Redefining expectations
While underwriting activity for debt and equity slumped in 2023, diversity firms continued to show their growing presence in syndicate roles is sustainable. No firm illustrated the ability to shatter expectations of what smaller investment banks are capable of better than Loop Capital Markets, and it is IFR’s US Diversity and Inclusion House of the Year.
“We punch well above our weight-class in the context of an industry that’s dominated by giants,” said Sidney Dillard, Loop Capital’s head of corporate investment banking.
“That is very different from the start of the firm in 1997,” said Dillard, a 22-year veteran of the firm.
Loop, a black-owned and led investment bank, brokerage and advisory firm, was founded 27 years ago by James Reynolds and Albert Grace in Chicago, with a staff of six. Today the firm has 21 offices across the US and nearly 300 employees in its original business – public finance – in addition to corporate investment banking, research, sales and trading, transition management, and analytical services. Reynolds is still chairman and CEO.
Despite difficult and volatile markets in 2023, Loop increased its number of leading mandates. It was lead manager on Morgan Stanley’s US$1.5bn offering in January and its US$2.75bn offering in April; and it was lead manager for Wells Fargo’s US$6bn offering in October.
The firm was a bookrunner on AT&T’s US$1.75bn offering, State Street’s US$1.5bn offering, United Airline’s US$1.32bn EETC note offering, Verizon’s US$1bn offering and BNY Mellon’s US$500m offering, to name a few.
“We have had some unique success in 2023,” Dillard said.
For BNY Mellon’s US$500m offering in May, which was exclusively led by D&I firms, Loop acted as billing and delivery agent as well as a bookrunner. It’s a role the firm first took on in 2020 for Allstate in a US$1.2bn deal in the first investment-grade transaction with a total D&I syndicate. Loop also took on the role for a John Deere offering.
“We are the only diverse-owned firm to have been billing and delivery agent on an investment-grade transaction across some very large institutions,” Dillard said.
The role, typically taken on by large global banks, allowed Loop to deepen its relationship with issuers, Dillard said. Loop launched its repo desk in 2022, which helped facilitate the billing and delivery process.
While D&I firms have proven their capabilities to lead transactions, the investor community is still not familiar with a deal structure in which there is no bulge-bracket bank.
“That we could step in and take on that role without any other traditional firm speaks to what Loop does and what others can do when given the opportunity,” said Loop vice-president David Yang.
Lasting change?
Loop served as an active co-dealer manager on Verizon’s tender offer for US$750m of its outstanding debt across 14 securities. It was the first time Loop was an active co-dealer manager on a corporate tender offer.
The bank credited Morgan Stanley with assisting D&I firms as they stepped into yet another new role. Morgan Stanley, as diversity equity inclusion coordinator, hosted a “salesforce teach-in” prior to the tender offer starting.
A number of 2023's deals represented repeat business for Loop, a sign that issuers were pleased with its work. One of those transactions was the Verizon US$1bn green bond offering. All 10 co-managers on the offering were diversity firms, and Loop has now been a bookrunner on four consecutive Verizon green bond financings.
Despite the industry wide slowdown in debt and equity underwriting that tripped up many larger banks in 2023, smaller diversity firms were able to participate in a significant number of transactions. The continued participation of D&I firms suggests the heightened commitment to diversifying syndicates that emerged after 2020 could signal a lasting change.
“There is an old adage that you don’t get fired if you hire Goldman Sachs. Now you don’t get fired if you hire Loop either,” Dillard said. “I think that’s an important movement forward.”
It is the next step in how smaller diversity brokers and investment banks have been afforded more opportunities since 2020, said Michael Jackson, Loop’s head of equity.
“Those that were able to perform at a high level get more calls now,” Jackson said.
In high-yield, Loop acted as co-manager on Ford Motor Credit’s US$4bn offering in three classes and another US$1.75bn offering in two classes. There were three transactions for Venture Global, including a US$4bn offering in two classes, and a US$500m offering in two classes and a US$1bn offering for Venture Global Calcasieu Pass, a liquefied natural gas export facility in Cameron Parish, Louisiana.
Loop also expanded its underwriting capabilities to participate in more private placements. The firm acted as co-placement agent on Rio Grande’s US$700m offering in July and a US$125m placement for Exelon’s Potomac Electric Power unit.
Loop used alliances with larger banks such as Bank of China, Northern Trust and Sabadell to punch above its weight.
“We’ll never be a big commercial bank where we participate in revolving credits and term loans etc, but we found that it makes sense to partner with institutions that don’t have a broker-dealer,” Dillard said. “We end up being their proxy when they have an opportunity by virtue of a credit they deploy.”
Partnerships are key to what Loop is as a firm, Jackson said.
“We want to be large enough to be helpful but not a competitor,” he said.
A turn at bat
One such partnership is with private equity giant KKR. The pair formed a strategic alliance in 2022, whereby KKR’s equity capital markets clients could access Loop’s investment banking and equity research platform.
KKR has worked with Loop on ECM transactions since 2011 and Loop has since served as an underwriter on more than 15 KKR capital markets transactions, including IPOs and follow-on offerings for Fiserv, and Academy Sports + Outdoors.
Jackson joined Loop in 2016 with the goal of building out a research platform to complement the firm’s equities sales and trading operation, which was then primarily focused on execution for large passive investors, index managers and quants. Loop currently has a 20-person research team that focuses primarily on three sectors: TMT, consumer and industrials.
Other standout deals for Loop in 2023 included serving as a co-manager on Birkenstock’s US$1.48bn IPO and Instacart’s US$660m IPO, as well as a co-manager for the biggest IPO of year, Arm Holdings’ US$5.2bn offering, winner of IFR's North America IPO.
“As a small firm, a diverse firm, a black-owned firm, it is often assumed that you cannot do certain things – that you do not have the capabilities,” Jackson said. “By getting these opportunities it gives us a chance to show our capabilities and our expertise, which opens the doors to other opportunities.”
Loop was also a bookrunner on Allstate’s US$600m perpetual preferred offering in May. The offering, with its retail component, was seen as a bellwether following the mini financial crisis in March.
“On this particular transaction we went out and got over one million shares of demand on the transaction from a differentiated set of investors that complemented the book,” Jackson said.
Indeed, often D&I firms reach out to different investors to Wall Street’s big firms, and Loop placed slightly less than 1m shares to an alternative set of investors to those targeted by the bulge-bracket banks leading the syndicate.
When Reynolds founded Loop back in 1997 he had a simple motto: "To provide client service beyond expectations." The firm is living up to the motto.
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