How much can the loan market handle?

That question has gained importance since news broke that Blackstone Group LP, Thomas H. Lee Partners LP and TPG Capital are on the verge of announcing a deal for Fidelity National Information Services Inc., a payment processor based in Jacksonville, Fla. The deal's value could top $15 billion, says one knowledgeable source, a fair amount of which will have to be financed in the loan market.

Just how much is unclear. With no deal officially announced as of this writing, and no offer officially presented to Fidelity National's board, all we have are estimates. But, according to ­Steven Miller, managing director of Standard & Poor's Leveraged Commentary & Data unit, the loan piece of any deal could top $2 billion.

That's based on his estimate of a deal that values Fidelity National's shares at a 10% premium to the $29 level they were trading at on May 11. At $32 a share -- in line with what one source close to the deal says will be an offer "in the low 30s" -- Fidelity National's equity would carry a market capitalization of $12 billion, bringing the company's enterprise value to $15 billion after including about $3 billion of existing long-term debt.

Assuming that the buyers would inject $5 billion of equity, the amount of new financing needed would amount to $7 billion. Miller assumes that about $4 billion of that could be financed in the high-yield bond market.

Under the structure currently being discussed by the private equity firms, sources say a further $750 million could be financed by mezzanine debt from Blackstone affiliate GSO Capital Partners LP. That would leave some $2.25 billion to be funded through senior loans.

"That's doable," Miller says, although he cautions that the loan market, still dependent on collateralized loan obligations for much of its demand, has a limited appetite for such deals. "You couldn't finance 20 of those; maybe not even 10," he says.

The loan market does indeed seem very open to leveraged buyouts of late, although few financings have reached the size a Fidelity National buyout might demand. For example, Madison Dearborn Partners LLC is looking to finance its $915 million purchase of BWAY Holding Co., a container supply company, with a $565 million loan package, while GTCR Golder Rauner LLC is seeking to finance its $828 million purchase of Protection One Inc. with $415 million in senior secured loans.

In recent months, loan demand has largely been determined by the amount of refinancing that has replaced existing loans with high-yield bonds. Because CLOs get no return from cash, their managers have had a strong incentive to take the money returned to them via refinancings and recycle it into new loans. With demand up, supply has found a ready home.

According to LCD data, loan repayments have averaged about $2 billion a week since the beginning of February, with repayment volume hitting $4.3 billion the week ended April 30. The resulting buildup of CLO cash has helped loan issuance, with the rolling 30-day average of loans launched into the market reaching $21 billion for the week ended May 5, up from an average of $8.5 billion at the beginning of February.

One participant says the loan market should be able to handle between $15 billion and $20 billion a month in volume, although much of investors' willingness to play will be predicated on the strength of the high-yield market. As the source explains it, CLO managers are reacting emotionally to the increasing volatility in markets, and as long as they feel that their holdings will be refinanced by bond issuance, they will be willing to use their cash on hand on new deals. Any sense that the high-yield refinancing trade is ebbing will cause them to move more conservatively.

Indeed, the worries about sovereign debt in Europe have caused investors to pull back from risk, which has increased volatility in this market. "The high-yield market's changing hour by hour," a banker says, noting that the announcement of the European Union and International Monetary Fund's €1 trillion ($1.27 trillion) bailout package served to calm high-yield markets only for a day. "The market has no real direction."

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