First Union Corp.'s high-yield group is beginning to hit its stride.
First Union Capital Markets last week priced its second lead-managed high-yield issue, a $125 million offering for Emergent Group Inc., a Greenville, S.C.-based subprime mortgage lender.
Emergent was drawn to the high-yield group through other units of the bank. First Union warehouses some of Emergent's loans and has acted as a trustee on its securitization work.
Also, when Emergent went public last year, Wheat First Butcher Singer Inc.-the Richmond, Va. securities firm that last month First Union agreed to buy-underwrote the offering.
The deal illustrates First Union's approach to the junk bond business, which is to build on the bank's business with middle-market corporate clients by providing them with junk bonds.
The bank started a junk bond shop about two years ago and hired Jay Braden from Smith Barney to head origination. Now the staff includes 45 to 50 professionals in research, sales, trading, and origination, and the bank has participated in 16 high-yield issues.
"We're just starting to scratch the surface with high-yield and will continue to further penetrate the First Union franchise" for business, Mr. Braden said.
"This is part of an overall strategy to bring better corporate finance advice and products to companies than they would otherwise see," Mr. Braden said.
Observers commended the bank's approach to the capital markets business.
"They've approached the business very aggressively ... and the results are there," said analyst Sally Pope Davis of Goldman, Sachs & Co.
Analyst Michael Ancell of Edward Jones said the bank's investment in the business is paying off.
"They've brought in the talent and set up the systems necessary to make a class A effort in this area," Mr. Ancell said.
In November, First Union made its debut as a lead manager in the high- yield market, with a $100 million issue for Willis Stein & Partners' leveraged buyout of Peterson Publishing. The issue was led with CIBC Wood Gundy Securities Corp. First Union and CIBC had also led a $260 million bank loan that supported the purchase.
But a banking relationship is not always a precursor to the junk bond business. Even with Emergent's ties to First Union, when the company wanted to tap the high-yield market, it shopped around for an underwriter. Still, First Union won the deal.
"One of the things that distinguished First Union was their commitment to us that we would not just be a number in their shop," said Kevin Mast, Emergent's chief financial officer. "We were pleased with their execution of the transaction."
Though only a handful of Emergent's peers have come to the high-yield market, investors gave the issue a warm reception. Investor demand for the issue was so great that the company bumped up the offering size from the $100 million it originally planned to raise. Still, the deal was oversubscribed three to four times, Mr. Mast said.
