1992 Ad

Black Enterprise, Oct, 1992 by Terry Williams

Denver Mayor Wellington E. Webb likes to brag about his city's new airport. And he has three good reasons to boast. He says the fiverunway airport will be the nation's largest. When completed in fall 1993, it will be the last U.S. airport built this century. And Denver's selection of an investment bank to leadmanage the last debt offering for the $2.7 billion project showed it was on the cutting edge of financial history. Pryor, McClendon, Counts & Co. (PMC), the nation's second-largest African Americanowned investment bank (see the 1992 BLACK ENTERPRISE INVESTMENT BANK LIST)is lead-managing the almost $400 million debt package.

This is the largest municipal finance deal ever led by a black-owned firm. But that distinction is nothing new to PMC. This year, the Philadelphia-based firm bests its own record. In 1990, PMC lead-managed Atlanta's $319 million airport extension debt offering. As lead- or book-running manager for both deals, PMC was in charge of choosing the participants and deciding what percentage of the package each would manage. PMC and the other banks profit from the spread between what they pay for the bonds and the selling price.

In recent years, black investment banks have made inroads in corporate finance, advisory services and mortgage-backed securitizations. But with the growth in the number of black elected officials, they remain busiest in the municipal-debt sector. In 1991, the 12 largest black investment banks underwrote new municipal issues with full credit to each manager worth $75.5 billion, A year earlier, they underwrote $67.5 billion.

William Michael Cunningham, a registered investment adviser whose Washington, D.C., company, Creative Investment Research, tracks black financial institutions, says cheap money propels the surge. Wardell R. Lazard, CEO of New York City-based W.R. Lazard & Co., ranked No. 4 on the BE INVESTMENT BANK LIST, agrees. He says projects that were prohibitive when interest rates were high became possible as they ratcheted down. An additional factor contributing to increased municipal issuances is that cities and states with revenue shortfalls were forced to borrow to keep operating.

But whether the debt is public or private, every firm wants to be lead manager. Municipalities issue bonds to pay for everything from stadiums to airports, hospitals and rapid transit systems. The investment banks operate as debt underwriters on the deals. But all underwriters are not equal. Investments banks often team up in an underwriting syndicate to sell the bond, but there are different levels of participation. The most important position is the lead, senior or book-running manager. That bank chooses how many bonds the other investment banks will receive to sell. The senior manager of an issue also generally makes the most money on a given underwriting.

Although more black investment banks are gaining that spot, it is necessary that they maintain their aggressive strategies. In 1991, Newark-based Securities Data Co. Inc., which tracks financial data, reported that Grigsby, Brandford & Co. Inc. (No. 1 on the 1992 BE INVESTMENT BANK LIST) was the only block firm omong the top 100 lead managers in municipal issuances. It placed 70th, senior-managing $275 million. By contrast, Goldman, Sachs & Co., ranked No. 1 in municipal bonds, lead-managed $21 billion.

Napoleon Brandford III, vice chairman of Grigsby Brandford sheds, some positive light on the difference. His firm handled two-tenths of 1% of 1991's total municipal issuances, while Goldman Sachs controlled 13% of the market. And Brandford notes that to get into the top 20, you have to do $1.2 billion. This obviously leaves "so much room for growth for a minority-owned firm," he says.

Nathan A. Chapman, chairman of Baltimore-based The Chapman Co. (No. 9 on the BE INVESTMENT BANK LIST) echoes the point. "You will see increasing opportunities for minorities to run transactions," he says.

This type of interest supports the reasoning behind our second annual BE INVESTMENT BANK LIST, which ranks the 12 largest black-owned investment banks. Investment banks at least 51% black-owned, fully operational during the previous calendar year and solvent as of Dec. 31, 1991, were eligible for the list. Although most of the banks engage in other business, they are ranked by total municipal bonds underwritten with full credit for each manager.

Taking Finance To A Different Level

When Mayor Webb took office, he knew that blacks rarely led deals and decided to change that. "I asked why the multinational investment banks are always in the lead spot," he says.

The most often cited reason why minority-owned firms don't get the top spot on financings is lack of capital. The rule is that investment banks are liable for the unsold portion of an issuance and must have the money to buy the unsold bonds.

Malcolm D. Pryor, chairman of PMC believes the capital issue is overplayed and makes several points to show how. According to Pryor, large municipal issuances often have a senior management group that divides the liability for the bonds. Most issuances are premarketed to ensure that when the deal is done there is a pool of investors ready to buy, thus reducing the liability. And if any bonds remain, they are divided among the senior managers leaving no one firm unduly burdened. In the Denver deal, 13 firms share the liability.