Magazine article American Banker

Bank Loans Aren't a Hard Sell Anymore

Magazine article American Banker

Bank Loans Aren't a Hard Sell Anymore

Article excerpt

Banks no longer need to lure institutional investors into the syndicated lending market with high yields and favorable terms.

Institutional investment in bank loans has risen to an estimated $30 billion, according to investment bankers, and the interest among pension funds and mutual funds shows little signs of slowing.

Further, banks arranging large syndicated deals have been able to cut the pricing and increase the duration of the investors' portions of transactions.

Three years ago, institutional pieces of loans on average were priced at the London interbank offered rate plus 300 to 325 basis points and were seven years in duration, bankers said.

Today, those terms are quite different. In one sign of investor demand for the loans, Chase Manhattan Corp. recently brought a $650 million loan to market for Morris Communications that contained an eight-and-a-half-year institutional portion priced at th e Libor plus 150 basis points.

Chase said the lower price reflected the credit quality of Morris and the supply-and-demand dynamics in the market.

"There are a lot more players investing in loans as an asset class," said a Chase official. "Some of those players are prepared to take lower returns, particularly in this environment."

Bankers said that the influx of capital into the market underscores the increasing accessibility and maturity of the bank loan product.

"We see the convergence of the public and the private debt markets in the institutional loans," said Robert C. Griffin, executive vice president at BankAmerica Corp.

"A lot of nonbank investors in the past shied away from the sector," said Jim Karp, a syndicate manager at Goldman, Sachs & Co. "They had no confidence they could actively manage a portfolio."

Investors now have familiar analytical tools such as ratings from Moody's Investors Service and Standard & Poor's Ratings Group to assess loans. …

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