Japanese banks are playing a bigger role in the U.S. loan market by lending directly through their own braches in America and by investing in collateralized loan obligations and managed accounts. "We've seen the return of the Japanese, absolutely," said one banker. "Not in the single B category, but definitely in BB. They are just participating in a lot more deals." Another banker added, "It is hard to put a sense of sale on it, but when it comes in $5 million increments, they are fairly lumpy." This is a far cry from 2001 when the Japanese banks all but disappeared from the market.
Japanese banks have been in and out of the market as lenders. But they have never been as active in CLOs and managed accounts. "They have been providing separate account money to fund managers, above and beyond buying deals," the banker continued. "They are buying deals indirectly, giving $5 million to a fund manager saying, please invest for us and we'll pay you a management fee, which is a pretty efficient way to be in the market without needing an infrastructure." One portfolio manager said he recently sat at a bank meeting looking to invest funds on behalf of a Japanese bank. Across the table also looking to commit was that same Japanese bank. This is in addition to frenzied buying of triple-A CLO paper and the lower rated debt, including CLO equity.
In direct lending, the Japanese banks are mainly part of a growing segment of the pro rata portion of deals. Despite attempts to invest more on the institutional side, the banks are hitting barriers. One source complained that his bank committed $100 million to a recent pro rata deal and was then offered just $25 million on the more lucrative "B" loan. "Arrangers are making so much money on the funds they play favor to them, even though we fill the pro rata spots," he argued.
Some American companies with a global reach are noticing this heightened interest. Michael Hogan, cfo, chief administrative officer and secretary of the life science company Sigma-Aldrich Corp., said his business has been working with the Bank of Tokyo-Mitsubishi for a number of years. Japan is its third largest market. In the company's most recent $300 million facility, Tokyo-Mitsubishi was the third largest bank in the syndicate. "They have been attempting to expand their footprint in banking, so they try to come to people they already serve in Japan to work into bank arrangements they have here," Hogan said.
The trend of keeping relationships with companies at least partially situated in Japan will continue, a banker at a Japanese institution said. But he does not foresee a Japanese bank leading a deal for a U.S.-based company anytime soon. "I don't think that is going to happen in a big way in the near future, except in maybe middle-market or companies that are Japanese related," he concluded.
