Navigating the bank loan market: Trends, volumes, and strategies

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Amaury Guzman: Hello and welcome to What's the Deal? on J.P. Morgan's Making Sense. I'm your host, Amaury Guzman from the Leveraged Finance desk. With us here today I have Patrick Griffin, a managing director at J.P. Morgan and the head of the Pro-rata Debt Capital Markets desk. In this role, Pat helps corporations and private equity firms raise capital in the form of bank loan commitments to revolving credit facilities and term loans that eventually refinance existing indebtedness as well as fund M&A transactions. He's here with us today to give us an update on the latest trends he's seen in this side of the market. Pat, thank you for joining us today.

Patrick Griffin: Thanks Amaury, great to be speaking with you.

Amaury Guzman: That's great, thank you for that. Why don't we jump right in and go through the latest in this part of the market. And you know, we've had a number of guests here on the podcast speak about the latest trends on the institutional debt side of the market over time. An area of the market that we talk about or that we don't talk about as often is the bank loan market, also known as the pro rata market. How would you compare and contrast the bank loan market versus other institutional credit markets?

Patrick Griffin: Sure, obviously most significant is that lenders in the bank loan market are regulated entities with all that comes with that. And given it's a private market, there's less transparency of information versus the public markets, where you're seeing data real-time. I'd say the bank loan market has much less volatility day to day, week to week, month to month. Generally speaking, conditions and changes in bank behavior lag other markets, absent some very significant macro events. And I'd say also extremely important is that the bank loan market is very borrower and lender relationship driven. This impacts and will impact pricing, terms, and market capacity for any individual borrower. It's absolutely not a one-size-fits-all market. Credit facilities are just a small piece of the overall portfolio of products that banks are offering companies. So lender share of wallet is, is very, very important.

Amaury Guzman: I see. This, this last point you mentioned is very important for, for listeners to take into account, that this is a market that is very particularly relationship driven. The chain of events that, that take place between CFO and treasurers and their banking counterparts in the market that eventually leads to a commitment to a pro rata credit facility cannot be underestimated. Now, Pat, how would you describe the profile of the banks that participate in the bank loan market?

Patrick Griffin: Yeah. In terms of participants on any given day, we're working with approximately a hundred banks across investment grade and non-investment grade transactions. If you break that down by deal volume, it's roughly 50% U.S. money center and regionals, 25% European banks, 10% Canadian, 10% Japanese, and then 5% Chinese or other. A number of foreign banks have purchased or invested in U.S. regional banks, which helps lower their funding costs in the U.S., and or builds out their mid-corporate and middle market banking franchises. As relates to the foreign banks, they're generally focused on operating business in home regions in addition to U.S. capital markets opportunities. Each bank has its own preferred sectors, credit profiles, and product offerings. You know, a small number of banks, often more investment banks currently prefer revolvers to term loans. The revolvers being less punitive in their return models. And then the broader institutional credit markets generally prefer term loans, which are more attractive from a return standpoint.

Amaury Guzman: I see. That's a large number of participants, I have to admit. What about volumes? What do those look like?

Patrick Griffin: Yeah, in terms of volumes I'd highlight, again, the statistics for the bank loan market are not as clean as for public markets. So these numbers can always move around a little bit. For investment grade loans overall, first quarter 2025 bank loan volume was 244 billion. It's down roughly 4% versus the first quarter of 2024. This was really driven in large part by declines in M&A and new money financings, which was offset by about a 25% increase in refinancings. March standalone was also down about 4% versus March of 2024, driven by the, by the same factors. And just for some context, total investment grade loan volume was about 1.3 trillion for the full year of 2024. Switching over to the leveraged bank loan side, first quarter volume was 140 billion. That's up about 15% from the first quarter of 24. You know, if you break that down by rating, about 40% double B, about 40% three B and, or lower, and 20% unrated. If you look at use of proceeds, 75% was refinancing, 10% M&A, and 15% other. This volume represented about 27% of the overall leverage loan volume for the quarter. And then for some context, total leverage pro-rata volume was 682 billion for the full year of 2024, which is about a third of total leverage loan volume.

Amaury Guzman: I see. Thank you for that, that was very helpful. Pat, pivoting to conditions, how would you describe the state of the bank loan market in general, and in light of recent news, the higher volatility as well as concerns by market participants for the potential for the U.S. economy to experience at a recession in the near term?

Patrick Griffin: Sure. So, as it relates to recent developments and concerns with tariffs and a potential recession, I'd say the impact of the bank loan market is still playing out. It's early innings, and as we've seen over the past couple of weeks, sentiment can change day to day. But generally speaking, deals are still getting done. We continue to launch new deals. I think going forward the impact will be very much deal by deal, sector by sector. So we'll learn more every day. As I mentioned earlier, the strength of borrowers' relationships with, with their lenders will play a major role in whether deals get done or not and under what terms. Banks are adjusting their credit underwriting standards, haircutting projections to address current challenges in the markets and in the world. You could see in some cases there may lead, this may all lead to internal and/or public ratings downgrades, which is definitely going to impact bank hit rates and return thresholds. We have seen an increase in short-dated term loans and upsized revolvers to boost liquidity and to effectively provide a bridge to institutional executions as the broader markets settle. Again, the bank loan market typically lags, so we'll learn more as things play out.

Amaury Guzman: It seems like the recent increase in volatility has pushed people towards slightly lower duration as well as slightly higher liquidity. If I were to press you into comparing market conditions now versus right before, how would you describe them?

Patrick Griffin: Yeah, I'd say if you rewind to the end of March, bank conditions were and have been strong, continued improvement since 2023 in the regional bank crisis. Hit rates have improved, market capacities increased. Banks are much more on offense. A few general themes we are seeing in the bank loan market, most of these are not new, when assessing market capacity in terms for irregular way of refinancing as well as new money financings. A borrower's existing footprint, bank footprint really matters. Having installed base of commitments to build on is, is very important. We've also seen syndicates become more top-heavy as borrowers try to manage down their number of banks, while pushing their closest relationships to increase commitments. We've also seen a bit of an up-or-out mindset across the market. This meaning banks wanting to up-tier to best position themselves for an increased share of wallet, and where that opportunity is not available, banks are willing to walk. And in situations where there's not a concurrent fee event, borrowers are having to more often pay arrangement fees to top-tier and second-tier banks where historically that has been less the case.

Amaury Guzman: One of the things you mentioned right now was that banks have most recently been on the offensive in terms of capturing new deals. I know that hasn't always been the case. What are the drivers underpinning this increased appetite for risk?

Patrick Griffin: Yeah, I think it's a number of things. Banks are much better capitalized now. The regulatory landscape has become a bit more clear. I'd say also coming out of the regional bank crisis where banks were focused on pruning their loan portfolios of less profitable relationships and in order to preserve capital. As we've heard with first quarter earnings results, banks now realize they need to find growth, including loan growth, which means leaning in a bit more with credit commitments and being a bit more patient as relates to non-credit business from both existing and the new clients. And then less regulatory uncertainty has definitely helped them do that. We've also seen smaller U.S. regionals combining or just generally looking to expand their lending footprint and playing in syndicated deals where they historically have not. This also allows them to diversify their loan portfolios, which are often over-weighted in real estate exposure.

Amaury Guzman: I see. From all of these improvements, Pat, that you've mentioned, banks being better capitalized, having their portfolios in a better position to capture more risk, has any of those improvements or say benefits translated into better terms in terms of structure pricing for clients or anything that you would highlight in terms of the latest behavior there?

Patrick Griffin: Sure. I'd say on the pricing front, you know, as you compare it to the investment grade bond market and the leverage high yield bond and B loan markets, bank loan market pricing is much less volatile and has remained quite steady. For some perspective, the range of drawn spreads across triple B credits has remained roughly 100 to 150 basis points and double B credits at 150 to 200 basis points. As I've said before, this can vary significantly based on a borrower's lender footprint and their share of wallet. And as I also mentioned earlier, the one area where we have seen things go the other way for borrowers is the need to pay arrangement fees when a refinancing or a new money ask is not aligned with a concurrent fee event. We have seen some instances of repricings, particularly for deals that were done in 2023 when the bank loan market was in tough shape and working its way through the regional bank crisis. I'd say it's also really important to note, it's not uncommon that incremental pricing and fees alone will change a bank's decision whether or not to commit to a transaction. Said a little bit differently, credit-only returns may be somewhat attractive, but a bank may need to check the box that they have or will obtain some form of non-credit banking business. I'd also note here that each bank comes with a slightly unique capital returns model, which will drive behavior. Another point I'd make, bank loan market commitment fees have remained relatively stable across investment grade and non-investment grade. And we have seen more of what was historically investment grade style 364-day bridges for non-investment grade borrowers. And on the leverage loan side, it's worth noting that historically, pro-rata spreads have been 50 to 75 basis points inside of B loan spreads. In certain circumstances that's widened a bit given the recent market volatility. And as it relates to structure, facility structures, varies credit to credit. I'd say very high level on the margin, we've seen increased flexibility built into, build into credit agreements.

Amaury Guzman:  Okay. So what it sounds like is that this is a market that hasn't had a blanket approach. It's not one size fits all, and that is very situation-specific in terms of the improvements that clients have been able to achieve in terms of pricing or structure, despite the health of bank's balance sheet that you mentioned, as well as the better position credit portfolios across the street. Pat, something that we've spoken (laughs) about at length here is private credit. It's something that we've been doing ourselves at J.P. Morgan for a long time and it's continuing to deepen, it's embedded the markets. On the back of its growing share of the market, have you seen any impact in the bank loan market as a result of its growth?

Patrick Griffin: Sure. Generally speaking the bank loan market is call it, a single B or equivalent and higher market. As you know, the private credit market is principally a single B equivalent and lower, so higher leverage, higher pricing, longer tenor, more flexible structure than what do we typically see in the bank loan market. So I'd say regular way the markets don't necessarily compete for borrowers and sponsors with very strong lender relationships. The bank loan market can reach credit profiles more suited for the private credit or broadly syndicated market even at tighter pricing than either, albeit with shorter tenor, tighter structures and higher amortization. You know, from a J.P. Morgan perspective, we're kind of agnostic. So what we're showing clients, the menu of alternatives, pro rata, broadly syndicated and private credit and discuss with them the pros and cons of each. And in some cases to provide maximum flexibility we've underwritten transactions for the private credit market, but with the ultimate takeout being the bank loan market or some combination of bank loan market plus other, call it convert or equity.

Amaury Guzman: That makes a lot of sense. It's interesting that they don't necessarily converge and they're actually kind of focused in different kind of rating segments. Pat, if I'm a CFO or a treasurer today needing to refinance or raise new money in the bank loan market in the near term, what insights would you provide to maximize the likelihood of success and an optimal outcome?

Patrick Griffin: Yeah. As I mentioned earlier, the bank loan market is not one size fits all. So, this won't necessarily be the plan for every transaction, but in most instances, the current playbook has been as follows. First J.P. Morgan and our borrower do a deep dive on existing bank relationships, who has what business, who has a strong calling effort, and also identifying where there may be weak links. Second, we've build a timeline which provides a week or so of thorough pre-screening. You know, that's not just a heads-up that a deal is coming. It's providing terms and in non-investment grade situations, a projections model for bankers to, you know, pre-flight with their capital and credit committees to come back with more than just, this sounds good, but with a firm indication that it can work. We take that information, we take that feedback, we construct a final syndication strategy, you modify terms as needed to kind of maximize the likelihood of success. I think we always like to build in a cushion for these syndications. Typically, 25 to 30%, even after receiving early indications, more often than not, we'll experience negative surprises. And we also see quite a bit is borrowers looking to shrink the size of their bank group, and I'd say they should be cautious with that in mind. You can be leaving dollars on the table that you ultimately may need. And then in many cases, we'll see a natural reduction in the number of banks via attrition. And if possible, link bank loan executions to other fee events. When, you know, when that's not possible, consider arrangement fees for top tier or top two tiers to enhance the bank's returns. And that could really be the difference between a successful and an unsuccessful outcome.

Amaury Guzman: Thank you so much for that, Pat. I'm sure that our listeners will find that game plan very useful as they think about potential opportunities in the near term about accessing the bank loan market and kind of putting that into action. Thank you so much for spending the time here with us today. We really appreciate your insights.

Patrick Griffin: Absolutely. Thanks for having me, Amaury.

Amaury Guzman: And thank you to our listeners for tuning into another episode of What's the Deal? We hope you enjoyed this conversation. I am Amaury Guzman. Until next time.

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