Standardization efforts and increased activity in the loan trading market are drawing nontraditional players to the arena. Smaller shops, mostly distressed debt specialists, are looking at the bank loan market as more clients ask for the product. "There's a lot of money flowing into the distressed market right now," said one big dealer. "There's perceived to be a lot of upside potential, since the market has supposedly bottomed out. Plus there's a lot of liquidity in it; the market isn't talking about a few credits. There's a lot of credits out there that people talk about."
T.K. Duggan, ceo of Delaware Bay Company, said the market is drawing more interest as the telecom and asbestos companies founder, bringing in crossover distressed players from the bond market. One other shop taking the plunge is Miller Tabak Roberts Securities (MTR), which recently added a distressed bank debt efforts to its high-yield, convertible bonds and emerging market debt business. "We went into the distressed bank loan business to round out our product line," said Joel Miller, ceo of New York-based MTR. "With bank debt it's above high yield, and you're getting the liability side of the capital structure."
Miller said the shop is making the move because clients are looking there. "We're seeing a lot of our (buyside) clients in the market, so it makes sense to be in the market. We have the research product. With the (Loan Syndication and Trading Association) agreements out awhile, the market is more standardized and it's easier to transact in the secondary market," said Miller. There are no plans to focus on a specific industry in the market. "We'll approach the whole market. The distressed area is more in line with what we do in the high-yield market."
MTR has been around since 1984. Miller said the bank debt market had never been considered before. Last month MTR hired Lon L. Pastuch as v.p. in the bank debt department. Pastuch was a senior fixed income trader for Bank Austria Securities. "We'll be looking to add to our staff as it presents itself in this market," Miller said.
Dealers said MTR's move is indicative of the development of the loan investment market as a "legitimate market." Amroc Investments, Imperial Capital, MJ Whitman andCRT Capital Group are boutiques that were early entrants into the loan market, but market players are expecting to see more. "It's not a bankers' market; it's a capital market," one dealer said.