Fieldstone: New to Loans but No Newbie
June 4, 2009
When Jeff Glasse was gearing up to join Fieldstone Capital Group in the summer of 2008, to head up the firm’s new leveraged loan trading effort, he and his colleagues expected that they’d be heading into a fairly severe distressed credit cycle. By October 2008, when Glasse came on board, the entire loan market was trading at distressed levels.
This provided Fieldstone’s new loan trading team with a great opportunity. In addition to trading truly distressed loans, they traded many more performing loans at deep discounts than they had originally planned and, with the market environment so uncertain, found that many “distressed” funds were buying the larger well-secured performing loans at double-digit yields. Overall, the volatile environment helped them get the loan trading business going.
Fieldstone, which was founded in 1990 by senior investment bankers from Bankers Trust Co., is an investment banking firm with a strong history in energy and infrastructure financial advisory. Fieldstone Capital Group’s sales and trading team—now at 25 professionals, including 15 who work on loans—focuses on high yield debt, leveraged loans, distressed debt, convertible debt, special situations, and structured credit (including CLO and CDO tranches, CMBS and Auction Rate Preferreds). The team, which does not trade for its own account, regularly moves large blocks and thinly-traded issues for a diverse group of investors, from hedge funds to large insurance companies.
Glasse, most recently a principal and equities trader at Birchway Capital, previously headed up U.S. loan trading at Barclays Capital and TD Securities USA. He sat down with LFN.com recently to talk about the role of new players in the leveraged loan market, specifically those firms that are not such new players in other areas.
LFN: Where do you think some of the new players in leveraged loan trading have an edge over the well-established firms?
Glasse: The new players have a variety of strategies, and we compete across a broad range of credits. Generally, I think our edge is in names that are a bit less liquid, block trades, distressed and special situations. With well over 1,200 borrowers and $600 billion outstanding in the U.S. institutional loan market, plus bank-held loans and midmarket loans, there’s just more demand for liquidity than the major, established desks can provide.
Are there any areas or instances where the established firms have the advantage?
Glasse: They clearly dominate the large flow names and are very strong across a broad range of credits as well. When they’re selling out of portfolio it can be a good source of paper for
investors.
Are there any assumptions about new players that you’d like to clear the air about?
Glasse: Many of the broker dealers now entering the loan market may be unfamiliar names, when in fact many of us are well-established firms. For example, Fieldstone has been in business for nearly 20 years and over the last ten years has built up a credit trading business with over 500 trading counterparties.
How would you describe the interaction between newer players and investors?
Glasse: Investors have generally been very supportive—either actively trading or at least having a constructive dialog about becoming counterparties. They recognize our ability to add value. For example, in this environment of higher loan defaults, you may need liquidity in a name that isn’t a priority of the established desks. There’s a universal need for investors to get “best execution,” and I see a growing recognition among investors that using some of the new players may be integral to achieving that objective.
What types of deals is Fieldstone focusing on?
Glasse: Our core focus is off-the-run and distressed, but we trade a broad variety of loans from multi-billion dollar performing loans to distressed credits under $100 million.
With so much focus on risk management and due diligence, what determines the types of deals you do?
Glasse: In off-the-run situations, ideally we are using our research capabilities to identify undervalued situations for our investors. In other cases, we’ll simply source the opportunity. Generally, investors will do their own diligence and reach their decisions independently.
Is Fieldstone looking to add any more personnel?
Glasse: Yes, we see more opportunities in sales and trading, and in building off of Fieldstone’s investment banking expertise in the infrastructure and project sectors.
Do you think the leveraged finance market will continue to see more new players?
Glasse: Maybe in advisory and other areas; the trading side seems over-saturated already.
Do you think they’re here to stay?
Glasse: Clearly, some of the most experienced people in the market have moved to smaller shops. Although I do expect some consolidation, especially on the trading side, I think many of the new players will do very well and grow into substantial businesses.
Are there any new trends that you’ve noticed in the leveraged finance markets?
Glasse: The increase in liquidity in the loan markets since fourth quarter 2008 has been huge, which is ironic since we just hit a record default rate.
Are there any positive trends you see developing right now?
Glasse: There are a number of positives. Compared to a few months ago, I think companies’ improved ability to get DIP financing and restructure their debt obligations is significant.
Are there any troubling trends?
Glasse: A lot of investors are trying to reconcile this huge run-up in loan prices, and single digit yields in lots of loans, with the uncertainties in the economic outlook. I think this is driving investors to search harder for value. That’s not necessarily bad, but it is a challenge.
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