Fleet Financial Group is adding another channel to its corporate finance operation.
The Boston-based bank this week announced the creation of an asset- securitization conduit, Blue Keel Funding LLC. Through the conduit, Fleet's corporate customers can convert their trade receivables into securities that can be sold in the debt capital markets.
"The syndications technology that started out with public-type deals for high-grade companies has evolved and, for the first time, is more available to smaller middle-market companies," said Timothy J. Conway, head of Fleet's corporate finance division. "Given our franchise, it's a very important market for us to be in."
Many banks offer conduit programs to their corporate customers. Of 166 conduits now available, 118, or 85%, are sponsored by commercial banks, according to Merrill Lynch & Co.
"Banks like to do it because it gives them an opportunity to do commercial paper funding for their clients," said Ira Powell, associate director of Fitch Investors Service LP. "For clients, it's a way of getting off-balance-sheet treatment, instead of the bank giving them a straight loan."
Analyst Michael Mayo of CS First Boston said the move is a step in the right direction for Fleet, which is building its corporate finance capabilities.
"Fleet is showing improved revenue growth and is faced with the question of how to fund that through additional loan growth. So this is probably a step in meeting that objective," Mr. Mayo said.
Since middle-market businesses have less access to the capital markets than larger players, Fleet can capitalize on its strength in New England to meet those financing needs.
Banks that form conduits issue commercial paper and use the proceeds to buy accounts receivables from their customers. They then repackage the receivables into securities.
John Molloy, a managing director in Fleet's asset securitization group, will oversee Blue Keel's operations on a day-to-day basis. Mr. Molloy said that there's a growing appetite among investors for asset-backed securities and that Fleet has already closed several transactions through the conduit.
"This is an extension of the wave of asset securitization that we've seen on the consumer lending side," said Michael Granger, an analyst with Fox-Pitt Kelton. "Now that we have a well-established securitization market, it's a logical extension of that concept to take it to the commercial side."
Fleet began building its corporate finance group in March 1996, recruiting Mr. Conway from Citicorp. The bank has since hired a slew of Wall Street bankers to build the business, including Mr. Molloy, who joined Fleet from CIBC Wood Gundy Securities Corp. last August.