Filling out its corporate finance capability, KeyCorp is establishing three new funds to do mezzanine, bridge, and private equity financings.
The Cleveland-based bank also this week apparently lured away all six people in the fixed-income sales staff of NationsBank Capital Markets' Richmond, Va., office.
The two moves continue the KeyCorp's strategic efforts to create a one- stop-shopping menu of services and products for its corporate clients.
Since establishing its section 20 investment banking subsidiary, Key Capital Markets Inc., last year, KeyCorp has acquired Cleveland-based investment bank Carleton, McCreary, Holmes & Co., and entered a partnership with private placement boutique SPP Hambro & Co.
"The establishment of these new merchant banking capabilities is an important strategic step in building Key's corporate financing capabilities," said Jack E. Kohl, executive vice president and group head, investment banking and securities group.
But some observers said more work lies ahead for the bank.
"At this stage, I don't view it (corporate finance) as a major revenue source for them," said Michael Plodwick, a bank analyst at Salomon Brothers. But, he added, KeyCorp "would like it to be a growing source."
The new Key Leveraged Capital Fund will issue mezzanine debt or take minority equity positions in companies to provide growth capital or finance a recapitalization. Seeded with $100 million, the fund "fills the gap between aggressive senior lending and control equity," said Robert McCreary, a principal of Carleton, McCreary, Holmes & Co.
The Key Bridge Fund will offer bridge loans of up to $200 million to clients needing capital to complete a transaction quickly, which will be subsequently refinanced with permanent, typically private, capital arranged with SPP Hambro.
The third new fund, Key Alliance Fund, is actually a fund of funds that combines the bank's investments in outside private equity funds - such as leveraged buyout firms - into a single fund. KeyCorp has already made commitments of $80 million to several regional deal firms, including Cleveland-based Primus Venture Capital, Chicago-based Health Equity Partners, and New York-based Riverside Partners. The investments are concentrated in the media and health-care industries.
Future investments in private equity funds could include one operating in the Northwest, especially Seattle, said Mr. McCreary.
The funds await regulatory approval.
"These type of funds are closely related to the banking functions, so I assume there's a decent cadre of talent in-house," said Mr. Plodwick.
A separate fund already in place, Key Equity Capital, invests between $2 million and $20 million as an equity partner in companies with annual sales of between $15 million and $150 million.
Meanwhile, a NationsBank Corp. spokeswoman confirmed that six fixed- income sales associates in that bank's Richmond, Va., office, had resigned, apparently to join KeyCorp Capital Markets.
They will not be replaced, said the spokeswoman. "We can effectively serve our clients from our current infrastructure in Charlotte," where NationsBank is headquartered, she said. KeyCorp said it could not discuss pending appointments.
