Magazine article American Banker

Chase Sets $625M Bridge Loan Fund for Buyouts, Highly Leveraged Deals

Magazine article American Banker

Chase Sets $625M Bridge Loan Fund for Buyouts, Highly Leveraged Deals

Article excerpt

Chase Manhattan Corp. has established a $625 million fund to provide temporary "bridge" loans for buyouts and other highly leveraged corporate transactions.

In the past year, bridge financings have been regaining acceptance in the loan market, after failing into disrepute at the end of the 1980s buyout boom.

The Chase fund is one of only two active funds of its kind, and the first to have been set up since the 1980s. The older fund is run by Donaldson Lufkin & Jenrette Securities. Others, though, could follow.

Quick Cash

"We look at it from time to time," said Ted Virtue, a managing director at Bankers Trust New York Corp.

Bridge loans provide a way for borrowers to get cash quickly to complete a deal. In theory, they are supposed to be repaid within six months to a year, typically through asset sales, a public offering of high-yield "junk" bonds, or a combination of the two.

"Those markets can open and shut, and when they shut, you're in trouble," said an acquisition finance specialist at a big European bank, recalling the collapse of the junk bond market in 1989.

The attraction for lenders, though, is that bridge loans can be quite lucrative.

Chad Lear, managing director of loan syndications at Chase, said bridge loans typically carry interest rates of two to four percentage points above the prime lending rate, with fees amounting to three to four percent of the loan amount.

Trickle of Activity

While bridge lending has not come back in full force, there is at least a steady trickle of activity. …

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