Wells Fargo & Co., currently ranked eighth among underwriters of municipal bonds by Thomson Reuters, is taking steps to up its ranking by expanding its public finance group.
The education and nonprofit group now includes 13 investment bankers on the ground in five cities — New York, San Francisco, Charlotte, Denver and Salt Lake City.
Issuing debt for education and nonprofit agencies could be increasingly difficult as insurance has become scarce and more expensive due to the credit crunch.
To compete in this climate, Wells brought in Rick Chisholm, a 20-year veteran from Banc of America Securities, in late August. He brings two decades of experience in financing for nonprofit and higher education issuers to the expanding division.
In developing new strategies, Chisholm said debt structures will have to evolve in response to market conditions for demand to remain healthy. One recent example of this has been Build America Bonds, he noted, which have framed a window to access capital through 2010.
“BABs have helped execution in the higher education marketplace by reducing the supply of tax-exempt debt from public [higher ed] and increasing investor demand for tax-exempt securities issued by privates,” Chisholm said.
He also noted a shift “toward colleges and universities issuing fixed-rate debt and to financing projects that are more strategic and revenue-generating.”
The cost of credit “is significantly higher” in today’s climate, he said, though institutions with lower-quality ratings continue to have market access through other enhancements.
One way is through variable rate demand bonds — longer-term securities issued with floating rates, often backed by a letter of credit, that can be tendered for purchase by the lender at par upon seven-day notice.
For clients with an A rating or better, selling fixed-rate bonds on their stand-alone rating remains attractive given that credit spreads have tightened recently, he said.
With investors uncertain about the strength of the economic rebound, Chisholm said the scenario capturing his attention is the threat of inflation. However, regardless of trends in the overall economy, “there will be a continued need in the education and nonprofit sectors to finance strategic capital projects,” he said. “Investors will continue to have money to invest.”
Wells Fargo has been solidifying its base in the municipal market since its purchase of Wachovia Corp. in January. So far this year the bank has added 24 people.
Another recent addition is Frank Farley. The 27-year veteran has wide experience from Banc of America Securities, UBS, PaineWebber, and Credit Suisse First Boston. Farley’s arrival as managing director and co-head of Southwest public finance was announced last month.
The San Francisco-based bank is also increasing its leverage by adding to its team Ronald Stack, who on Oct. 1 completed a one-year term as head of the Municipal Securities Rulemaking Board.
His previous work includes tours at Lehman Brothers Holdings Inc. and Barclays PLC. He joined Wells earlier this month as director of banking for the New England and Mid-Atlantic states.
According to Peter Hill, head of Wells Fargo Securities Public Finance, the new hires are representative of a “major commitment to the government and institutional space by supporting the expansion of our business.”
With the additions, Hill says he is seeking to make Wells one of the top players in the market within five years.
