DLJ Takes Bigger Slice of Shrinking Pie

In one of the biggest falloffs in the high yield market this decade, with a shrinking volume of new issuance, Donaldson Lufkin & Jenrette outpaced all other high yield underwriters.

DLJ captured a 17.0% market share in the public and Rule 144A junk market with new issues totaling nearly $17.5 billion, according to year-end numbers provided by Thomson Financial Securities Data Co. (See tables p.8)

"1999 numbers are down over 1998, but our market share has never been greater," said Steven Rattner, managing director and head of high yield capital markets at DLJ. "It's because we're nice guys."

There was nearly $103 billion underwritten in high yield proceeds last year, a decrease of 30% from 1998's $147.4 billion. The only other year-over-year decrease in the decade came in 1994, when there was a total of $32.9 billion in proceeds, down 37% from 1993's $52.5 billion. Every other year showed some kind of increase.

DLJ was first among underwriters in 1998 as well. It completed 112 deals worth $21.5 billion to take a 14.6% market share.

"Certainly there was more volatility in the overall market within the year - swings between cash inflow and outflow, rate scares and credit problems. That caused an overall deterioration in the market and that affected overall returns, spreads and cash coming into the market," Rattner said.

As a result, DLJ focused on bigger deals this year to insure more liquidity among buyers. Individual issues averaged around $260 million. The firm sponsored 75% of all deals over $1 billion and was lead manager on eight of the 12 largest deals of the year, Rattner said.

DLJ was the lead manager on Charter Communication's $3 billion issue earlier this year in May. It also sponsored Lyondell's $2.4 billion issue, also in May, and Echostar's $2 billion issue in February. It played a part in Allied Waste's $2 billion issue in July as well.

Rattner also credited DLJ's high yield success this year on its ability to effectively place deals that he called innovative in structure and size.

R & B Falcon, for example, was a cyclical at the bottom of a trough with near-term liquidity problems when DLJ "created a very secure paper to make it through the bottom of the cycle," he said.

Salomon Smith Barney pushed out Morgan Stanley Dean Witter to take second place in underwriting, with a 14.4% market share and $14.7 billion in high yield deals. Morgan Stanley fell to fifth place among underwriters, with a 10.1% market share and $10.3 billion in underwritten deals.

Taking third place among underwriters was Goldman Sachs & Co. with an 11% market share representing $12.0 billion of proceeds.

Chase Securities took fourth place this year, bounding up from seventh place last year. In 1999, it underwrote $11.3 billion of high yield deals, capturing an 11.0% market share, compared to last year's 6.0% market share valued at $8.8 billion.

TD on the Rise

As the high-yield bond market's titans battled for domination in the shrinking market in 1999, one of the largest jumps in the rankings came from a relatively small shop in the Great White North.

TD Securities, a subsidiary of Toronto-Dominion Bank, rose to 15th place for managing all high yield debt in 1999, with $911.4 million in proceeds, up from 25th place in 1998, with $475 million in proceeds. While its total proceeds may pale in comparison to an industry leader like Donaldson, Lufkin & Jenrette, it was enough to kick TD ten spaces upward in rank and boot the troubled Jefferies & Co. out of the top 15 in the junk market.

Officials at the firm said TD's performance is the fruit of several key hires from top industry rivals like DLJ and the former BT. Alex Brown, as well as placing its bets on the ever-popular media and telecom sectors.

Further, the shop is gaining a solid reputation on Wall Street for underwriting deals with some of lowest delinquency rates in the market. The deposed Jefferies, by contrast, was tarred last year for having some of the junk market's highest delinquency rates.

"We've never tried to be all things to all people," said Derrick Herndon, managing director and head of high-yield trading, sales and research at TD. "We've leveraged our strengths to certain industry groups."

Among the deals TD lead-managed last year were a $275 million offering from Cablevision S.A. de Argentina, a $256 million bond from Clearnet Communications Inc., and a $225 million deal from Safety Kleen Corp. In each case, TD pros said that their goal had been to find companies in specific areas with solid financial track records, rather than trying to glom onto any deal available.

But the most important factor was the staff hires TD has made in the last year, bankers said. Bankers gave high marks to TD Securities President and Chief Operating Officer Peter Bethlenfalvy for assembling a top-flight group of junk pros to expand the shop's presence.