Thomas Bartlett was no stranger to the capital markets when he became CFO of Boston-based American Tower in April 2009. Over the course of a 25-year career with Verizon Communications, he had served as corporate controller, treasurer, and senior vice president of investor relations.
Still, American Tower was no Verizon. The former was a $1.7 billion owner and operator of wireless and broadcast communications towers still working to shed a high-yield debt rating, while Verizon was a blue-chip, $108 billion telecommunications behemoth. So when Bartlett was called on just after arriving at American Tower to oversee a $300 million private placement of unsecured senior notes, he brought in a ringer to help out: Reuben Daniels, a veteran investment banker who two years ago co-founded EA Markets, an independent capital-markets advisory firm.
“I’d never done a high-yield deal, and I didn’t have a lot of treasury experience in my new organization,” Bartlett recalls. “So I brought in Reuben to help our treasurer work through the process of picking the banks and negotiating the fees.”
It paid off. When the banks started talking about the fee structure, he says, Daniels immediately weighed in and described how it could be much lower. In the end, it was. “I know we saved money,” Bartlett says.
This isn’t how such negotiations usually get done. Sure, plenty of companies hire consultants to help with initial public offerings, and some seek out independent product specialists to walk them through esoteric derivatives transactions. But most companies handle secondary offerings of stocks, bonds, or convertibles on their own, taking direct responsibility for finding the right investment bank to structure and price the deal and lead the underwriting syndicate. The same goes for negotiating a credit facility.
There are two problems with the standard go-it-alone approach, though. First, no matter how big or good the bank that is hired, it ultimately serves two masters: the issuer itself, and the institutional investors it must court to buy the issuer’s stocks or bonds.
Second, the banks have far more knowledge about market conditions than their corporate clients do, and a greater appreciation for all the subtleties embedded in deal terms that can affect an issuer’s costs and balance-sheet flexibility — from liquidity covenants on bond offerings to make-whole tables on convertible-debt transactions.
“The process of executing a transaction is a complex one, and very opaque for corporate issuers,” says David Pritchard, another veteran capital-markets banker who recently helped launch a capital-markets advisory firm, Aequitas Advisors. “And there’s some degree of intent behind that opacity in that banks, like any party in a financial transaction, like to be in a position where they have more information than the other guy.”
Increasingly, however, companies are leveling the playing field by tapping a new breed of capital-markets adviser, like Reuben Daniels and David Pritchard, who have substantial investment-banking experience. They promise to represent an issuer’s interests free of any potential conflict, and to help structure deals and underwriting syndicates in ways favorable to the issuer.