Dresdner Kleinwort Wasserstein-Grantchester, long a key player in the high-yield secondary market, plans to hire several bankers to its origination team in a bid to become a major underwriter. After leading only one junk deal last year, it has brought two deals to market this year that have raised a combined $500 million, and it plans to bring two more in the next six weeks totaling an additional $475 million, according to Ashish Bhutani, ceo of DrKW North America.
Last week, DrKW led a $200 million deal for Pathmark Stores, Inc. Frank Vitrano, Pathmark cfo, says relationships with DrKW-Grantchester's supermarket analyst, Ted Bernstein, were crucial to the decision to give DrKW-Grantchester the lead role in the underwriting. Equally important, he says, were relationships forged with senior DrKW bankers Henry Miller, head of global restructuring and vice chairman of DrKW North America, and Alex Greene, managing director, when Pathmark went through a restructuring 18 months ago.
Many in the industry say DrKW-Grantchester will not find it easy to gain a foothold in the business. The perception of it in the high-yield community still seems to be that of a reputable, but undercapitalized secondary boutique. When reminded that the firm is now backed by two large German financial institutions, one senior trader said, "Their research is definitely popular with the buyside, but they've got a lot of wood to chop."
Buy-siders say that most of the high-yield business is in the U.S. and that having the backing of a European commercial bank is less than ideal. "If I were to handicap it, sure I'd rather have a U.S. versus a European bank behind me," says Rob Manning, chief fixed-income officer for M.F.S. Investments. But Manning maintains that capital is capital in the end, and relationships--DrKW's strong suit--can make the crucial difference.
Bhutani says the firm will also add to its sales and trading and origination business in London in order to focus on cross-border deals. It also hopes to leverage the commercial banking muscle and high credit rating of its European parent companies Dresdner Kleinwort Wasserstein and Allianz, to drum up new business. The high-yield team can also draw on DrKW's bank debt and interest rate specialists to do interest rate swaps after using high-yield deals to pay down bank debt, he says. Toward that end, the firm has assigned Guy Rotondo, interest-rate product specialist from DrKW, to work with the high-yield origination team. It will also assign someone from DrKW's bank loan group to work with the high-yield origination team. Bhutani says an increasing amount of high-yield business will be driven by firms seeking to pay down bank debt.
DrKW-Grantchester is also drawing on its research strength to go after origination business. It landed three high-yield analysts on the 2001 Institutional Investor All-America Fixed-Income Team, two more than Morgan Stanley which was sixth in the 2001 Bloomberg underwriting league tables. Bhutani recently made former research co-head and top-ranked gaming analyst, Raz Kafri, the global head of high-yield origination.
Kafri will work will high-yield capital markets head Steve Fischer and a recently expanded 20-person global debt origination group to bring deals in a variety of industries. Bhutani says the firm will focus on a number of sectors where it has identified potential clients, based upon its lending, investment banking, and research relationships. Those industries include, chemicals, energy, healthcare, industrials and building products, leisure and gaming, media, paper and forest products, supermarkets, technology, and telecom.