BIRMINGHAM, Ala. - In the 29 years that Joe Jolly has been providing financial advice and negotiated underwriting services to Alabama cities and towns, the municipal industry has experienced widespread consolidation. For small firms like his Joe Jolly & Co., that has meant increased competition from big bank holding companies with more resources and deeper pockets.
But Jolly says his firm has managed to grow by maintaining its longstanding relationships with local governments and by focusing on a growing number of small issuers that the large firms overlook.
"We have a diverse base of customers," Jolly said. "Our niche, if we have one, is that we are constantly giving ideas to our clients and helping them in structuring -- even if a bond issue is a couple years away, we're always working for them. I think they appreciate that."
Jolly points to his firm's relationship with Huntsville, Ala., as an example of how he keeps them coming back for more. Joe Jolly & Co. is in its tenth year of underwriting Huntsville's general obligation financings.
"I believe they've been satisfied with our performance," he said.
Jolly's firm has almost completely avoided competitive new-issue business. One reason is that most new issues in Alabama are negotiated. Also, firms stand to make more money on negotiated deals than on competitive new issues where they win business by being the lowest bidder.
"Our experience with Joe Jolly & Co. has been good," said David Parks, interim general manager for Decatur Utilities. Joe Jolly & Co. serves as that issuer's financial adviser.
"We've always had good market timing with them. We've had real good advice in maintaining and increasing our bond ratings with Moody's and Standard & Poor's," he said. "We get excellent advice on discount premiums whenever we do bids. They're good folks. We like them."
Aside from the health care sector and the state's biggest issuers, large national firms find little reason to seek negotiated underwriting business in Alabama, according to Jolly.
"(They) don't come into Alabama like they would in Florida," he said. "Our competition, mostly, is the local bank holding companies that have public finance departments."
Still, there are several other small firms in the state that are active in the negotiated market, making the climate quite competitive, Jolly said.
The consolidating industry has also brought some offers of merger and acquisition to Joe Jolly & Co., but Jolly says he has no desire to change his situation.
"We've been successful like we are," he said. "I think everybody here associated with us likes it that way, so we think if we were a different setup, we'd lose some of our culture. The municipal business is a unique culture. I think it lends itself -- at least in Alabama -- to a small firm that can give more personal contact and service to the clients."
The firm has two offices in addition to its Birmingham headquarters. Vice president Johnny Dill manages the Florence office, covering the northern part of the state. Henry Ufford Jr. covers the southern region and heads up the firm's retail trading effort from his office in Montgomery. Assisted by vice president Roger C. Clayton, Jolly covers everything in between, as well as the company's institutional sales business.
Most of the deals Jolly executes are what he calls "plain vanilla-type financings." Sectors include water and sewer, electric, natural gas, and hospitals. Issues over $2 million typically are insured, but he says it is usually more cost-effective to take smaller bank-qualified issues to market without insurance.
"We generally do a strictly municipal business," he said. "We specialize in that. We don't do any stocks or mutual funds."
The company has snagged issues for as much as $150 million and as little as $500,000. From his office in a downtown Birmingham high-rise, Jolly has watched Alabama's banking industry spring up all around him. In the time he has been active in the municipal industry there, Birmingham has transformed itself from a heavy iron and steel manufacturing center to a financial services and health care oasis.
Jolly has, in the past, considered expanding outside of Alabama, but he says the nature of the municipal business makes it difficult for small firms to enter new markets.
"It's a local business," he said. "You always want to improve your market share, but we pretty much want to stick to Alabama."
For now, the outlook is good for Alabama. Jolly estimates the state's economic growth will be around 5% for the decade. Some parts of the state, particularly the Huntsville area, have experienced even higher growth. The state lured a lucrative Mercedes Benz plant in 1996 and is set to start production soon at a new Honda plant.
"I think the future is a good one, notwithstanding the problems in the industry," Jolly said. "There are probably too many people chasing too few deals and underwriting spreads not being what they should be. I think if we continue to do a good job for our clients, we'll continue to get more business. That's what our goal is."
