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M&A activity spurs lending market

The leveraged lending market is heading for its best year since 1998 due to an increased number of M&A deals, according to a report from Piper Jaffray, the securities firm. Arrangers launched $124 billion of leveraged loans in the first half of 2004, up from $80 billion in the second six months of 2003 and on course for 1998?s year-end figure of $256 billion.

This has largely been driven by the volume of M&A leveraged loans ? more were completed in the second quarter of 2004 than in any quarter in the last four years. A big factor has been private equity activity, which totalled $26 million in the first half of this year, already more than the whole of 2003.

And most of the mergers and takeovers have concentrated in the small and medium-sized leveraged deals. Small leveraged loans (lending to issuers with Ebitda of $50 million or less) have come to $11.6 billion in 2004 so far, compared to $12.5 billion for the whole of last year.

Brian Schmidt, author of the report at Piper Jaffray, admits that increases in interest rates during the second half of this year will dampen demand, but believes the underlying growth in M&A should keep the trend positive.

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