Trifast Share News (TRI)

By Lynn Adler

NEW YORK, April 4(LPC) - Bank earnings got a first-quarterboost from arranging US syndicated loans, and should benefitmore significantly in coming months as financings begin to closeon large mergers and takeovers announced early this year.

An ongoing push by companies to refinance and cut costs onexisting debt, along with a dealmaking wave stoked by US taxreform that cut the corporate rate to 21% from 35%, should keeplending active through the year and bolster related bank feeincome, strategists and bankers said.

Fees from underwriting leveraged loans to highly indebtedcompanies rose 13% from the year-ago period to US$2.57bn in thefirst quarter, the highest first three months in records datingback 20 years, according to Freeman Consulting Services.

Although leveraged lending volume was down 33% in the firstquarter from the same quarter last year, according to ThomsonReuters LPC, Freeman said there was a shift toward morenew-money issuance and more sponsor-led versus corporate-leddeals that are higher-margin transactions.

For extending loans to high-quality companies, banks earnedUS$512m in the first quarter, also the highest first-quarterincome in records dating back two decades.

“There’s a big pipeline that suggests the rest of the yearcan be as strong as the beginning of the year,” said JeffNassof, a director at Freeman, which estimates fees based onThomson Reuters data.

On the leveraged side, the announced US$13.5bn loan and bondfinancing supporting Blackstone Group’s purchase of a majoritystake in Thomson Reuters’ Financial and Risk unit, for example,has yet to launch or be counted in fee totals. The buyout forthe F&R unit, which includes LPC, is the largest since thefinancial crisis.

The situation is similar for lending to investment-gradecompanies, with temporary financing lined up that has yet to bereplaced by the permanent bond debt that magnifies fee intake.

Cigna Corp, for one, in late March had lined up a US$23.7bn364-day bridge loan, a US$3bn three-year term loan and aUS$3.25bn five-year revolving credit for the health insurer’sroughly US$52bn acquisition of pharmacy benefit manager ExpressScripts Holding Co, LPC reported.

“Even though announced deal activity is at the highest levelthat is has been since the middle of 2016, a lot of the dealshaven’t closed yet and a lot of the fees really haven’t beenrecognized yet,” Nassof said. “We are seeing the bridge loanfees, but the fees for the bonds that will ultimately take outthe initial bridges can be significantly higher.”

The dealflow was sufficient to overshadow the lost earningspotential from the largest loan commitment ever: a US$100bnfinancing to back Broadcom Ltd’s planned US$117bn takeover ofQualcomm Inc that fell away when US President Trump blocked thedeal in mid-March over national security concerns.

Freeman estimated at the time that the 12 bridge loanlending banks stood to split a total pool of US$20m to US$40m infees once the acquisition was scrapped, having had anopportunity to earn up to 10 times that amount once includingfees from long-term debt financing if the deal had gone through.

While income from putting together syndicated loans got offto a solid start this year, it was insufficient to boost thetotal US investment banking fee pool.

When adding bank earnings from equity and bond underwriting,as well as M&A advisory and syndicated loan arrangement, thetotal US investment banking fee pool dropped 9% in the firstquarter to US$11.1bn from US$12.2bn in the year-ago period.

“M&A doesn’t look exceptional in the first quarter butthere’s a lot of recent activity that hasn’t been recognized interms of fees yet, so I think this year will end up fairly goodfor M&A,” said Nassof.(Reporting by Lynn AdlerEditing by Michelle Sierra)