Magazine article American Banker

Banks Bringing Back a Blast from the Past: Bridge Loans

Magazine article American Banker

Banks Bringing Back a Blast from the Past: Bridge Loans

Article excerpt

Banks fighting for a share of the lucrative high-yield, or junk bond, market are bringing back a type of loan from the high-rolling era of leveraged buyouts.

Commercial and investment banks are rapidly packaging and increasing the size of bridge loan funds.

The 6-to-12-month loans provide immediate liquidity typically required in an acquisition. The bank that makes the bridge loan has an inside track to win the high-priced junk bonds, offering that replaces it.

"The bridge loan is something you've got to have to compete for these larger transactions, particularly when you're looking to lead the high-yield component," said Jay Allen, a senior managing director for leveraged finance at BankAmerica Corp. in New York.

While bankers clearly feel the competitive need to provide bridge loans, they have a nettlesome past, particularly for investment banks.

About five years ago, a number of investment banks, defending their turf against junk bond king Michael Milken, provided bridge loans that several companies did not immediately pay back.

"What you worry about is that bridge loans are investments that companies couldn't sell publicly and are presumably of a low credit quality," said M. William Benedetto, the founder of New York investment bank Benedetto, Gartland & Co.

But bankers said public offerings of junk bonds provide attractive fees, and that serving as the lead manager provides an investment bank's traders with a continuous revenue stream.

Chase Manhattan Corp. …

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