Leveraged finance is high-risk, high-stakes, and above all, highly competitive.
And that's why Robert D. Redmond likes it.
As managing director and head of Lehman Brothers' financial sponsor group, Mr. Redmond is helping transform Lehman from a quiet firm best known for investment-grade bonds into a high-powered player competing with commercial and investment banks for a piece of the lucrative leveraged finance market.
"I'm a very competitive person and I haven't found anything that's quite the match we experience here on Wall Street," said Mr. Redmond.
"I like competing with the banks, particularly around a product where we see a lot of running room for this firm. I like taking them on on their home turf and I expect they do, too."
Mr. Redmond, 41, has led the firm's leveraged finance effort-which serves private equity and leveraged buyout shops like Kohlberg Kravis & Roberts and Clayton Dubilier & Rice-since 1994, the year Lehman was spun off from American Express Co. Under his leadership, the business has grown rapidly.
At Lehman, high-yield debt underwriting, a prime service Wall Street provides to LBO shops, totaled $2.28 billion last year, up from $1.76 billion in 1994, according to Securities Data Co. The firm has also entered the leveraged lending arena, where its volume reached $10.3 billion in 1997, ranking it No. 13.
"Leveraged finance is an area of growth for Lehman, which historically had been more of an investment-grade fixed-income firm," said Raphael Soifer, bank analyst at Brown Brothers Harriman in New York.
"As part of its development plans, they gave that business to Redmond and told him to grow it and he's been doing that."
Leveraged finance is an important part of the menu of products and services offered by investment and commercial banks alike. It is seen as a linchpin to many banks' one-stop-shopping approach to financial services.
Lehman, like some of its competitors, views the business as part of a plan to provide more fee-based investment banking services to a broader client base, including the smaller or rapidly growing companies that LBO shops like to buy.
These companies typically require a bevy of financial services, from equity underwriting to initial public offerings to merger and acquisition advisory services and bank financing.
"There's an actual fit between all those businesses," said Mr. Soifer, "because as companies grow and change they need some or all of those capabilities.
"M&A transactions frequently lead to leveraged finance, and the leveraging and de-leveraging of balance sheets means at times you do equities and at times you do debt."
No stranger to banking, Mr. Redmond began his career as a loan officer at Chase Manhattan Bank. In the early 1980s he worked in the bank's diversified industries group lending to conglomerates such as ITT Corp. and Gulf and Western Corp.
One of the group's clients was a small boutique firm, Kohlberg Kravis Roberts. KKR went on to practically invent the leveraged buyout, for which it tapped the bank loan market.
But according to Mr. Redmond, Chase "was slower to pick up on the sponsor business than some other banks, like Bankers Trust or Manufacturers Hanover." After three years, he decided to move to Wall Street to "have access to many different investors who can structure for the best terms in the market," he said.
After a brief stint as a vice president in private placements at Prudential Securities, Mr. Redmond joined Kidder Peabody in New York where he became head of high-yield capital markets. His responsibilities included acquisition finance and private placements, as well as the financial sponsor group.
When Kidder was sold to PaineWebber in 1994, Mr. Redmond and 20 of his colleagues joined Lehman, which had just gone public.
He now supervises 20 bankers in the high-yield bond and leveraged loan groups at Lehman, and 16 bankers in the sponsor group, including some in London, Hong Kong, San Francisco, and Los Angeles.
"We see a big opportunity out of London, with respect to the European sponsor community," said Mr. Redmond.
The firm recently transferred one banker from New York to London and is planning more hires there, bringing the total to eight or 10 professionals by the end of 1998.
His financial sponsor group is currently focused on a few key industries, which are also dominant sectors for Lehman at large: media and telecommunications, natural resources, industrial manufacturing, health care, financial services, and real estate, which includes lodging and gaming.
"The sponsor community tends to look to us for idea flows-that is M&A opportunities-in those areas," he said.
Lehman's financial sponsor group tends to work with a small cadre of buyout firms, including Bain Capital, Citicorp Venture Capital, and the firm's own merchant bank, Lehman Brothers Merchant Banking Partners, run by Alan Washkowitz.
While the firm has a substantial relationship with Kohlberg Kravis Roberts, it is not managed by Mr. Redmond's group. Instead, it is handled by Philip Erlanger.
Mr. Redmond's work at Lehman has not gone unnoticed by the firm's competitors.
"They've clearly made a decision that they're going to go after the sponsor business and try to grow their leveraged business, both on the bank and high-yield sides, and we certainly do run into them from time to time," said the head of another firm's leveraged finance group, who asked not to be identified.
"They've been willing to pretty aggressively structure either bank loans to the investor market or be very aggressive in terms of being prepared to bridge and underwrite aggressive high-yield structures," the competitor said.
Being aggressive is indeed a part of Mr. Redmond's game plan.
"To have any kind of a credible sponsor effort, you've not only got to have these products well in hand, but have an appetite to be aggressive around these products in terms of execution so you can differentiate yourself among all the firms that are out there," he said.
And commercial banks are among the biggest of those competitors Mr. Redmond faces on a daily basis. Although he admits Lehman's lending capabilities lagged behind its bank competitors early on, the firm is now able to compete on any deal for any product, he said.
"We do everything that (banks) they do, and they do everything we do, and we're in the market competing on every single opportunity as aggressively as we can," said Mr. Redmond.
"There may be some minor differences in core capabilities or in public perception of our strengths versus Chase or Bankers Trust, but I don't see any difference from the standpoint of running the business." he said.
Growing Lehman's sponsor effort now requires Mr. Redmond to spend much of his time finding the right people, which he says is one of the toughest parts of his job.
"I think you have to dedicate yourself to spending substantial time meeting people, knowing who's out there, and making sure you're getting the right people," he said.
Finding skilled and experienced people is difficult enough, but finding people that will work well as part of a team makes the task his toughest.
"There's lots of smart people out there that can do this job very well, but we've got to be mindful that you want people that, in addition to everything else, work real well in this setting as part of a team," Mr. Redmond said.