America's securities units say they are hoping to create a market for private debt placements by technology companies.
Eager to add to the fee-generating services they offer to technology firms, the two banking companies are sizing up the potential supply and demand for private placements at a time when it is difficult to sell technology firms' debt in the public market.
"In the last four to six months there has been a fairly substantial amount of new corporate technology and Internet-related debt that has entered the public market, and investor appetites are getting filled," said Bruce Hyman, a technology analyst for Standard & Poor's. "Some of that demand is going toward the private market."
Though most technology companies still seem most interested in raising capital through equity offerings, "we expect to see more interest from the sector moving into 2000," said William White, a managing director in Banc of America Securities' private placement group.
Robert A. Curley, a managing director and head of global debt finance in Credit Suisse First Boston's technology group, sees a growing appetite for private debt among potential issuers, and the company is moving to quell investor uneasiness about what is perceived as a high-flying sector. CS First Boston's New York-based private finance group is setting out on a campaign to convince investors that many technology companies have business profiles similar to those of non-tech-related companies.
For instance, companies that make semiconductors are already bigger issuers in the public market than other technology firms, bankers at CS First Boston said. This industry is more easily understood and typically includes tangible assets such as equipment on its balance sheet.
Mr. Curley also said information technology service providers have made more headway tapping the debt market -- in part because many investors are familiar with the research or consulting services they provide.
Mr. White said technology companies placing private debt will be held to higher standards than other issuers, such as industrial companies.
"Tech-oriented companies need to be much less leveraged, need to have more consistent cash flow, and a greater net worth than their industrial counterparts," because of the perceived volatility of these companies, said Mr. White of Banc of America Securities.
Newer tech companies are even less likely to tap the private market. Of the 1,048 firms that made initial public offerings since 1995, only 20 issued semi-private debt under the Rule 144a exemption of the Securities Act of 1933, and only one made a private placement, according to Thomson Financial Securities Data.
Nonetheless, there are very real attractions to this type of financing, including the ability to raise money without having to disclose financial information with the Securities and Exchange Commission. Also, companies that want to raise a smaller sum of money, say in the $50 million to $250 million range, would have difficulty finding buyers in a public bond market that has gravitated toward larger and larger issues. These companies would be attracted to the private market.