Monday's stock market volatility had little immediate impact on the bank loan market, but lenders said a continued slide in equities could have long-term repercussions.
"When you look at a day or two of a bad market with the long run we've had on the positive side, it's really too early to make any conclusions about where it's going or the longer term implications of it," said Timothy J. Conway, managing director of corporate finance at Fleet Financial Group, Boston.
"But people are watching carefully."
The stock drop heightened anticipation that a blockbuster loan backing GTE Corp.'s $28 billion bid for MCI Communications Corp. would hit the loan market soon. GTE's cash offer for MCI gained some luster Monday when shares of Worldcom Inc. dropped $3.313 to $31.062. Worldcom earlier this month made a stock bid for MCI valued at $41.50 a share.
Jan Dewar, assistant treasurer of GTE, based in Stamford, Conn., said the volatility in the stock market "highlights the difference between our own bid and our competitor's bid."
Lead underwriters for a loan backing GTE's offer will be appointed soon, Mr. Dewar said.
"There have been very strong and positive reactions from the banks domestically and internationally," Mr. Dewar added. Though no definitive plans have been set, bankers expect the GTE loan to be as large as $20 billion.
Meanwhile, banks that lend to mutual fund complexes said that those customers have not asked to increase their credit lines to support redemption requests.
"Things have been quiet," said Joseph Belanger, vice president and head of global investor credit services group at State Street Bank in Boston. If the market fell further, he said, funds might want "want to increase the lines of credit they have in place." Now, though, "it's unclear whether they're going to make that conclusion or not," he said.
Lines of credit to mutual funds, which have become popular over the past six years, range from $20 million to over $500 million.
Bankers noted that in general, their corporate borrowers' business fundamentals, such as earnings, have not been affected by the public markets' ups and downs. A note of calm mixed with caution was sounded by many large corporate lenders.
"There could be an impact on the new business flow, in terms of M&A-type transactions, but the biggest impact we see right now is in emerging markets," said Parker W. Knight Jr., managing director of loan syndications at UBS Securities.
"A lot of the talk today, on the lower-rated emerging markets, is that a number of people are just going to sit on the sidelines and see how all this works out. That could mean sitting on the sidelines for a week, or it could be longer," said Mr. Knight
If stock prices were to continue on a downward trend, cash would probably regain popularity in merger and acquisition deals. That would increase the demand for M&A lending and give an advantage to financial buyers, who typically rely on debt to fund acquisitions.
"If the stock market does come down, it will put a more realistic value on some of the companies being acquired. I think that it will make a lot of private equity investors more competitive," said Al Rabin, chairman of Investment Intelligence Group, a Chicago-based consultant to private equity firms.
Bankers also noted that a continued decline in equity values could drive more investors into the bank loan market for shelter from the storm.
"There is some chance that there might be some flight to quality into the loan market," said Mary Etta Schneider, managing director and group head of loan syndications at BankBoston Corp.
"If people are looking for a safe place to get better return than just the money market pieces, then secured bank loans, particularly domestically, are still pretty safe investments, so they may become even more attractive than they are today," she said.
Some bankers even saw the possibility of a silver lining in the clouds hovering over Wall Street.
"I know in 1987, when there was a real crash, it actually created a wealth of financial opportunities for stock buybacks," said John M. Buley Jr., managing director for loan syndications and private placements at Bank One Capital Markets.
"I don't think this one's big enough that they're going to do it," he said. But "you can't tell after one day."
