| NEW YORK, April 6
NEW YORK, April 6 A spike in first-quarter US
syndicated loan refinancing activity helped to sharply boost
underwriting fees for arranging banks, even though the deals
typically pay lower fees than new loans, according to Freeman
Issuance was dominated by companies rushing to lock in low
borrowing costs before interest rates rise, as US mergers and
acquisitions (M&A) activity was stifled by a lack of detail
about planned Trump administration tax and trade policy changes.
The Federal Reserve raised interest rates in March, hard on
the heels of its December 2016 increase, and is signaling two
more hikes this year.
“There’s so much refinancing and repricing that it’s still
creating quite a large fee pool,” said Jeff Nassof, a director
at Freeman Consulting.
Fees of about US$2.9bn paid to banks arranging US leveraged
loans in the first quarter were 116% higher than a year earlier
and were the highest first quarter earnings since 2000, Freeman
This spurt helped offset a 10% drop in fees earned on US
investment-grade loans, and contributed to a sharp jump in total
US investment banking fees in the first quarter from a year
“Refinancing and repricing does pay lower fees, but it’s the
sheer scope of this activity,” Nassof said.
Refinancing loans totaled US$409bn and accounted for three
quarters of all US first quarter syndicated lending, according
to Thomson Reuters LPC.
Fees on business including M&A advisory, equity and bond
underwriting as well as syndicated loan arrangement leaped 39%
in the first three months of the year from the same period last
year to about US$11.6bn, according to Freeman Consulting.
TAX AND TRADE
While refinancing is keeping loan volume high, new lending
is taking a backseat pending progress on President Trump’s vows
to overhaul US tax and trade policies.
The administration’s inability to repeal and replace the
Affordable Care Act, commonly known as Obamacare, late in the
quarter raised concerns about its other plans and helped to keep
new-money lending subdued, said bankers and investors.
“People will move on the M&A side as it grows more certain
either way: either Trump starts getting his agenda done, and as
such it’s predictable, or Trump doesn’t get his agenda done at
all, and as such it’s status quo,” a senior banker said.
Many corporations are awaiting details of potential changes
including the first tax holiday in more than a decade, which
could encourage companies to bring offshore cash back to the US
at lower tax rates, as well as altered international trade
“If you’re a CEO of a company and you don’t know what’s
happening with the trade agenda, how are you going to buy a
company that has significant operations in Mexico?”, the banker
said. “You’re not.”
(Reporting by Lynn Adler; Editing By Tessa Walsh)