Diversity and inclusion underwriters have nearly doubled their deal volume as lead bookrunners in the primary US investment-grade bond market this year, at a time when intense market volatility is putting execution risk at the forefront of issuers' and bankers' minds.
The growing presence of Black, Hispanic/Latino, women and veteran-owned firms in an area of capital markets dominated by big global banks reflects the ongoing support received from those same bulge bracket institutions and growing confidence in D&I leads’ ability to help underwrite debt offerings.
Companies looking to bolster their ESG credentials have also turned to D&I firms, with high-grade borrowers Northern Trust and BNY Mellon carrying out their first bond transactions led by D&I bookrunners in recent weeks.
"Corporations that are leading the charge on diversity are making sure everyone has a seat at the table," said Matt Fijko, a managing director at Siebert Williams Shank. "That’s inclusion done right as we’re given a chance to prove ourselves and execute with our partners across the banking syndicate.
"By no means is it underappreciated from our side that we have partners at the bulge-bracket banks and larger regional banks to help us and help the issuer guide the transaction as well."
Though D&I bookrunners only represent a sliver of the investment-grade bond market, their league table credit has risen to US$6.9bn year to date, an around 87% increase from US$3.7bn in the same period last year, according to Refinitiv data. The number of high-grade bond offerings led by D&I bookrunners rose to 35 from 18.
That deal volume has spread more evenly across more minority-owned financial institutions including Siebert Williams Shank, Ramirez, Academy Securities and R Seelaus – in contrast to last year when much of the high-grade volume from D&I bookrunners was led by Loop Capital.
Larger global banks have aimed to favour D&I leads in their own FIG offerings and on other deals they underwrote.
The deepening relationship between Deutsche Bank and minority-owned firms gave confidence to the Frankfurt-based bank when it included Academy Securities, R Seelaus and Loop Capital on its US$500m three-year senior preferred offering on Tuesday. It was the second time Deutsche had brought in D&I firms to lead its bond offerings.
"Our teams have enjoyed developing these strong relationships for over 10 years and we will to continue to create opportunities for partners from the diverse communities we serve," said Dixit Joshi, group treasurer at Deutsche.
Recent investment-grade offerings suggest bringing in more minority-owned bookrunners as part of a debt syndicate has helped to enhance execution in a choppy market by diversifying the buyer base.
For example, State Street raised US$500m on Tuesday from an 11-year non-call 10 senior note at 143bp through Treasuries.
Leads Lloyds, Morgan Stanley, R Seelaus and Siebert Williams Shank managed to limit new issue concessions to an estimated 5bp–7bp, off an order book of US$4bn, according to a source familiar with the matter. Those concessions were in contrast to the 10bp–20bp paid by FIG borrowers recently.
"The Street does an amazing job covering the top 300 investors in the market," said Jim Brucia, co-head of origination and syndicate at R Seelaus. "That said, their specialist coverage model can't profitably cover a lot of the smaller, less active accounts. So for us to connect that otherwise disenfranchised investor base back to the new issue process has never been more valuable."
In a market where bigger investors are willing to drop their interest in an offering if the price or size of the deal is not to their liking, D&I bookrunners said their links to smaller and sometimes minority-owned asset managers that may struggle to otherwise receive attention – especially in hot primary markets like those last year – helped achieve tighter pricing.
For those smaller investors, access to the primary market and the accompanying new issue concessions on offer was an important way of generating performance.