November 1, 2017 / 6:18 PM / a year ago

LPC: Mizuho eyes US leveraged finance expansion

NEW YORK, Nov 1 (Reuters) - Mizuho Americas is seeking to expand its leveraged finance footprint in the US, taking advantage of a boom in debt transactions this year.

The bank wants to increase the number of borrowers it lends to by 40-50% over the next few years with the goal of leading a transaction from start to finish — advising a client on a purchase and then providing financing for the buyout, according to Simon Walker, head of loan markets and syndicate at Mizuho.

“In the US there has been an uptick of loan and debt and the next step is to the number of clients” the bank serves, Walker, who joined in August, said in an interview.

Expanding its foothold would offer Mizuho larger fees and the ability to lend to bigger clients, which could bring in additional business as the bank targets growth in multiple areas including investment banking, debt capital markets, high yield syndicate and leveraged loan syndicate, a market that has already set a record for institutional issuance in 2017.

But to increase its share, Mizuho will have to contend with the largest players including Goldman Sachs and Bank of America Merrill Lynch, as well as other banks that have tried to make a bigger push in leveraged finance the last few years including Jefferies and Nomura.

Catering to non-investment grade companies can be more profitable, with fees for arranging leveraged loans jumping 80% in the third quarter from the same period in 2016 to US$3.8bn, according to Freeman Consulting Services, based on Thomson Reuters data.

Arranging debt for blue chip borrowers, a more active segment for Mizuho, yielded fees of just US$628m last quarter, Thomson Reuters LPC previously reported.

There was US$651.2bn of US leveraged institutional issuance in the first three quarters of 2017, a record, compared to US$563.7bn of investment-grade loans during the same period, according to LPC data

Mizuho ranked 10th on the investment-grade league table for the first nine months of 2017 with US$18bn of deals, according to LPC data. Bank of America Merrill Lynch came out on top during that time period with US$128.3bn. Mizuho ranked seventh in 2016.

In 2015 the bank purchased a large portion of RBS’ US and Canadian loan portfolio, according to news releases from that time, helping boost its profile in the US.

It came in 23rd on the institutional ranking in the first three quarters with US$6.2bn of volume, helping arrange buyout financing for KKR’s purchase of Nature’s Bounty, and Carlyle Group’s and GTCR’s acquisition of Albany Molecular Research. Barclays was first with US$58bn. Mizuho also ranked 23rd last year.


But Mizuho has not been a so-called lead left lender, the bank that runs the transaction process, on a coveted term loan B, debt which is sold to institutional investors including mutual funds. Mizuho hopes that in six to 12 months it will hold that critical position, said Walker, who joined from UBS where he was global head of investment-grade acquisition financing.

He has been meeting with representatives at private equity firms to pitch the bank, highlighting the additional liquidity Mizuho can bring, its balance sheet, and stressing its intention to be a long-term holder that will not immediately sell down its position.

“We are willing to take on more risk and have a desire to do more business,” he said. “We have a tremendous balance sheet and we don’t have to sell it down.”

When banks arrange a loan they will often try to sell the majority of that debt to investors to lessen the amount of risk they hold.

Mizuho will look to do more deals in the technology, media and telecom spaces as well as in the healthcare and energy sectors, the former an arena familiar to Walker who previously served as head of natural resources leveraged and high-yield capital markets at UBS. Lee McKinstrey joined Mizuho as sector head for energy in September.

Competition may be one of the biggest challenges Mizuho faces as certain banks have historically been the go-to choice for advising on and leading the financing for merger and acquisition transactions. Some lenders have been successful in building new platforms while others have struggled after an initial push.

Mizuho hopes to grow its ranks with additional hires, especially at the junior associate and analyst levels. (Reporting by Kristen Haunss; Editing by Michelle Sierra)

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