Invading More Bank Turf, Investment Banks Build Big Bridge-Loan Funds

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Investment banks are setting up more bridge loan funds, to compete with commercial banks for yet another piece of the corporate-finance pie.

Salomon Brothers Inc. is reportedly closing its new $1.1 billion Millennium fund, and Bear, Stearns & Co. is seeking commitments for a $1 billion fund of its own, according to market sources.

Commonly used in leveraged acquisitions, bridge financing lets banks give buyers a committed source of funds that is typically replaced by a high-yield bond issue before the loan is actually used.

For financial institutions seeking the lucrative bond management role, bridge financing is the key to winning business.

"If you're going to be in the high-yield business, you should probably also be in the bridge business," said Richard Atterbury, managing director and head of leveraged finance for BankAmerica Corp. in Chicago.

Left with a somewhat tarnished reputation by the late-1980s' junk bond fallout, necessity has returned some of the sheen to bridge funds.

Bridge lending is a crucial aspect of leveraged finance because it allows lenders to react quickly to a buyer's request for funds-typically within 10 days. It also allows the increased confidentiality that many acquisitions require.

The fund structure also provides for diversification of risk among a group of investors, typically other banks.

Most large commercial banks doing leveraged finance now have a bridge fund in place, and some have formed bridge funds in partnership with investment banks. …