As the economy continues to show signs of weakness, bankers are hesitant to provide money to highly leveraged or stressed companies. Leveraged borrowers have had difficulty raising funds in the current economic environment. In March, the Wall Street Journal reported that only 49 banks had participated in 10 or more noninvestment-grade deals in 2000, down from 110 banks in 1999. The economic slowdown is behind the decline in originations of syndicated loans, but the Journal noted that the merger boom of the late 1990s also resulted in fewer banks joining syndication pools. The Association of Financial Professionals reported that 78 percent of surveyed corporations feel that bank mergers have reduced sources of loans, and 72 percent say the shortage will result in monopoly pricing.
Banks are also reluctant to take on more risk because of pressure to value loans at market prices.
So long as payments remain current, banks carry loans at 100 percent of their original value. While banks have been wary of making syndicated loans to highly leveraged companies, some issuers have been able to raise cash through the high-yield bond market. Revitalization of the junk-bond market began shortly after the Federal Open Market Committee dropped the targeted federal funds rate in an intermeeting move on January 3, 2001. Thompson Financial Securities Data reported the volume of junk-bond offerings through February 2001 was approximately four times the amount for the same period a year ago. Levi Strauss, for example, has taken advantage of the reversal in the junk-bond market to attain its required financing.