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| Kevin Burke |
GE Capital Markets has been making a concentrated effort to increase its presence in large cap, cash flow deals, focusing on distribution and trading and making some key hires to rev up the business. The result has been a jump in the number of deals GE has been a lead on; specifically, in 2004, when it was a lead arranger on 14 institutional term loans, up from zero in 2003 and 17 second-lien deals up from one in 2003. Kevin Burke, sales and market intelligence leader, discusses how GE has focused its efforts on building a comfort level within the organization and the market to become a more prominent lead arranger on the Street. Setting a track record with this increased participation and role as a lead arranger has allowed GE management to become comfortable with the structure Burke's group has been building. He explained that GE had been very happy in the ABL and middle market spaces, but the focus over the last year-and-a-half was on increasing the comfort level with underwriting and distributing large cap, cash flow deals. "GE's strong reputation on the underwriting side has played a major role in helping us build our institutional investor base," he said.
Some of its most recent deals include a $335 million facility to back The Carlyle Group's $555 million acquisition of LifeCare Holdings from GTCR Golder Rauner, in which it was a joint lead with JPMorgan (LMW, 7/22). Earlier in the month it teamed up with Morgan Stanley on a $160 million deal for Genoa Healthcare Group to pay a dividend to sponsor Warburg Pincus and refinance existing debt. Another July deal included a $485 facility it led with Goldman Sachs and Lehman Brothers for IPC Acquisition Corp. (7/15).
However it was really 2004 that was a breakout year for the group because it demonstrated GE could underwrite both first lien and second-lien deals on tough single B credits, Burke said. Some of the larger facilities it co-led include a $200 million "B" loan add-on for Acosta Sales Co. with Wachovia Securities and a $420 million deal for Blount, which it solely led. Blount is actually one of Burke's favorite deals because it demonstrated GE's ability to underwrite and distribute credit, something the firm might not have been able to do a few years ago.
Burke is one of the links that has been moving GE from a trusted ABL lender to a growing large cap lender. A graduate of Harvard College, Burke started his career at Bankers Trust following graduation and stayed through the Deutsche Bank takeover. He was a founding member and sales manager of Bankers Trust's Loan Syndications Group and was responsible for the distribution of investment and non-investment grade debt products. After taking a year off, he joined GE in April 2003.
"I saw GE as an absolute quality institution, a market leader in many areas with huge potential for growth," he explained. "I saw a great opportunity to match my background, which was in loan distribution, with what GE was looking to do...in a lot of ways, it was a match made in heaven to be able to bring a distribution background to a market leader that had for years been a major player in the ABL and middle market space but had not played a lead role in the large cap arena and had virtually no experience with the institutional investor base."
With Burke helping to increase the distribution ability, GE looked to add a par trader to the mix. "As we made strides last year and successfully syndicated 14 institutional and 17 second-lien deals, it is incumbent upon you in leading those deals to provide secondary liquidity," he said. "It is demanded by the investors. A focus in 2005 has been to develop our secondary trading capability. We now have a par trader, Ed Ribaudo, dedicated to making active secondary markets in all GE-led deals." Although GE has developed secondary markets it still does not have a high yield capability. Burke said it is something GE is considering, but had nothing to report on for this article.
In order to continue to grow, the strategy for GE is to stick with its strength on the ABL side but also increase the number of large cap deals it can do, specifically focusing on areas under GE's umbrella. Burke explained that GE Capital Markets can work with the GE medical/healthcare area and has hired Andrew Brode from JPMorgan to lead the healthcare capital markets effort. It can work with GE energy and has hired Don Kyle from Société Générale to lead the energy capital markets effort. Another area GE is focused on is its sponsor business.
It has most recently turned some of its focus to Europe where it hired Adam Hewson from UBS to spearhead capital markets activities across the pond. Burke said that Europe is obviously a hot area now with so many private equity firms opening up shops there. Historically GE has had a presence in Europe, but more as a participant rather than a leader of leveraged loans. Leading deals will become a focus and Burke explained that in order to lead deals, you need to have people who know how to structure, price and sell and that is what Hewson brings.
A global market place is actually one of the biggest issues facing the market now, he thinks and he expects it to be an area of focus going forward. "Although there are some cross-border syndications, Europe is still for the most part a separate market," he said. "Asia from a syndication standpoint still lags behind the U.S. and Europe. I think it will be interesting to see how much global convergence appears over the next 10 years. For investors, a major issue is how can the larger players survive with such small primary allocations? Forcing them to pay 101 and higher to build positions in the secondary market is not the right answer."
Watching the market grow from its infancy, Burke said the biggest change has been liquidity. He said that while institutional investors, especially CLO's, have brought the most liquidity in terms of dollars, it is the hedge funds that have brought the most change because they are primarily responsible for the rise and acceptance of the second-lien product.
