Magazine article American Banker

Syndication Market Stressing Quality

Magazine article American Banker

Syndication Market Stressing Quality

Article excerpt

That flapping noise in the syndicated loan market is the sound of investors flying toward quality loans.

As the stock market swoons, prices for senior secured loans are holding steady in secondary markets, bankers and analysts report, but new high- yield loans may be shelved until financial markets stabilize.

The shake-up in the syndicated loan market comes as investors look to fill their portfolios with debt that companies have promised to pay first in times of financial distress, such as an economic downturn or, at worst, bankruptcy.

The move toward quality has come at the expense of those leveraged loans considered less likely to be repaid-senior unsecured and all subordinated debt. Price quotes for those credits are down one-quarter to one-half point from the original price of the loan.

Michael Rushmore, an analyst at BankAmerica Corp., said that even with a slight devaluation leveraged bank loans have held their value far better than other high-yield debt instruments.

"We have investors who are viewing a one-quarter to one-half dip in prices as a buying opportunity," he said. "Investors in the bank loan market are remaining very active."

Retail investors seem to agree. The net asset values of stock and bond mutual funds have tumbled, but most loan-participation funds, which invest primarily in leveraged loans, have held their value or fallen less than half a percentage point since the stock market's record high on July 17.

Quality loans also are gaining ground from the high-yield bond market where prices on existing bonds have dived. …

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