Almost two years of work finally bore fruit last week when First Union Corp. brought $39 million in revenue bonds to market for Tuskegee University

The 115-year old Alabama college turned to the Charlotte, N.C. superregional bank to help finance a new 500-unit apartment complex and refinance some existing debt.

Although relatively small, the bond issue was the kind of deal that First Union and other banks are vying for as they battle Wall Street investment houses for assignments from schools and municipalities in the banks' backyards.

"It's in our best interest to be in these businesses," said Howard D. Curlett 3d, president of the bank's investment banking subsidiary, First Union Capital Markets Corp. "The health of these communities bears on our health as well."

"I can't begin to tell you how many hours" the deal required, said Kevin R. Hanna, a vice president in public finance.

Mr. Hanna, who is based in Atlanta, said that most deals do not require as much time and effort, but "luckily, First Union has made a pretty big commitment to public finance, and understands deals where the gestation period is as long as two years."

Currently, 26 bankers in five cities make up the bank's public finance units, accounting for approximately 10% of the total number employed by First Union Capital Markets.

And the bank plans to grow the public finance unit with several key hires in southeastern states.

Even before increasing the size of the group, however, the public finance team has had a healthy deal flow in 1996.

Through mid-July, the bank had served as senior manager or co-manager on $2.7 billion in negotiated bonds. That was a 63% increase over the combined total for all of last year for First Union and First Fidelity Bancorp., which has merged with the North Carolina bank.

First Union also acted as senior manager on $609 million in competitive deals through the middle of July, placing the bank ninth in the rankings of senior managers of such deals.

But the bank has set its sights higher. "I have every confidence that we will be in the top five" before long, Mr. Curlett said.

First Union is hoping to displace investment banks like Merrill Lynch & Co. on deals in the Southeast.

"We will continue to see the stronger regional capital markets groups such as First Union has displace some of the national firms that have serviced accounts from New York City," said William H. Hill, a senior vice president in public finance at First Union.

Mr. Hill said First Union hopes to bring derivative products, bridge loans, and credit enhancements to the public finance relationship.

"We have every bit of the firepower and execution of New York firms, but we can be more responsive and more sensitive," to clients, Mr. Hill said.

Billy R. Owens, the chief financial officer at Tuskegee, said the strength of the school's relationship with Mr. Hanna was a critical element in the success of the financing.

"I deal with people who have a good firm name behind them first, and once I've selected the firm, everything becomes a personal relationship business," Mr. Owens said. "I want to have people I can believe in and completely trust working with me on deals ."

"The net interest cost on the deal was 5.87%, when I was hoping to get as low as 6%," a clearly pleased Mr. Owens added.

First Union is not the only Eastern Seaboard institution taking the "local-bank"approach to this business.

Cecil Philips, the president of Philips International in Atlanta and contractor preparing to build the new apartments for Tuskegee, said that banks like SunTrust, Wachovia, and Carolina First are increasingly interested in financing academic housing.

"Three years ago, I felt like the Maytag repairman," Mr. Philips said. But now, he said, he's getting plenty of calls from bankers.

Mr. Hanna said that the business is competitive. "It's tough, because everyone from large national firms like Merrill Lynch and PaineWebber to regional firms like A.G. Edwards to other banks like NationsBank are in it."

Nonetheless, Mr. Philips said that First Union has a head start in developing this business.

"When I first started talking to First Union three years ago, they were the only public finance area of a bank that expressed even a moderate amount of interest in financing student housing," he said.

Mr. Curlett said that the public finance group has the strong support of senior management: "(First Union chairman) Ed Crutchfield started out as a municipal bond trader," he said, "and Anthony Terracciano (First Union's president) ran a municipal bond business."

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