BA Securities Inc. is seeking to expand its long-term negotiated business until the deals make up half of the bond issues underwritten by the firm, according to W. Peck Ferrin, managing director of BA's municipal trading and underwriting department.
Right now long-term negotiated underwriting accounts for approximately 25% of the firm's new-issue business, with the other 75% coming from the competitive market.
Ferrin said heavy competitive bidding is mandated by a big retail distribution network whose 200 or so branches make up 70% of the firm's distribution system.
"One of the reasons that we're so involved in the competitive business is to make sure that we maintain inventory," he said.
The firm wants to change the balance without losing deals - "by increasing the negotiated side and not by decreasing the competitive side," Ferrin said.
Building a negotiated presence takes time. Ferrin and Anthony J. Taddey, senior managing director and head of BA's public finance department, have spent about two and a half years on the project so far, and Ferrin said he hopes another two years will bring the firm to its goal.
The effort is beginning to pay off, with a number of deals in the pipeline that Ferrin said should start to trickle through to the primary market within the next six to eight months.
Focus on Sectors
Ferrin said it is too early to discuss any specific upcoming negotiated offerings, but he noted that BA, as part its bid to increase its negotiated business, is becoming involved in industrial development bonds through its corporate relationships.
The firm is also increasing its involvement in the third-level education arena, he said, with BA going after two or three college deals.
However, Ferrin said, the firm does not have a systematic hiring strategy in place to bring more bankers on board to assist in the negotiated drive.
Instead the firm will look to hire selectively, with an eye to bankers with good relationships, he said.
And BA will remain active in the short-term sector, Ferrin said. In April the firm was senior manager of a $2 billion issue of revenue anticipation notes by California.
In July, the firm acted as co-manager on a second batch of RANs from California, a $3 billion issue on which Lehman Brothers was senior manager.
Training Sales Staff
BA is seeking to be active in both underwriting and sales elsewhere, and in the last two years has opened public finance and municipal sales operations in Dallas and Chicago.
But new municipal operations are not without their teething problems, and in Texas BA had to buckle down and train some sales staff who were unaccustomed to selling municipal securities, Ferrin said.
"That's been a relatively slow process but it's coming on now," he said. "Unlike a lot of other products, we're a little unique in terms of credit and where the tax-exempt market is on the curve."
BA Securities has approximately 450 generalists or sales people, covering a range of securities including municipal bonds; and approximately 30 specialists, focusing on the sale of tax-exempt securities to high-net- worth customers.
The firm has its own educational program to train its sales staff in the sale of municipal securities.
