Banks that helped the firearms industry to raise billions of dollars have been hesitant to step into the public debate on gun violence following the latest school shooting in Florida.
Their silence stands in contrast to the US names - including retailers, airlines and car rental companies - that have either sought to distance themselves from the industry or implement their own gun restrictions.
More than a dozen banks have arranged loans and bond sales totalling at least US$2bn for gun makers over the past five years, according to an IFR analysis.
That figure grows to over US$7bn if Olin - a large chemical company that owns ammunition maker Winchester - is included in the calculation.
The deals range from a US$655m debt package for Remington put together by Bank of America Merrill Lynch in early 2012 to a bond sale that Citigroup led only this past January for Olin.
BAML was involved in seven out of nine debt deals examined by IFR and had leading roles in five of them - including Remington, Olin and Vista Outdoor.
In a statement, the bank said it was joining other companies in the financial services industry “to examine what we can do to help end the tragedy of mass shootings”.
“An immediate step we’re taking is to engage the limited number of clients we have that manufacture assault weapons for non-military use to understand what they can contribute to this shared responsibility,” it said.
Other major US banks with roles in some of the financings, including Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley, declined to comment.
So did a number of foreign institutions that have also worked on deals for the industry: Barclays, Deutsche Bank, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Banking Corporation.
Pittsburgh-based PNC, which lent money to Olin and Vista Outdoor, said in a statement that it was “very concerned” about gun violence.
“PNC has had guidance in place since 2013 that discourages new loans to gun manufacturers and has very limited exposure to clients that manufacture AR-15-style rifles,” it said. “We are continuing to consider these issues.”
Wells Fargo, also involved in deals for the same two companies, said that while it encouraged debate regarding firearms and public safety, it saw the political and legislative process as the best way to resolve the issue.
CHANGING SENTIMENT
Debt issued by gun and ammunition makers is only a drop in the ocean in the US$2.8trn market for leveraged loans and junk bonds in the United States. And few market participants believe the companies in question will be shut out of the debt market.
But the public backlash, combined with some of the companies’ poor sales performances recently, could result in higher cost of capital for at least some of them.
“They will get impacted operationally and that will translate into downgrades and borrowing costs going up,” one high-yield portfolio manager said.
Last month, Remington reached a deal with creditors that will see it file for bankruptcy to cut its debt load after struggling with disappointing sales.
One investor told IFR his firm had contemplated buying the Remington loans that will be exchanged into equity, which at some point were being offered as low as 25 cents on the dollar. But he eventually decided to pass on the purchase.
Public outrage in the wake of the Parkland shooting that left 17 dead, which took place two days after Remington’s restructuring deal was announced, was one of the main reasons, he said.
“We bowed out because we were uncomfortable, and the residual equity was going to be very small,” he said.
Asset managers say they have long faced restrictions from some institutional clients when it comes to buying debt of gun makers and other industries such as casinos and tobacco. That sentiment has intensified in recent years.
“There is more emphasis in finding companies that are good stewards,” said a second portfolio manager, who argued that stricter mandates have so far come from European investors as well as some high-net-worth individuals.
One European investor summed up his views even more bluntly: “If a board asks you why you should invest in guns, there is just no right answer.”
