Former Indosuez Bankers Cross the Border –

If the leveraged finance team at newly formed RBC Leveraged Finance Group looks conspicuously like the crew from Indosuez Capital, that?s because it is. Former Indosuez co-heads Ken Kencel and Daniel Smith, along with 20 other Indosuez bankers, have changed offices and names, moving from Indosuez Capital, the U.S. merchant banking and asset management arm of Credit Agricole Group, to RBC Dominion Securities. Kencel and Smith will be based in New York where they will oversee RBC Dominion Securities? leveraged finance and asset management unit.

?We made a decision that the World Bank of Canada offered a terrific opportunity for us to continue our business model with a partner that is very committed to the U.S. market,? Kencel said. ?RBC Dominion made a significant commitment to the U.S. market by acquiring Dain Rauscher Wessels about a year ago and more recently announcing that they were acquiring Tucker Anthony, which are both very strong middle-market investment banks.?

Aside from RBC?s ?commitment? to the U.S. market, the real sticking point in the bankers? decision to uproot and start anew lies in RBC?s capability to finance transactions by originating mezzanine, senior and high-yield notes as well as its investment banking capabilities. ?We were intrigued at the aspect of taking our business model at Indosuez and being able to plug it into a much broader organization where we had M&A and equities,? Kencel said. ?Over the years we have left a number of businesses on the table [at Indosuez], and it certainly had an impact on bringing resources of the firm to bear on potentially co-managing equities businesses or doing M&A advisories. We simply didn?t have those products to offer.?

Kencel said he has been talking to RBC Dominion ?off and on for nearly a year? about the possibility of a joint effort adding that RBC saw an opportunity to invest in the middle market leverage finance space, which was abandoned by lenders such as Fleet Financial Group Inc. and BancBoston Corp..

?The model is one that some of the bigger guys have abandoned and they?re trying to move up market where they?re chasing larger and larger deals. They?ve left the majority of the middle market relatively underserved. The big buyouts get the headline, but the reality is that there are hundreds of deals done every year in the $50 million to $250 million range,? Kencel said.

RBC Leveraged Finance will look to make investments in the $50 million to $500 million range with its primary focus being in the U.S., but the bank will also execute Canadian deals on the high yield side. However, the group is precluded from pursuing investments it sourced during their days at Indosuez Capital.

The RBC leveraged finance team began its post-Indosuez era on Oct 10th and is already beating the private equity pavement for deal flow. ?We?ve already gotten almost a dozen calls now about new transactions, and we?ve only been here a few days,? Kencel said.

Kencel attributes his new firm?s deal flow to the steep drop in leverage multiples as well attractive pricing and structures for middle-market assets. ?We?ve had resistance for quite some time but clearly multiples are coming down, and the deals that get done in the next year or two will be some of the more attractive deals not only from a financing perspective but also from a mezzanine and equity standpoint. We see a pretty attractive environment here for the next year or two,? he said.

RBC Dominion Securities is the corporate and investment banking arm of RBC Financial Group, the brand name for Royal Bank of Canada.