With the municipal underwriting landscape in flux due to low supply and record low yields, smaller investment banks are jumping into the muni bond underwriting business to get a piece of the action.
New York-based CastleOak Securities is the latest investment bank to try break into the muni market, most recently hiring Cathy Bell as co-head of municipal public finance to help lead the effort.
CastleOak has been involved in corporate investment banking since the firm was founded in 2006, and expanded into the muni arena in February when it brought on its first team in the Midwest. Since its expansion into the muni space, the firm has co-managed six deals worth $18 million.
“We view this as an opportunity given volume is down,” said president and chief executive David Jones (picture, left). “We don’t have huge overhead or infrastructure we are trying to support, so it is a great opportunity to hire some talent. The muni market obviously isn’t going to go away. Issuance will pick up from here and we hope to take advantage of that. The key is we have a municipal platform we are building.”
Based in New York, Bell will expand the muni sales and underwriting business in the Northeast.
“She’s a senior banker, has relationships in the Northeast, complements the team we already have in place, and we’re expecting great things as we build out our muni platform,” Jones said.
Bell has over 25 years in the muni finance industry, most recently working at Loop Capital Markets. Before that, she worked at investment banks Advest Inc. and M.R. Beal & Co.
She co-heads the municipal finance team along with Eric Small, who was one of six bankers hired in February to launch the original muni team. The other bankers are based in the Midwest, focusing on Ohio, Illinois and Indiana. Of that team, three joined from Cleveland-based SBK-Brooks Investment Corp., and three others joined as bankers and analysts.
Regarding further expansion, Jones said he will measure growth by geographic expansion, and is looking to break into the California, Texas and Florida markets.
“Overall, we are in growth mode so we’re looking for talent as we grow our firm and distribution platform,” Jones said.
While the firm has yet to participate in any deals as a senior manager, it has participated as a co-manager in its first nine months in the muni business.
“We had success early on with smaller issuers, but we are calling on larger cities and municipalities and will start as high as we get,” Jones said, adding that CastleOak’s goal is to senior-manage transactions.
“Our bankers have been in the business for 20-plus years, and have relationships not just with smaller issuers,” he said. “We will be calling on larger issuers that can use our distribution.”
In terms of muni volume, Jones said he expects the fourth quarter to pick up from the third quarter as municipals stay in demand with rates so low.
“There is a lot of cash on the sidelines and we expect the fourth quarter to be better than the third,” he said. “And we expect 2012 to see more issuance than 2011. So for us to get into the market, we think it’s a good time to get in.”
