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Minority-Owned Investment Banks Are Underwriting More Corporate Bond Offerings

By Kristin Broughton 

Finance chiefs are hiring minority-owned investment banks as underwriters on their corporate bond offerings more frequently, aiming to attract new investors and demonstrate their commitment to diversity.

The 10 largest investment banks by deal volume that are owned by minorities, women or veterans took part in 29% of debt sales by U.S. investment-grade companies last year, according to data provider Refinitiv, raising $814.2 billion during a record year for bond offerings overall.

That participation level for firms with diverse ownership was an all-time high and up from 22% of debt sales with proceeds of $211.5 billion a decade ago, according to Refinitiv.

So far in 2021, the top 10 firms with diverse owners have taken part in bond offerings that raised $136.2 billion, accounting for 43% of proceeds in the U.S. investment-grade market, according to Refinitiv. In the same period in 2020, such firms took part in debt sales that raised $95.1 billion, accounting for 33% of the market, Refinitiv said.

The bond sales come as finance departments play a more prominent role in their companies' diversity efforts following protests over racial injustice and the killing of George Floyd in 2020. Some businesses, such as Netflix Inc. and PayPal Holdings Inc. pledged to move a portion of their corporate deposits to Black-owned banks.

Allstate Corp., a Northbrook, Ill.-based insurance company, in November hired investment banks owned by minorities, women or veterans as underwriters on a $1.2 billion bond sale to finance a portion of its acquisition of rival National General Holdings Corp., with Loop Capital Markets LLC, Siebert Williams Shank & Co. LLC, Samuel A. Ramirez & Co. and Academy Securities Inc. named lead underwriters. Some of the firms picked as leads previously worked on Allstate's debt and equity deals, but had never been offered a leading role, said Mario Rizzo, the company's chief financial officer. "What changed was, I think, really the direct result of events of last summer," he said, referring to the protests over racial injustice.

Allstate previously hadn't hired minority-owned firms to lead its bond offerings because it viewed them as higher risk since they didn't have the same level of experience on large deals as the big banks, according to Mr. Rizzo. It also simply hadn't spent time during previous deals questioning the matter, he said.

But the protests, along with a companywide diversity push, prompted Allstate to use its latest bond offering to showcase such firms' capabilities, Mr. Rizzo said. It also reviewed previous deals at other companies where minority-owned firms generally played a leading role. "They were always kind of chaperoned by another larger institution, and we said we wanted to do something different," he said.

Finance chiefs and corporate treasurers usually consider several factors in deciding which firms to hire as underwriters on bond sales. Among them: whether the company has an existing relationship with an investment bank, or wants to give a bank an opportunity to earn underwriting fees after providing less prominent services, such as lending or handling share repurchases. Big banks like JPMorgan Chase & Co. and Bank of America Corp. dominate the debt capital markets.

The firms that led the Allstate transaction said they have seen an uptick in interest from potential new corporate clients in the months since the deal closed. The transaction helped confront companies' perceptions that smaller firms lack the capabilities to execute large transactions on their own, they said. Some view their competitive edge as complementing the services of big banks.

"Where our value comes in is finding smaller, midtier investors that we can reach out to and build relationships with," said Jonathan Levin, head of corporate finance at Siebert Williams Shank. He said his firm works with institutional investors of all sizes, including many small and minority-owned investment managers with under $10 billion in assets under management.

Minority-owned firms also play a key role in promoting diversity in the investment-banking industry by making it a priority to hire and promote people from underrepresented groups, said Sidney Dillard, partner and head of corporate investment banking at Loop Capital. Of the 17 people on the firm's senior leadership team, seven are women, while 10 identify as Black, two as Asian and one as Latinx. Big banks are grappling with their track records in this area.

Verizon Communications Inc. last week said it would sell $25 billion in bonds in a deal that will be underwritten by Morgan Stanley, JPMorgan Chase & Co. and several other big banks along with nine firms owned by minorities, women or veterans that are slated to earn about 11% of the total underwriting fees.

Google parent Alphabet Inc. last summer hired 16 investment banks with diverse ownership for the first time as co-managers on its $5.75 billion sustainability debt sale after deciding that the firms had the capabilities, said Treasurer Juan Rajlin.

The diverse investment firms also brought new investors to the table, according to Mr. Rajlin. "They reach firms that traditional underwriters don't reach," including smaller investors who identified with the communities that the firms represented, he said. Alphabet paid about $4 million in fees to the 16 diverse firms that took part in the transaction, accounting for roughly 6% of the total fees paid as part of the deal. Several other big banks led the offering and served as co-managers.

Thirty-five percent of U.S. green, social and sustainable bond offerings in 2020 included at least one of the top 10 diverse-owned banks by volume as an underwriter, up from 28% a year earlier and 25% in 2018, according to Dealogic, a data provider.

Rick Viton, managing director at Ramirez & Co., said his company has participated in more environmental, social and governance bond offerings over the past year.

"It's really awareness for the issuer with investors about their diversity and ESG activities," Mr. Viton said. "It really helps us build our business."

Nina Trentmann contributed to this article

Write to Kristin Broughton at kristin.broughton@wsj.com

 

(END) Dow Jones Newswires

March 15, 2021 06:44 ET (10:44 GMT)

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