Leveraged-Loan Market Will be Good to JPMorgan Chase & Co. (NYSE:JPM), Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) in 2010

Corporate defaults last year reached a total of 189, the most in 29 years, said S&P analyst Diane Vazza, and that has created strong opportunities for a number of banks in 2010, including JPMorgan Chase & Co. (NYSE:JPM), Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) right from the start of the year, as leveraged-loan volume for the week has exploded to $5 billion, as Six Flags Inc. and Smurfit-Stone Container Co. look for financing to exit their bankruptcies.

One thing to note about corporate bankruptcies at this time, is they have changed from the past, where exit periods could last up to years. Now bankruptcy periods are being counted in months rather than years, marking quick turnarounds for the companies.

The leveraged-loan market is what deals with large bankruptcies, and with the quick turnaround periods now allowed in many cases, it could be a huge revenue generator for banks for 2010, depending on how many are ready for their exit.

One way to measure the health and activity of leveraged-loans in on the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index. The index tracks the largest first-lien leveraged loans which are denominated in U.S. dollars. They now stand at their highest level since the collapse of Lehman Brothers in September 2008.

Analysts expect the exit of Six Flags and Smurfit-Stone to spur a big surge in the market, as reorganization plans are quickly approved and implemented. Now that many of the 189 companies have been in default from the early part of 2009, they are now starting to prepare to exit, which again, should generate a lot of business for banks, especially in the first half of 2010, although it’ll continue on for some time, albeit at a somewhat slower pace.

For Six Flags, they’ve contacted several banks, JPMorgan Chase & Co., Bank of America Corp., Barclays Capital and Deutsche Bank AG, to raise $830 million for their bankruptcy exit, according to a regulatory filing, while Smurfit is looking for $1.2 billion of financing from JPMorgan, Deutsche Bank and Bank of America, according to their filing last week.
 
The loan for Smurfit would cost them five percentage points more than a Libor floor of 2 percent, while Six Flags is expected to pay 4.25 percent above the 2 percent Libor floor, said the filing.

Six Flags sought bankruptcy protection in June 2009 and Smurfit in January 2009.

Major American banks and others should profit handsomely throughout the year from the leveraged-loan market. How much will depend on how quickly the numerous companies emerge from bankruptcy.