As the field of pro rata lenders thins, investment banks are resisting the pressure from borrowers to step up and fill the void, according to Corporate Financing Week, an LMW sister publication. Some investment firms would participate in commercial programs to maintain a relationship with a particular client, said Art Penn, managing director, head of global leveraged finance at UBS Warburg. However, consolidation has resulted in fewer players in the market and investment firms are not as concerned about being cut out of later deals if they decline to participate in a commercial facility.
Commercial banks have been successful in grabbing investment-grade business by leveraging lending relationships to gain securities business, but investment banks figure to still win high-yield, mergers and acquisitions and equity business without having to lead low-yielding revolver and "A" term loans. "When the chips are down that's the type of business that a company is not going to give to someone new to the business," one banker said. If a client is doing an important deal, it is not going to make a decision on what firm gets their business based on who provided its commercial loan, the banker noted.
The two biggest factors contributing to the shrinkage in the commercial market are consolidation and a focus on returns, said Peter Barry, managing director loan syndication at First Union Securities. There is more discipline being applied to such loans. "More firms, all the way down to regional firms, are saying 'no' to a lot of deals that they previously would have done on a relationship basis," he explained. Issuers were putting pressure on investment houses to get involved commercially or get cut out of later business, he said.