Three Nebraska investment banks placed on the list of U.S. bond underwriters in 2012, led by Lincoln's Ameritas Investment Corp.
According to financial news and analysis firm Thomson/Reuters, Ameritas ranked 34th out of 127 U.S. investment banks, managing 213 bond sales worth a combined $719 million. It was followed by Omaha's First National Capital Markets, a subsidiary of the same company that owns First National Bank of Omaha, at 88th place with 33 bond sales worth $76 million.
The final Nebraska entry was Lincoln's Smith Hayes Financial Services, which handled seven bond deals worth $15.5 million, for 110th place.
Bond underwriters advise governments and companies on the structure of bond sales, or long-term loans from lenders who expect to be repaid with interest and principal. In a typical scenario, the underwriting investment bank buys the bonds from the government or corporate issuer that is the borrower, then resells them in lots to prearranged buyers such as individual investors, investment partnerships and mutual and pension funds.
The investment banks typically buy the bonds from the issuer at a discount, collecting a small percentage of the total issue as a fee, usually less than 1 percent, sometimes along with other amounts.
While the three Nebraska investment banks might be the state's leaders in the field, there is a wide gulf between Main Street and Wall Street when it comes to raising money via bond sales. The largest U.S. investment bank last year was Wall Street giant Bank of America Merrill Lynch, which advised on 261 issues worth $30 billion, Thomson/Reuters said. Among the top eight banks — all big Wall Street names — none advised on less than $12 billion of deals last year.
All three Nebraska entrants concentrate heavily on public finance, or structuring and selling bonds for governments. In Nebraska, such work is a local matter; the Nebraska constitution prohibits the Legislature from borrowing more than $100,000 at a time, leaving bond issuance to cities, counties and independent state agencies such as university and health care boards.
“It is definitely a relationship business,” said Bruce Lefler, senior vice president at Ameritas Investment, a subsidiary of Lincoln-based Ameritas Life Insurance, a company owned by its policyholders.
Lefler said the company's clients include cities large and small throughout the state; school districts including Omaha's; and the University of Nebraska at Omaha. Among 2013's large deals, Lefler said, was a $92 million bond sale for the Nebraska Cooperative Republican Platte Enhancement Project, in which four natural resources districts raised money to acquire about 20,000 acres needed for river conservation.
Interest rates are still at historic lows, Lefler said, leading him to forecast robust bond refinancing, or the sale of new bonds to refinance older ones at a lower rate, in 2014.
“And the capital needs of cities, counties and school districts will continue to need to be addressed,” he said.
First National Capital Markets is the youngest of the three Nebraska investment banks, said Vice President of Public Finance Craig Jones, existing in its current form since 2007. The company is owned by Omaha's First National of Nebraska, the nation's largest privately owned bank.
“We have made up a lot of ground in a short amount of time,” Jones said.
He said last year's $14 million bond sale on behalf of public schools in Holdrege, Neb., was representative. It was the construction of a new elementary school and the consolidation of three buildings into one.
“That creates a lot of efficiencies for the district, and we are proud of that one,” Jones said.
Smith Hayes, formed in 1985, did deals last year in public health care, bridges and special tax zones that raise money for municipal economic development projects, said Blaine Spady, the firm's vice president of public finance.
“Statewide Nebraska, east to west,” he said. “We spend a lot of time in our cars.”
Spady said new deals are picking up fast so far in 2014, and the Omaha housing market continues to improve, leading to industry expectations of new action in the field of sanitary and improvement districts, the land zones permitted by law to sell bonds for the installation of utilities on unimproved land with the expectation of new home construction.