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Lehman effect: Loan, bond market crumbled

Source: PTI
November 20, 2008 19:02 IST
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The fall of Lehman Brothers, which triggered the global financial crisis has wrecked havoc for global syndicated loan volume and the bond market across the world, according to a latest report.

In the nine weeks since Lehman Brothers filed for bankruptcy, global syndicated loan volume declined 37 per cent as against the nine weeks prior period to Lehman's collapse, deal tracking firm Dealogic said.

Similar trend was witnessed on the bond market as well. In the nine weeks after the fall of Lehman the global syndicated loan volume dipped 41 per cent as compared to the nine weeks prior to the US investment bank's collapse, Dealogic added.

In the said period under consideration a decline in the volume terms was also witnessed. As in the nine month prior period to the collapse there were 1,036 syndicated loan deals while in the prior period there were as many as 1,189 such transactions.

Dealogic said 'in the nine month prior period to the collapse, global syndicated loan volume has reached just $321 billion through 1,036 deals, a decline of 37 per cent from the total raised in the nine weeks prior to Lehman's collapse, when loan volume reached $508.6 billion via 1,189 deals."

Syndicated loan refers to a large sum of funds provided by a group of banks collectively to a borrower. There is usually one lead bank that takes a percentage of the loan and syndicates the rest to other banks.

Syndicated loans to financial institutions has been particularly affected, with volume in the nine weeks since the collapse reaching just $27.8 billion, 53 per cent below the level nine weeks prior.

Dealogic further said, Russian bank VTB Group's $1.4 billion loan for general corporate purposes, signed on June 23, had a margin of 65 bps and participation fee of 85 bps (for $50 million commitment).

In a similar deal, Russian Sberbank's $1.2 billion loan signed October 3, had a higher margin of 85 bps and a higher participation fee of 110 bps (also for $50 million).

Meanwhile, global syndicated loan volume totalled just $340.4 billion by way of 1,510 deals iIn the nine weeks since Lehman Brothers filed for bankruptcy, 41 per cent less than the USF 582.1 billion raised through 2,551 deals in the prior period, the report added.

Looking specifically at loans to commercial or savings and investment banks, volume in the last nine weeks has fallen by 50 per cent compared to the nine weeks leading up to the collapse of Lehman.

Corporate bond issuance by financial institutions were most affected, with volume in the nine weeks following Lehman's demise totaling just $68.5 billion, down 61 per cent compared to $176.1 billion prior.

In the same time period, corporate bond volume from investment banks has declined 41 per cent with just $5.8 billion, compared to $9.8 billion during the nine weeks prior.

Average pricing on fixed rate corporate investment grade bonds from FIG issuers have fallen 22 bps to 144 bps since September 15, Dealogic said.

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