Online Company Looks to Replace Underwriters
July 26, 1999
Is the day looming when Wall Street bankers may find themselves left out of asset-backed securitizations?
If Larry Fondren has anything to say about it, then the answer is yes.
Fondren, president of Berwyn, Pa.-based Intervest Financial Securities Inc. has already received queries from five major asset-backed players about his New-Issue Auction Market, a yet-to-be-road-tested Internet-based bond auction that will let issuers and investors bypass underwriters for new asset-backed issues.
Fondren would not name the ABS players who have contacted him, except to say that the types of companies expressing interest were wide-ranging, from very large investment-grade corporations to smaller firms well-known for bundling debt into ABS paper.
Intervest acts as a dealer and information provider to both issuers and the investors. An issuer technically will sell its bonds to Intervest's clearing facility, First Union Clearing Corp. Then Intervest will resell those bonds, acting through First Union.
A database then searches to match up issuers with bidders, both of which provide Intervest with instructions on their minimum and maximum parameters for pre-auction yields and prices.
The company said it will earn a markup of five to 15 basis points compared with the 45 to 170 basis points charged by underwriters in a traditional ABS sale. The system will be free to bidders. Fondren will benchmark all sales to the spreads off of Treasurys, he said.
The thrust of Intervest's market research has indicated that the ABS issuers and investors who should be most attracted to his service are investment-grade companies with similarly rated debt. In this case, most of what they would lose in forgoing an underwriter would be the fees involved, he said.
"This is for the issuer and the bidder who do this routinely, and don't need to have underwriting fees and somebody to hold their hand on a shelf-registered, investment-grade, plain vanilla issue." - SK