Community and Regional Banks today, more than ever are experiencing aggressive competition for quality commercial loans. Competition is coming from all sides and not just in market competitors but from global banks, finance companies, business development corporations and direct lenders. Many banks have become increasingly liquid given the additional $2 trillion in deposits that has found its way into the banking system post the Federal Reserve’s actions beginning in March of this year. Putting deposits to work in municipal bonds and treasuries while accretive will not correlate into significant increases in interest margin.
Purchasing Loans in the Secondary Syndicated Loan Market can be a meaningful source of funded senior secured term loans. For the most part commercial loans in the Secondary Market consist of Leveraged Loans, i.e. loans to companies that are rated non-investment grade, BB+ and Ba1 or lower by Standard & Poor’s and Moody’s Investors Service, respectively. Leveraged Loans are originated when corporations and private equity firms utilize funded floating rate senior secured debt to acquire businesses, recapitalize and execute large stock repurchase programs.