J.P. Morgan & Co., a bank long envied for its ties to blue-chip corporations, is looking to add a decidedly scrappier group of customers to its client list: leveraged buyout shops.
Over the past year, the bank has been building a unit to cater to financial sponsor firms like Kohlberg Kravis Roberts & Co. and Clayton, Dubilier & Rice. Among the most active users of high-yield bonds, merger and acquisition advisory services, leveraged loans, and equities securities, these firms are heavily courted by commercial and investment banks alike.
"A lot of people have been doing this for a lot longer than we have. We have a long way to go, and we know we're the new kid on the block, " said Michael C. Lobdell, managing director and head of J.P. Morgan's financial sponsor group.
"But as the new kid on the block, what we have is a very, very strong, across the board, investment banking business," he added.
Most recently the head of J.P. Morgan's global technology and operations group for Europe, Mr. Lobdell, 44, has spent the past 12 months overseeing the development of a group of 15 professionals to serve the LBO community.
Late last year, Mr. Lobdell hired Eric Karp, formerly a senior managing director in Bear, Stearns & Co.'s financial sponsor group, to help bolster the effort.
Commercial and investment banks such as Chase Manhattan Corp. and Donaldson, Lufkin & Jenrette have long had groups in place to bring LBO dealmakers new acquisition candidates. By so doing, these firms hope to win mandates to provide the lucrative but somewhat risky financings that make leveraged buyouts possible.
"That's the obstacle or perception they've got to overcome; to demonstrate that they can be as aggressive as the likes of a Chase or a NationsBank," said Carl Thoma, president of leveraged buyout firm Golder Thoma Cressey Rauner Inc.
But Mr. Lobdell cited Morgan's storied relationships with blue-chip corporations as a competitive advantage. He expects the bank's current client base to supply a steady flow of ideas for Morgan to take to the LBO firms.
"The things that are driving this are ideas and world-class execution," said Mr. Lobdell.
Indeed, some financial sponsors familiar with the bank's new group cited J.P. Morgan's client base as its unique asset.
"From our standpoint, we're excited that they've made a higher level of commitment to this business, and frankly we think it's going to be good for us," said James A. Stern, chairman of buyout firm Cypress Group.
"What we're looking for is insightful coverage, thoughtfulness, and creativity, and the same skills that endear J.P. Morgan to their existing clientele makes them an attractive source for us," he said.
The nascent group has already won some mandates. In May, KKR hired Morgan to sell the international foods business of one of its portfolio companies, Borden Inc. And just last month, Morgan arranged $550 million worth of bank and bond financing for Onex Corp.'s Sky Chef International.
The bank has built expertise in some of the markets that leveraged buyout firms look to for financing.
As of the first half of the year, J.P. Morgan was ranked ninth among issuers of high-yield debt, second among both issuers of investment grade bonds and syndicated lenders, and 11th among merger and acquisition advisers, according to Securities Data Co.
But Morgan still has a way to go in some facets of leveraged finance. Leveraged loans for sponsored deals represented $39 billion out of the $134.8 billion worth of leveraged loans made last year, according to Loan Pricing Corp. But J.P. Morgan has yet to crack into the top echelon of lenders to sponsored deals.
Mr. Lobdell declined to say what his targeted revenue for the group is this year. But results are already encouraging, he added.
"We're not worried about paying the light bill this year," he said.