Stifel Becomes Latest Lender to Grow Leveraged Debt Business

(Bloomberg) -- Stifel Financial Corp. is expanding its leveraged finance business as the firm seeks to grow in a hot corner of the credit markets.

The St. Louis-based financial firm is building a new unit that will arrange and sell loans and bonds for junk-rated companies. It plans to use its own capital to underwrite deals, according to a statement seen by Bloomberg.

Stifel has hired Christopher Auld, who spent more than 13 years at Jefferies Financial Group Inc., to lead the effort as head of leveraged finance in New York. Henry Lang also joined the group from Jefferies as a managing director.

The firm is the latest to expand in the booming U.S. market for leveraged loans. Borrowers are taking advantage of investor demand for floating-rate debt amid rising interest rates, and the deals can be lucrative for lenders. Fees for arranging the riskier loans hit a record $6.6 billion through the first half of 2018, according to Freeman Consulting Services. They’re on track to hit an all-time high this year.

‘An Opportunity’

Stifel plans to underwrite and arrange bonds and loans of $150 million and up for small- and mid-sized companies with a measure of earnings of at least $40 million. The new unit is in addition to the company’s existing private debt business and other investment banking services such as financial advising. It came about in part because the firm was doing more work with companies and financial sponsors tapping the high-yield bond and loan markets, Brad Raymond, global head of investment banking, said in an interview.

“It became apparent to us that there was an opportunity," Raymond said. “The impetus for doing this now and going into this market has to do with the build out of our banking business."

The largest U.S. banks dominate leveraged lending, but smaller lenders including Antares Capital and KKR & Co. have become top 20 underwriters of U.S. leveraged loans. Houlihan Lokey Inc. said in July it was forming a unit to arrange and sell leveraged loans.

Bigger banks including Credit Suisse Group AG and Royal Bank of Canada have added or expanded in the business this year as U.S. regulators loosen up.

Stifel is also beefing up leveraged finance sales and trading in its fixed-income group. It added Roger Gilbert earlier this year as head of loan sales and Peter Lapina to lead loan trading. Both earlier held the same positions at Guggenheim.

“The explosion in loan issuance over the last handful of years was certainly a consideration," said Eric Needleman, global head of fixed-income. “We thought it was an appropriate time to bolster the loan team as well.”

©2018 Bloomberg L.P.