A nice chunk of the money that went into bankers' bonus envelopes last year came from El Paso Energy Corp.
The Houston-based natural gas, oil, and electricity company closed its $3.9 billion acquisition of oil and gas pipeline concern Tenneco Inc. in December. More than 40 commercial banks, as well as several bulge-bracket investment banks and securities firms, were involved in El Paso's acquisition finance, debt restructuring, and equity issues.
After completing the company's most recent acquisition-related financing late last month, a debt issuance of $900 million, chief financial officer H. Brent Austin talked with American Banker about El Paso's commercial and investment banking relationships and the competitive banking landscape.
What does a banker have to bring to the table to win over El Paso's business?
AUSTIN: I don't want them cross-selling me services that they can't really follow through on. That doesn't mean they can't offer them, just don't expect me to use them. I don't want to be somebody's guinea pig. I don't want to be the first for some new service they claim they're experts at.
What do you look for, first and foremost, in a banking relationship?
AUSTIN: Ideas, creativity, and timeliness. All three of those were requisite in the success we had to buy Tenneco. We started looking at this in late April and announced the deal in mid-June. That had to encompass not only the terms of the acquisition but also our whole recapitalization plan. Things had to work just like clockwork to execute the plan.
Your banking group grew from 15 commercial banks to over 40 with the Tenneco acquisition. How do you manage a group that size?
AUSTIN: Since we've relocated company headquarters from El Paso to Houston, we're a lot more accessible, so we see a lot more of our bank group than we did historically. It is a challenge at times to manage a group as large as we've got. We have a lot of transaction volume, but we probably don't have enough to spread it over the entire group and have it be meaningful for anyone.
How important is that proximity and face-to-face contact?
AUSTIN: When you're involved in competitive bids, you've got to react pretty fast to pre-established time frames. Working closely with either your financial advisers or your financing group is critical.
Why did El Paso choose Donaldson, Lufkin & Jenrette as its adviser for the Tenneco transaction?
AUSTIN: We've had a strong following on the analyst side at DLJ and we've also had large relationships with other bankers like Morgan Stanley. But Morgan was representing Tenneco in their debt realignment plan. When we learned of that, we were out to choose a new investment banker on this particular competitive bid. Our thoughts turned to DLJ because they followed our company on the equity side since our IPO in 1992. When we met that team, we just had a good working relationship.
Why did El Paso select Chase to lead its bank credits?
AUSTIN: Both companies had relationships with Chase and they were already the lead on our revolving credit facilities which had just been redone in May of 1996, so they were the logical choice for both companies there as well. They've been very useful to us, not only just the syndicated bank facilities but in a number of other bank related transactions. They've just done a good job of coming up with other products in addition to supplying the basic credit product.
Have you seen evidence of the convergence of investment banks' and commercial banks' businesses?
AUSTIN: I think their capabilities are converging. We needed both sides on this transaction, (but) we still go to them for what we consider their fortes-the investment bankers on the deal structuring side, and the commercial bankers first on the revolving credit facilities and your standard bank products.
What differences still remain between the two?
AUSTIN: I didn't see that much difference, other than the volumes of business that they do. The investment banking arms of the commercial banks are coming up the league tables in terms of the amount of typical investment banking activity that they do, and they've made a lot of progress.
What do you require in loan covenants?
AUSTIN: The principal covenant we've got in our syndicated credit is a debt-to-total-capital limitation of basically 70%. That's the primary covenant in our agreement. It's what I was looking for when we did this transaction and reconstituted those facilities.
What would be grounds for you to end a banking relationship?
AUSTIN: As we were going through all the (bank) documents, some were just more responsive than others and some may have their particular problems in their own institutions getting things approved in the committee structure in time. If something like that persisted, I think that would be grounds for not including them on the next round.
What positive trends in banking have you noticed?
AUSTIN: There's a new sensitivity to looking to your client base and focusing your efforts on those areas where you really have the right resource match. Focusing on the relationships that are really meaningful to your institution, instead of a scattershot approach.