Media/Telecom: One-Stop Shopping Still Rare in Telecom Sector

For commercial and investment banks interested in providing one-stop shopping for corporate finance, media, and telecommunications seemed like industries sent from heaven.

With companies in various stages of maturity falling into one another's arms, the sector was believed to be ripe for a range of capital markets to complete the deals. Banks in the mid-1990s set out to provide media and telecom companies with everything from loans to debt to merger and acquisition advice.

But the concept has been slow to catch on with customers.

"You see more one-stop shopping today than a year ago, but in the overall spectrum of capital raising, it's still not the norm," said Robert Konefal, a senior vice president with Moody's Investors Service.

"It's been rare to see one-stop shopping from the top to the bottom of the capital structure," Mr. Konefal said. "We're frequently seeing stock and bond underwriters that are one in the same, but the markets are still more separate than overlapping."

Mr. Konefal said the top managements of media and telecom companies want to maintain several relationships, not rely on a single underwriter for their capital instruments. They look to their bankers for expertise.

"The distribution capability of top-tier firms is relatively comparable," Mr. Konefal said. "Though they would argue that there are shades of difference in distribution capability, it's not the shades that win the mandates."

For both commercial and investment banks, the stakes in the media and telecom business are high. Syndicated loans to media and telecom companies totaled $80 billion in 1997, while the high-yield bond market saw $25.6 billion in new issues, according to Securities Data Co. Mergers and acquisitions shops, meanwhile, logged in $124 billion worth of media and telecom deals.

All of that activity is putting pressure on banks to perform at their best. Media and telecom executives have high-pressure jobs, which force them to "rationalize their investment banking relationships in order to focus on running their businesses," said Bill Finnegan, managing director and head of high-yield at Chase Securities Inc.

As a result, banks have to "have a coordinated, user-friendly, and client-focused effort," Mr. Finnegan said. "Between the M&A, high-yield, and loan products, we have a very focused client manager who quarterbacks the entire Chase institution for any specific client."

Mr. Finnegan said that approach let Chase complete a multipronged financing package for LIN Television late last year. The bank led a $170 million loan and a $625 million high-yield bond for the company, in addition to advising it on its purchases and investing some of Chase's equity in the deal.

But others question whether or not this one-stop-shopping approach is the panacea it was once thought to be. Those in this camp say that when dealing with complex industries like media and telecom, one-stop shopping is simply not appropriate.

"I have a visceral reaction to one-stop shopping," said Peter Kiernan, managing director and co-head of the communications, media, and entertainment group at Goldman, Sachs & Co. "Some figure that if you're good in one market, it automatically enables you to be powerful in another. That history is not terribly good."

Mr. Kiernan said he uses Goldman Sachs' knowledge of one product to get all the financing business from a company. His firm uses its trading expertise to provide clients with the most cost-effective way of raising capital.

"Nothing beats knowing where the markets are," Mr. Kiernan said. "We're in the business of structuring credits. We've been there as long as commercial banks.

"Our mission may not be to get into every deal, but there are certain deals where this is fine surgery, and we understand that."

Commercial banks, meanwhile, continue to buy investment banks to marshal their one-stop shopping efforts. Firms like BT Alex. Brown, NationsBanc Montgomery Securities, BancAmerica Robertson Stephens & Co., and SG Cowen Securities Corp. have all developed expertise in serving start-ups. That expertise could pay big dividends for banks that want to serve the media and telecom industries.

"In some cases, synergies and cross-selling turn out to be a big joke, but when it comes to leveraged finance and commercial lending, it's worked very well in this area," said David Wells, a telecommunications/media analyst with SG Cowen.

"The balance sheet by itself won't do it, you need the sales force and the research capabilities," he said. "It's too early to say how the equity side will work out, but it does give you an extra arrow in the quiver."

Commercial banks that own securities firms can switch course or tweak the capital structure if market conditions change during a transaction, said Rand Rosenberg, managing director and head of the media/telecom group at NationsBanc Montgomery Securities Inc.

"Without the commercial banking balance sheet and the product capability, their funding alternatives are not as robust and made more expensive," he said. "Companies feel comfortable knowing that we don't have an agenda. We don't have to be pushing high-yield because that's all we have."

NationsBank Corp. recently led a $900 million bridge loan for Breed Technologies Inc., a Lakeland, Fla.-based maker of automotive occupant protection systems. The bank plans to replace that bridge with a $350 million junk bond offering and a $550 million syndicated bank loan.

Even without a commercial bank affiliate, Goldman Sachs has acted as a one-stop shop for media companies. Last July, Goldman Sachs lent $250 million to Brooks Fiber, a St. Louis-based competitive local exchange carrier that was later bought by Worldcom. Goldman Sachs had taken the company public the year before, leading a $750 million junk bond offering for it.

"The differences between a sophisticated bank syndication and a complex bond deal have diminished in a way that we find a very nice link between the two," Mr. Kiernan said.

But it's the junk bond market that continues to be the hot spot for financing media and telecom companies-especially start-ups. Deals for the sector made up 36% of the junk market last year, according to research from Chase Securities Inc.

"With telecommunication deals with no ratings, warrants for equity, and high coupons, you can't go wrong," said Kevin Mathews, a senior portfolio manager with Pilgrim America High Yield Fund, Phoenix.

"There's not lot of yield out there, and if you can get comfortable with the telecommunications industry, then there's a lot of money to be made in these deals," he said.

Some whopping junk bond successes in 1997 included a $1.29 billion issue of junk bonds for Nextel Communications led by Morgan Stanley, Dean Witter & Co., and a $1 billion deal for Comcast Cellular Holdings led by Donaldson, Lufkin & Jenrette.

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