Wall Street learns to raise money more quickly

David Hauser, treasurer of Duke Energy Corp hopped on the company’s Hawker 800 jet one day in late September, spent a night in Manhatta...

David Hauser, treasurer of Duke Energy Corp hopped on the company’s Hawker 800 jet one day in late September, spent a night in Manhattan, then flew back to corporate headquarters in North Carolina—with $1 billion he had raised to repay debts. In the whirlwind world of capital markets, deals have gotten quicker and time-frames shorter. The last time Duke needed to raise money, company executives spent three days in a half dozen European and US cities talking to investors, in what Hauser thought then was a speedy process.

But on September 25, Duke chairman Rick Priory, chief financial officer Robert Brace and Hauser got it done in a single day by working telephones from two conference rooms of investment bank Morgan Stanley’s Times Square office.

Companies and their investment bankers say volatile market swings have made speed and secrecy an increasingly important part of selling stocks and bonds. The hope is to limit exposure to hazards like a sudden downturn in prices, unforeseen negative research reports and the threat of war with Iraq.

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For companies like Duke, adapting to capital markets is a pressing issue. With market valuations depressed, scores of companies are under pressure to sell stock to help repay debts and strengthen their balance sheets.

The problem is, investors are skittish from suffering heavy losses and have been reluctant to buy. Even with the market’s recent rebound, only $2.8 billion of stock from already public companies — so-called secondary offerings — was sold in October. With the exception of August, it was the worst month since late 1998, according to industry tracker Dealogic.

So far in November, $2.7 billion has been raised from secondary stock sales. The weak market has meant that mainly blue-chip companies like Duke have a chance to convince investors to buy. But even companies with well-known stories risk failure when intraday stock prices can easily fall 2 per cent or more. “You don’t see many companies out there for a week anymore,” said Larry Weiseneck, Lehman Brothers’ head of equity capital markets in US.

An “accelerated execution” is an alternative to an overnight stock sale, where underwriting banks buy the stock directly and then resell it to investors the next day. Overnight deals bloomed in popularity over the last two years, but can now be prohibitively expensive. To assume the risk in this market, banks may charge a discount of 5 -10 per cent of the deal’s value. Also, growing concerns about accounting and corporate governance issues means its more important to speak to investors, even for an abbreviated time. The hope is to sell the idea that the stock sale will help strengthen its balance sheet — known on Wall Street as selling the “fix.” The downside, of course, is that face time with investors is very limited. Among other things, that means that newer companies that haven’t developed a repertoire with big fund managers have little chance to raise money.

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For Wall Street, stock sales are a mainstay in the investment banking business. The dearth of investor demand has slashed revenue and helped lead to mass layoffs. Secondary sales accounted for almost half of the $155 billion in equity-related money raised so far this year. That compares to 16 per cent from IPOs, and 36 per cent from convertible stocks, according to Dealogic. (Reuters)