NEW YORK (LPC) - A record US$1.45trn of US syndicated lending to companies for acquisitions, leveraged buyouts, dividends and refinancing in the first half of the year has propelled bank fees from arranging the loans to all-time highs.
The US$8.1bn earned in the first half of this year slightly topped the prior record US$8bn taken in during the second half of last year, setting a new peak, according to Freeman Consulting Services.
The lending pace escalated in the second quarter and is seen staying heated through year-end, encouraged by lower US corporate tax rates and a federal judge’s June endorsement of the long-pursued mega-merger between AT&T and Time Warner.
Bankers eagerly awaited the outcome of the AT&T/Time Warner ruling, long after the deal was first announced in October 2016, and now expect the decision to keep the chute wide open for similar mergers and acquisitions (M&A) in coming months.
For lower-rated borrowers, there is less onerous enforcement under this administration of leveraged lending guidelines put in place five years ago to rein in high-risk practices.
“The market was firing on all cylinders in the second quarter,” said Jeff Nassof, a director at Freeman Consulting. “There were plenty of new-money loans from both corporate M&A and leveraged buyouts, and it looks like more to come given the relaxed regulatory environment and strong stock market.”
At the current pace, fees will reach an annual record for banks lending to blue-chip as well as to highly indebted companies, according to Freeman, which estimates fees based on Thomson Reuters data.
Fees of nearly US$6.6bn earned by banks in the first half for extending leveraged loans to lower-rated borrowers topped US$5.8bn in the same half last year by more than 14%, roughly matching the all-time high for any six-month period set in the second half of last year.
The mix of deals, which has increasingly shifted to new funding rather than lower-margin refinancing loans, is also propping up fee income.
Among the loans boosting the leveraged fee pool were those made to back auto parts maker Tenneco’s purchase of Federal-Mogul from Icahn Enterprises, Amneal Pharmaceuticals’ merger with fellow generics drug maker Impax Laboratories, and building products manufacturer Ply Gem Holdings’ take-private by buyout firm Clayton, Dubilier & Rice.
ALL-CLEAR
For extending loans to high-quality companies, banks earned about US$1.5bn in the first half of the year, a 44% spike from a year earlier and the highest half-year tally on record.
“For investment grade companies, it’s still a very strong M&A environment – stock prices are high, so sellers are willing to sell, and buyers are willing to bid their stock to get assets,” Nassof said.
At the same time, interest rates have risen but remain low historically, while the economy and corporate profits are growing.
“Debt financing is cheap, so that’s not really any inhibitor to financing a big deal,” Nassof said. The AT&T/Time Warner decision, he added, “is going to be a boost for deals, giving potential buyers the all-clear signal.”
Among the fee drivers in the first half in the high-grade sector were loans backing Comcast Corp’s bid to buy Sky Plc, Walt Disney’s offer to buy Fox media assets and Conagra Brands’ purchase of Pinnacle Foods.
Rising first-half syndicated lending helped to boost the total US investment banking fee pool to an all-time high for any six-month period.
When adding bank earnings from equity and bond underwriting, as well as M&A advisory to the syndicated loan arrangement fees, the total US investment banking fee pool jumped US$26.7bn in the first half, slightly edging out the second half of last year.
Reporting by Lynn Adler; Editing by Jon Methven and Chris Mangham
