May 29 (Bloomberg) -- Bankers who arranged financing for last year's largest leveraged buyouts -- TXU Corp. and First Data Corp. -- are leaving their firms as the pace of takeovers slows, creating an opportunity for less established lenders to fund acquisitions.

The departures include Morgan Stanley's Ashok Nayyar, co- head of leveraged finance, and Deutsche Bank AG's Michael Paasche, who ran global leveraged finance and plans to depart this year, said people with knowledge of their situations.

Banks such as London-based Barclays Plc, which largely avoided losses on leveraged loans and subprime mortgages that have led to $383 billion of writedowns and credit losses, and private-equity firms like Blackstone Group LP's GSO Capital Partners are financing deals as Wall Street reduces lending for buyouts to the lowest level this decade. Companies have announced $118 billion of LBOs so far in 2008, about a third of last year's record pace, data compiled by Bloomberg show.

``Firms are deciding they are going to get out of leveraged finance or not focus on it so much,'' said Jeanne Branthover, head of the financial services practice for Boyden Global Executive Search in New York. ``Leveraged finance is one area especially where foreign banks and private-equity firms are taking advantage of the market.''

Citigroup Inc., which joined Deutsche Bank in financing the $25.6 billion buyout of First Data by New York-based Kohlberg Kravis Roberts & Co. and funded the $32 billion LBO of Dallas- based TXU by KKR and TPG Inc. of Fort Worth, Texas, lost bankers, including Edward Crook, a managing director who worked on the First Data deal. Mickey Brennan, co-head of high-yield and loan sales, is retiring, said the people who declined to be identified.

Morgan Stanley Departures

Citigroup rose 44 cents to $22.04 at 4 p.m. in New York Stock Exchange composite trading and Morgan Stanley added $1.01 to $43.78. Deutsche Bank rose 57 cents to close at 73.25 euros in Frankfurt trading.

Morgan Stanley's Henry D'Alessandro, listed in a 2006 regulatory filing as head of U.S. sponsors leveraged finance, and Steven Seltzer, who led syndication of high-yield bonds, are leaving after Michael Hart, who was in charge of leveraged lending, exited in January, according to bankers familiar with the departures.

Calls to Crook and Paasche weren't returned. Brennan, Nayyar and Seltzer declined to comment. D'Alessandro couldn't be reached.

Client Support

In addition to the departure of Paasche, Deutsche Bank's Brian Bassett, the head of European leveraged finance, resigned to join U.K. insurer Pearl Group Plc, Standard & Poor's reported in April.

The moves come as Wall Street banks, which fueled $742.8 billion of buyouts in 2007, curtail lending.

``Leveraged finance is a cyclical business, just like making steel,'' said Richard Bove, an analyst at Ladenburg Thalmann & Co. ``Sometimes you have to shut down the factory and get rid of the people associated with it.''

Banks say they remain committed to financing buyouts.

``It's one of the most attractive periods to provide new capital commitments because deals are priced and structured more appropriately given the risk,'' said Michael ``Mitch'' Petrick, who runs Morgan Stanley's global sales and trading division in New York.

``Citi will continue to support our best clients in all markets and environments, including those clients in the leveraged finance space,'' said Danielle Romero-Apsilos, a New York-based spokeswoman for the biggest U.S. bank by assets, in an e-mailed statement.

Loans to Clear

Frankfurt-based Deutsche Bank, Germany's largest bank, weathered the credit crisis better than many competitors and ``remains dedicated to our clients and our financing commitments in leveraged finance,'' said David Flannery, global head of leveraged debt capital markets, in an e-mailed statement.

High-yield bonds and so-called leveraged loans are rated below Baa3 by Moody's Investors Service and BBB- by S&P.

Leveraged lending increased to $1.07 trillion last year from $207.8 billion in 2002, as banks funded takeovers such as Harrah's Entertainment Inc., which Apollo Management LP and TPG bought for $17.1 billion, as well as Dallas-based TXU, now known as Energy Future Holdings Corp., and First Data of Greenwood Village, Colorado.

After subprime mortgage markets collapsed last year, investors fled from all but the safest securities. The average actively traded bank loan fell in price from above face value to a record low of 86.3 cents on the dollar in February. Prices have risen to 91.7 cents, according to S&P. Stuck with $230 billion of loans, banks sold the debt for as low as 63 cents on the dollar.

Hospital Linens

Banks still must clear $81.6 billion of loans from last year. The backlog creates an opportunity for lenders that weren't as heavily involved in last year's deals, said Randy Schwimmer, senior managing director and head of capital markets at New York- based Churchill Capital.

``Tomorrow's list of top leveraged loan arrangers won't look the same as previous years,'' said Schwimmer.

An affiliate of Leon Black's Apollo Management in New York is providing financing for Lehman Brothers Holdings Inc.'s $210 million acquisition of Angelica Corp., a St. Louis-based hospital linens provider.

Barclays Capital, which ranked 16th last year in arranging U.S. leverage loans, provided financing for Hellman & Friedman's $2.9 billion acquisition of Goodman Global Inc. that closed in February.

``If you look back over the last 25 years, cyclical declines in the credit markets have been good times to build in leveraged finance,'' Rick Van Zijl, managing director and co-head of leveraged finance for Barclays in New York, said. ``The down cycles have provided opportunities for new entrants.''

To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net.

Last Updated: May 29, 2008 16:22 EDT