending will not continue at its torrid pace.

"The market was getting ahead of itself," she said. "There will be a lot more discipline concerning credit."

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