Nonetheless, Pritchard says firms like his can bring greater transparency and deal experience to the process to help companies improve transactions’ efficiency and pricing. To encourage competition even after a lead underwriter is chosen, for example, his firm may argue for keeping a portion of the fees in a pool to be allocated among all the banks in the syndicate at the issuer’s discretion, based on their performance. His firm also will encourage companies to solicit frequent updates on the order book from the deal’s co-managers rather than solely from the lead underwriter. The more information the issuer has on that front, he says, the better it can understand its pricing leverage.
Theoretically, a savvy CFO or treasurer knows all these tricks — as well as what kinds of deals investors are receptive to buying at the time the company goes to market, what sorts of covenants those investors are demanding, and what similar issuers are paying for similar transactions. In reality, few CFOs or treasurers are in the market enough to have that sort of insight, nor do they have staff they can dedicate to that space — no matter how big their employer is. Daniels notes that two of his clients rank in the Fortune 10.
“I’ve had CFOs who have been very good, but they don’t have the time or the background to be experts in all areas,” observes private-equity investor Vincent Wasik, a principal at MCG Global. Wasik has run a slew of high-profile companies over the course of his career, including National Car Rental System and Holland America Line. “I have a lot of friends in the investment-banking arena, and I’ve got tremendous admiration for them,” he says. “But I always like to have a consigliere, so to speak, who can help me and my CFO make the right decisions.”
“I spend a lot of my time with banks,” adds Martin Geller, CEO of Geller & Co., a financial advisory firm that, among other things, provides interim CFO services for corporate clients. “But the world’s gotten complicated. Even someone like me can’t spend 100% of his time on this.”
Geller hired EA Markets late last year to help a multi-billion-dollar client restructure its credit revolver. The company had negotiated its existing revolver several years earlier when interest rates were much higher, and its bank was trying to use the rate on that facility as a starting point for the new negotiations. The bank was pushing for a rate of 150 basis points over LIBOR, Geller says, but with the help of Daniels — who argued that the previous deal wasn’t an appropriate starting point — the deal got done at a significantly lower premium.
Pricing isn’t the only area where a capital-markets adviser can help. Pritchard recalls learning of a financially struggling company (not a client) that was having trouble clearing a debt offering until an institutional investor offered to buy the final $25 million of its deal. The catch? The investor wanted a covenant precluding the company from issuing any subsequent debt pari passu (equal in seniority) to the current deal.