Alexandra Lebenthal has sold a 49% stake in Lebenthal & Co., an iconic firm in the municipal market, to South Street Securities.
Lebenthal confirmed the sale Tuesday in a phone interview with The Bond Buyer. Under the definitive agreement, South Street will also acquire 100% ownership interests in Lebenthal Asset Management, LLC and Lebenthal Family Office, LLC, according to a press release late Monday. Lebenthal & Co. will continue to operate as a Woman-Owned Firm. Other terms of the transaction weren't disclosed.
South Street Securities Holdings Inc., was a surprise buyer, as it is an entirely institutional business, but Lebenthal said there were many reasons it is a good fit.
"The CEO Jim Tabacchi, is a really solid guy who has built a strong business," she said. "He has been through ups and downs and despite that has kept the business going, there are also significant people on the board of directors and other people involved in the business, it's always good to have people with all of that expertise and experience."
Lebenthal also said she "is not going anywhere" and will still be involved with the 51% ownership, and that the name of the company will be retained as well.
"South Street's business model, conservative approach and operational focus are consistent with our culture," she said. "We believe this combination with South Street will enable us to better serve our valued clients, and we look forward to this next chapter of our long history."
Ms. Lebenthal, who has been at the helm of the family firm since 1995, is the third generation Lebenthal to head the business started by her grandparents, Louis and Sayra in 1925. Her father, Jim Lebenthal, made the company famous with his ads extolling municipal bonds. She boosted the company to a leader among Wall Street women/minority-owned firms after relaunching the Lebenthal brand after a prior sale in 2007 and subsequent growth and expansion.
Municipal experts said the sale is a sign of the challenges faced by smaller firms operating as spreads narrowed in the low interest rate environment over the last few years. The transaction came after reports in the Wall Street Journal and other outlets that Ms. Lebenthal was pursuing a sale as part of an effort to resolve a dispute over a $1 million loan from former Bear Stearns & Co. chairman Jimmy Cayne.
"Lebenthal exited the municipal business a couple years back and as such I don't believe there will be any meaningful effect on the municipal market," said Jacqueline Knights, principal and director of public finance at the Williams Capital Group, L.P. The transaction "speaks volumes as to the challenges faced by small firms in this industry. With dwindling underwriting spreads and increased competition from both bulge bracket and more established Minority and Women Business Enterprise firms, it becomes increasingly difficult for small firms to weather volatility."
Knights also mentioned that with revenue diversifications, remaining nimble and prudent management of capital are needed to maintain a stable franchise.
"Let's not forget also the importance of a marketplace that values and promotes the inclusion of women and minority owned securities firms," she said.
One New York banker said that the news was both interesting and sad, but not particularly surprising.
"Our business continues to evolve, some would even say devolve as it goes through changes," he said. "It is unfortunate, I think ultimately they got into the public finance business a little too late, when spreads were declining and it's only gotten worse."
John Mousseau, director of fixed income at Cumberland Advisors, said the firm was a victim of "bad timing" in a market plagued by tight spreads and increasing competition.
"The people who worked there were great and I always got tremendous service as a client," Mousseau said. "That does not always translate into the bottom line and the state of the markets the main reason."
In June of 2014, Ms. Lebenthal announced the firm would exit municipal public finance and shutter its underwriting and institutional sales business to focus solely on municipal retail sales and building its wealth management division.
The move out of public finance, which resulted in the loss of 200 institutional accounts as well as 15 employees, gave Lebenthal an opportunity to go back to its roots and cater to high net worth sales to retail individual accounts, Ms. Lebenthal told The Bond Buyer in June, 2014.
She said that is where the iconic New York firm has inherent strength and experience.
The 2014 consolidation came years after she first sold the firm in 2001 to Advest. The Lebenthal name disappeared a few years later, when Advest was acquired by Merrill Lynch. In 2007, she bought the name back and relaunched the firm, building one of the largest woman-owned financial institutions in the city.
Lebenthal & Co. had ventured into the municipal underwriting business in 2011.
In the two years following that, the firm opened offices in Chicago and Los Angeles, doubled the revenue generated by its public finance business, and qualified for more senior-managed deals, Ms. Lebenthal has previously said.
Ms. Lebenthal said competition for a shrinking pool of business led to the decision to exit municipal underwriting.
Even though "everyone is vying for the same business," she said her firm was stable.
"Lebenthal is a name that will continue to be involved in the [municipal] business, just not in the way it has in the last several years," she said in 2014. "We are definitely staying in corporate and equities – that also has retail focus for us and we are a leader in that business."
The firm joined a growing list of companies that closed underwriting units or merged to form larger firms amid falling municipal prices in 2013 and plunging issuance in 2014.
Others said the reputation of the family-run municipal boutique that catered to retail mom and pop investors was second to none.
"Lebenthal was iconic in the New York market," John Donaldson, director of fixed income at The Haverford Trust Company, said on Monday afternoon.
"Over the past 15-20 years, we have seen the passing of many firms that were prominent in their regional markets," he said. "Some through absorption by a larger national firm, some from the pressures of a financial crisis, and some by the passing of a leader."
"Certainly, Alexandra is one of those people you root for to succeed," Donaldson added. "Unfortunately, one of the toughest things to do in any business is to try to recapture former success. It is hardly ever 'just like it was before.'"
The Boards of Directors of both South Street and Lebenthal have approved the agreement. The closing of the transaction is subject to customary closing conditions, including regulatory approval, and the parties expect the closing to occur by the third quarter of 2017.
South Street, through its wholly owned subsidiaries, is a leading provider of U.S. Treasury and Agency repo financing to Agency REITs, asset managers, banks, broker dealers and other capital market participants. The company is a broker-dealer and FICC member running a matched book portfolio that provides low cost financing for high-grade security positions and a source of secure short-term investment for money market funds, municipalities, GSEs, insurance companies, and other alternative deposit clients.
