RBC Capital Markets added more than 70 years of experience to its municipal finance team with the addition of three managing directors hired to lead its newly created public power group.
Harris Kretsge, formerly head of the energy and environment group at JPMorgan, joined the investment bank on July 5 to head up the new group, the firm plans to announce Monday. He is joined by fellow JPMorgan veteran Paul Neuhedel and Citi's Todd Holder.
The additions come at a time when RBC is having its best underwriting year ever in terms of market share.
Despite new issuance dawdling at half of last year's levels, the firm has led 245 deals worth $6.39 billion year to date, reflecting a 5.6% slice of the market versus 4.6% last year.
That ranks it as the fifth-largest senior underwriter in 2011, according to Thomson Reuters, up two spots from 2010.
RBC hasn't spent much time on the map in the public power sector, but it's poaching top players from the industry to change that reality and complement their middle-market business, according to Chris Hamel, RBC's head of municipal finance.
"We have done a series of large, creative, and unique pre-paid gas transactions which service this sector," Hamel said, "but we wanted to deepen our involvement with it and that required the recruitment of the kind of talent represented by Harris, Todd and Paul."
JPMorgan's public power team, which Kretsge headed from New York between 2000 until his resignation three months ago, has been a top-three underwriter for each of the last five years and held the top spot for 2005, 2007 and 2008.
Citi, where Holder was a director in the Dallas office since 2000, has been the top-ranking underwriter since 2009.
Issuance in the public power sector has been scarce this year: new supply totals just $4.66 billion so far, compared with a record-setting $30.1 billion in 2010.
Kretsge noted that demand for electricity generally correlates closely with gross domestic product, which has stalled recently, particularly in certain regions. He said building options that are both efficient and cost-effective can be limited, and the March earthquake in Japan was certainly no help to utilities with a nuclear capability.
But Kretsge sees the hurdles as an opportunity to find innovative solutions.
These could include direct lending or providing liquidity facilities, areas where he thinks RBC could excel thanks to a stable balance sheet and strong ratings — its parent company boasts a senior debt rating of Aa1 from Moody's Investors Service.
"With the price of electricity in some regions of the country continuing to be quite expensive, ratepayers are learning to conserve," Kretsge said. "That doesn't mean, necessarily, that no one is building power plants. There is great pressure on utilities to modernize their generation facilities all over the country."
Kretsge's quarter-century of experience includes 13 years at JPMorgan, where his responsibilities included leading efforts in the municipal gas, rural electric cooperative, and tax-exempt corporate-backed business lines. Before that he spent 12 years at Lehman Brothers leading the public finance quantitative-solutions group.
Kretsge and Neuhedel are based in New York and report to Jim Tricolli, head of RBC's East Region municipal finance group.
Neuhedel, who also started July 5, joined RBC after a 10-year stint with JPMorgan to help lead its efforts in the areas of municipal and cooperative electric utilities.
He previously held a variety of positions including director of the global power group at Fitch Ratings, vice president of the utilities group at Ambac Indemnity Corp., senior power analyst at the New York Power Authority, and rate design analyst at the Long Island Lighting Co.
Holder, who had worked at Citi since 2000, joined the firm a few weeks ago at the Dallas office to focus on public power authorities and general government clients in Florida and Texas.
He previously spent three years as vice president at First Union Securities in Florida, six years at Rauscher Pierce Refsnes — a predecessor firm of RBC Capital Markets — and two years at the Nebraska Higher Education Loan Program.
The three additions round out a team of five managing directors including Garth Salisbury in San Francisco and Scott Perlman in Cincinnati.
Growing a public power business could prove tough in this environment.
Standard & Poor's noted in a February 2011 sector outlook that public power companies have an uncertain long-term outlook and ratings could suffer for utilities that fail to respond to cost pressures.
"The recession and the tepid recovery that has followed alone would pose problems for the U.S. public power sector, but we believe that potential U.S. regulations that could be costly to comply with complicate matters further," the agency said.
"This is a very competitive business — more so than a year ago," Hamel acknowledged. "When volume is down, more bankers are chasing fewer deals, but we've got the right players, and with the RBC platform we've got the right resources. Over the long haul we'll win our share."
