JPM creates loan envy with $20 billion AT&T financing
JPMorgan is creating loan envy. Jamie Dimon’s record-setting $20 billion financing for AT&T is turning bankers green the world over. With this as the new benchmark for credit-hungry corporate executives the risk is that banks wind up competing in a game of one-upmanship that leads some to fly solo on far dicier deals.
Working with just one lender has many merits for companies. The borrower has a greater capacity to minimize leaks — an enormous perk when navigating regulatory briar patches like the one AT&T must to win approval for buying T-Mobile. For banks, of course, it means juicy fees and huge bragging rights. Andy O’Brien, JPMorgan’s dauphin of leveraged finance (if Jimmy Lee is still the prince), certainly has them.
It’s going to be difficult for rival banks to meet JPMorgan’s ante. First, they must have a big enough balance sheet to accommodate so large a single credit without freaking out regulators. That probably leaves only Bank of America and Citigroup — both still weak from their excesses in the last boom — given the legal limits on lending in the United States, and HSBC.
So stepping up on riskier deals would be another way to make a mark. The AT&T loan is about as safe as they come. It’s an investment grade company flush with assets that will throw off an estimated $7 billion in free cashflow in 2011 after dividends, according to Moody’s Investors Service. Even if credit markets tighten up, it’s unlikely its bankers would be left holding the bag.
Moreover, JPMorgan could be joined as soon as tomorrow by a host of other banks interested in taking a slice of the T-Mobile financing. This will create the impression that going it alone isn’t that big of a deal. And while joining the syndicate should give banks dibs on the lucrative re-financing AT&T is sure to launch in the bond market, JPMorgan is likely to get the lion’s share of such business.
Moody’s says the JPMorgan deal is a negative since it raises the stakes in an industry that thrives on one-upmanship. Loans to highly-rated companies aren’t too worrisome. That is until bankers, driven by envy and fees, head down-market. Regulators may want to revisit old rules on single-loan limits to nip that possibility in the bud.