There are no tombstones in Harold Philipps' office.
The ubiquitous Lucite slabs that dealmakers use to commemorate successes are noticeably absent from Mr. Philipps' quarters at Donaldson, Lufkin & Jenrette.
For the 36-year-old co-head of DLJ's loan group, the two dozen foot-tall stacks of documents that cover his windowsill are a better gauge of his team's performance.
Each stack represents a deal in progress. And it is the future of the loan group, rather than its brief history, that holds the most interest for Mr. Philipps and his colleagues.
DLJ entered the syndicated lending business last June-about two years later than most of its Wall Street counterparts.
The firm lured Mr. Philipps from his post as head of syndicated lending at Bank of Nova Scotia to co-head the effort from New York, and Eric Swanson, 35, from Bankers Trust New York Corp. to co-head the group from Los Angeles.
Stephen P. Hickey, 36, formerly of Goldman, Sachs & Co., runs loan origination, sales and trading, and completes DLJ's lending triumvirate.
Mr. Philipps makes no apologies for being late to the lending game. "I don't think there's anything wrong with being late, as long as you're doing something better," he said.
"We're approaching the business differently."
What makes DLJ different from the scores of commercial and investment banks already in the lending business, Mr. Philipps said, is its top-ranked high-yield-bond franchise, along with the creativity and innovation that the business lets it bring to its leveraged loan deals.
The firm also boasts a powerful merchant banking unit-another potentially steady source of deals for the nascent lending group.
"Anyone that's looking to raise leveraged capital would naturally look to DLJ with respect to bonds. What we want is for them to naturally think of DLJ when it comes to leveraged lending," said Mr. Philipps.
Some 15 leveraged or highly leveraged companies have turned to DLJ to agent $3.94 billion of bank loans since it did it first deal in the third quarter of 1996. At the end of that year the shop ranked 30th out of 50 on Loan Pricing Corp.'s agent-only leveraged league table and 32d out of 54 on the highly leveraged league table.
Those rankings put DLJ well behind the traditional commercial banks, such as Chase Manhattan Corp. and J.P. Morgan & Co., that dominate the top ranks of lenders. Other investment banks, including Goldman Sachs & Co., Merrill Lynch & Co., and Lehman Brothers, also fared significantly better.
Loan syndication market players familiar with Mr. Philipps' work at Bank of Nova Scotia, a low-profile shop that consistently ranks among the top 10 leveraged lenders, spoke highly of the new 23-member DLJ group. But they said its strategy-which involves arranging loans for noninvestment grade companies and selling them to nonbank institutional investors-is far from unique.
"That's what we're doing, that's what Goldman's doing, that's what Merrill's doing," said one syndicated lender.
But Mr. Philipps and his colleagues are undeterred.
Boosting their confidence is DLJ's longtime position as the No. 1 manager of high-yield-bonds, which makes leveraged lending a logical extension for the firm. Already this year, it has brought 13 junk issues to the market, helping companies raise more than $3.3 billion.
"When you drop this product area into a leveraged finance business that's already dominant on the high-yield bond side of it, it makes such sense-and it's so strategically central to the firm-that the firm has really got behind it very, very quickly and really pushed the product," Mr. Hickey said.
The junk bond business has given DLJ tremendous credibility with the institutional investors who are comfortable buying leveraged deals, enabling it to bring to market loans that other lenders might shun.
In May, for instance, DLJ arranged a $305 million leveraged loan backing a $500 million DLJ-advised acquisition for St. Laurent Paperboard, a Canadian paper products manufacturer. Though St. Laurent had negative cash flow-a situation that would send most issuers to the high-yield bond market-it turned to DLJ for a bank loan.
"The other people who the client spoke to couldn't even fathom how you could do a deal on that basis," Mr. Philipps said.
But DLJ reasoned that the paper industry, which is highly cyclical, was due for an upturn. Its challenge, therefore, was to provide St. Laurent with "liquidity for a long enough period of time, that if you looked at the credit, you'd definitely see that they're going to make it through this part of the cycle," Mr. Philipps said.
DLJ structured a $230 million term loan, featuring a seven-year bullet maturity with no amortization for institutional investors, and a $75 million five-year revolving credit without any financial covenants tied to cash flow for the first two years.
The group then took the deal to institutional investors "sophisticated enough to deal with the cycle," Mr. Philipps said.
"The institutional market worked very closely with our high-yield bond analysts and also spent some time with our equity analysts, to get comfortable that where we were in the cycle, we were probably going to look at an upturn in the next six months," he said.
By the time the deal closed, it was oversubscribed by three times.
"They did a terrific job," said Helene St. Pierre, treasurer of St. Laurent. The company's regular bank lender is Canadian Imperial Bank Corp., but for the acquisition financing, "at the end of the day, the most interesting deal was the DLJ deal," she said.
"From a structuring perspective, it's all about solving a client's problem with an instrument," Mr. Philipps said.
Whether the instrument more closely resembles a bond, a loan, or some type of hybrid is irrelevant, he said. "It doesn't matter what you call it."
Another advantage for DLJ, according to Mr. Philipps and Mr. Hickey, is the firm's strong equity and fixed-income research operations. The effort, which placed third in overall research strength on Institutional Investor's All-America Research Team last year, is not only critical to the group's distribution and underwriting business, but offers DLJ an advantage over most commercial banks.
"We use (our research) actively in our own underwriting, and we use it to go out in the market and have immediate credibility with investors," Mr. Hickey said.
But the most potentially powerful weapon in DLJ's arsenal is its active merchant banking fund. The DLJ Merchant Banking Fund, which raised some $5 billion last year for equity investments, was the source of approximately half the loan group's deals last year, as the companies in which the fund invests turned to DLJ for their borrowing needs.
DLJ, for example, arranged a $190 million loan for Brand Scaffolding Corp. to finance an acquisition by DLJ Merchant Banking that closed in the fourth quarter of 1996.
Transactions like Brand Scaffolding are crucial to DLJ as it further develops its product capabilities and relationships with the investor community and establishes a track record that can then be used to bring in new business, Mr. Philipps conceded.
"For us, the ability to take leveraged loans into the market of such volume so rapidly is clearly very helpful to our franchise," Mr. Phillips said.
But, he added, the lending group is fully capable of getting business on its own. DLJ Merchant Banking has been "very helpful to us, but if they don't find something to buy over the next six months, that's O.K. too."
