Your Money
Spanish bank bailout gets go-ahead

Startups will gain from GOP's immigration pain

Knight Capital stock surges on buyout offer from Getco

When to follow the barbarians

The fiscal cliff and private equity

British banks may need more capital

BlackRock's new bond plan

Why 'cheap' stocks aren't always good

Where's the stimulus, Obama?

Eurozone business mood ticks up

Cyber Monday gives eBay a big boost

Goldman Sachs to leave crime scene, exit CSI?

How to really stop (some) insider trading

Why Italian bonds are rallying

Aston Martin at risk of downgrade

Bond investors, beware

U.K. targets Google, Amazon, Starbucks on taxes

BlackRock: There's hidden value in CASSH

Costco's odd fiscal cliff dividend deal

The Fed is backing foreign banks into a corner
BlackRock's new bond plan
When Zayo Group, a telecom infrastructure provider in Louisville, Colo., needed to raise $1.5 billion this summer after an acquisition, it faced a horrible climate for issuing high-yield bonds. Interest rates on junk had jumped due to the latest turmoil in Europe, making borrowing much more costly.

But Zayo didn't have to pay sky-high rates, and the reason wasn't so much the wizardry of its advisers. It was an unusual new approach taken by a buyer of bonds: BlackRock, which manages $1.2 trillion in fixed-income assets. Rather than wait for Zayo's investment banks to structure an offering and then buy the bonds from them, BlackRock worked alongside the banks and Zayo as the offering was prepared. It combed through the details and advised on the sorts of loan covenants and safeguards it wanted.

By the time the deal went to market, BlackRock had agreed to purchase 12% to 20% of each tranche directly from Zayo (much more than it could buy in a traditional offering). There were benefits all around. With oceans of cash to invest, BlackRock got access to bonds. Zayo enjoyed a lower interest rate, which BlackRock accepted because it had carefully vetted the bonds. The model, and the relationship with BlackRock, "make for better pricing for us," says Zayo CFO Ken desGarennes. Zayo received the support of a large order from BlackRock, and the asset manager's imprimatur then helped Zayo sell bonds to others.

The new approach stems from -- what else? -- the financial crisis. The debacle in mortgage-backed securities offered a stark lesson on the perils of "eating Wall Street's cooking," as BlackRock's head of global trading, Richie Prager, puts it. Says Prager: "As the ultimate holder of those assets, we felt we should become more concerned with what's happening with these securities, and we needed to find a way to source more bonds. The premise was to get close to the process, be in conversation with underwriters and issuers, and create a model that helps everyone solve a problem."

Since BlackRock began the new approach at the end of 2010, it has worked on more than 100 such deals, worth a total of $20 billion. It has brought the method to European debt issues and hopes to expand to Asian bonds next year.

The biggest fear initially was that investment banks, not known for welcoming other firms into their domain, would resist. But BlackRock has made it clear that it isn't trying to cut banks out of the process. The firm is barred from underwriting, and Prager assured the banks that they'll still receive their fees even when BlackRock buys directly from the company. He goes so far as to claim the banks make out, too, by bringing deals to market faster, helping them free up capital. Banks seem to be accepting the asset manager's newly active role.

BlackRock has taken a first step in changing the way corporate bonds are issued. And if the new method stays successful, other asset managers will surely follow.

Для печати

Why aren't big banks issuing more long-term debt?

Alan Simpson paints dire market outlook

Discount lobster not a hit with diners, or investors

Special dividends: Big waste of cash for tech

Banks book record profits off Fannie and Freddie

Investing: Where to make money in 2013

Municipal bonds: A train wreck waiting to happen

The defunct startup that beat Best Buy in court

EU slaps record $1.9B fine on cartel

Citigroup to slash 11,000 jobs

Jack Bogle: Vanguard's $2.2 trillion man

ECB sees gloomy 2013, but holds rates

Why you're right to be obsessed with Apple stock

Citigroup layoffs may not go far enough

Marc Lasry: I'm in cash because of cliff

We are working too hard

Is Obamacare killing medical device startups?

Don't believe the hype about special dividends

Aston Martin gets new Italian backer

Netflix CEO Hastings deserves SEC scrutiny