Scoring in the big league: B.E. Financial Company of the Year.

The sun is shining on Ronald E. Blaylock and his firm, Blaylock and his firm, Blaylock & Partners, as they stake big claims on Wall Street

Ronald E. Blaylock is in the zone. Much like his play with the Georgetown Hoyas in the NCAA Final Four in 1982, Blaylock has the hot hand and he's taking his shot and scoring big time. First, there was his $300 million bond deal for the Tennessee Valley Authority (TVA) in 1996. His firm, Blaylock & Partners L.P. (B&P), played lead manager on the first corporate bond sale to be completely underwritten by minority firms. But, the coup de maitre came in January 1997 when B&P became the first minority-owned firm to serve as lead underwriter on a deal for a Fortune 500 company. It took $150 million in guaranteed notes to market for oil company giant Texaco.

That was followed by three more utility deals as co-manager, first for New Jersey-based Public Service Electric and Gas (PSE&G), then Pacific Gas and Electric Co. and finally, Southern California Edison Co., which all took place between June and December 1997. So far in 1998, Blaylock has scored three more corporate underwritings--beginning in January with a $200 million bond deal for The Walt Disney Co., and following in February with back-to-back deals co-managing a $300 million debenture for Ford Motor Co. and another $300 million for GMAC Financial Services.

All this activity has taken place over the past two years when black-owned investment banks have been taking it on the chin on Wall Street. Whether due to tumbling profits, tumultuous relationships or thinning margins on once-profitable municipal bond business, black investment bank--especially veteran firms--are scrambling to rebound their businesses. Some industry analysts question the need for black-owned firms: "There are just too many players," said Tony Chapelle, publisher of Securities Pro, a New York-based industry newsletter, in a 1996 New York Times article on the struggle many are facing. "The municipal business has undergone changes and there's the need for a lot of these firms to consolidate or find new lines of business."

While some question the "need" for black firms, several--mostly the young, newer firms--have steered themselves away from the muni market and toward corporate business. To that end, B&P has focused itself on diversification via primary offerings, whether for private companies or government, and financial advisory work in six to seven sectors, all the while looking at business that's consumer-driven. And B&P is on a tear.

The firm has grown from seven employees and $3.38 billion in total issues when it started in 1994 to 42 traders, analysts and staff with $14.4 billion in senior and co-managed issues at year-end 1997. The firm is in acquisition mode. If its early success is any measure of future performance, B&P is well poised for significant growth and opportunity. It's those kinds of impressive numbers and bold business moves that have earned B&P the distinction of being the BLACK ENTERPRISE Financial Company of the Year.

MAKING THE MOST OF AN OPPORTUNITY

As a kid growing up in Winston-Salem, North Carolina, Ron Blaylock learned the value of preparing for opportunities. "Basketball was my thing," he recalls. "It was fun, competitive and I enjoyed winning." Blaylock says he realized during his junior year of high school when he became a "scorer" that basketball might earn him an opportunity--a scholarship to college. "You only get scholarships for offense," he explains.

His offensive maneuvers Landed him in Coach John Thompson's program at Georgetown University in Washington, D.C.. in 1978. But, when a broken ankle in his freshman year kept him sidelined, Blaylock reamed to channel his energies toward the team's effort. That early setback helped him to continue to work hard and follow his game plan, "so that when the opportunity does arise, I'm ready to capitalize on it," he explains. It's a lesson he's carried forth ever since.

His sense of a team mission manifested itself recently, when Blaylock convinced Milton M. Irvin to leave his very cozy, secure 18-year tenure as managing director at Salomon Brothers to join him as president and COO of B&P. "Deep down inside, I always wanted to have a significant role at a minority-owned firm; it was only a question of when," says Irvin, who once had a 25% equity stake in WR Lazard, the onetime powerhouse black investment bank on the Street. It took neatly a year of coaxing for the right time to come, but "I was patient because I knew it was the right choice."

He also made good choices in college after realizing he probably wasn't going to make it to the NBA. He decided to double major in marketing and finance.

During the summer between his junior and senior years at Georgetown, Blaylock met his next major opportunity--an internship on the trading floor at A.G. Becker, a major investment bank in New York City. "It was competitive; it was winning. It fit my personality end I got the confirmation that I needed with the energy of Wall Street and trading," he adds.

Blaylock graduated with offers from companies as diverse as international Paper, Procter & Gamble and JP Morgan. But he accepted an offer from Citicorp Investment Bank to go into their capital markets training program. He and another Georgetown alum were the only new hires with bachelor's degrees; the other 22 were M.B.A.s.

After a four-year stint, Blaylock left Citicorp for PaineWebber in 1986, where he became a senior manager and its top salesman specializing in collateralized mortgage obligations with a penchant for energy firms and related companies.

In 1992, Blaylock left PaineWebber to help start black-owned investment bank Utendahl Capital Partners L.P. "When I went in to resign, it took me a week," says Blaylock. Chairman and CEO Don Marron and President Paul Gunther of PaineWebber both offered to put up the capital for Blaylock to start his own firm; he declined, instead taking a 25% stake in Utendahl. "They knew I was on the entrepreneurial route, but I'd given my word to this new venture." Blaylock says he told Marron and Gunther that if he ever did decide to go out on his own, he'd "give them the first shot at it."

Eighteen months later, in 1994, Blaylock left Utendahl because of a "philosophical difference" in focus and approach to the business. But before going back to PaineWebber, he made a call to Bear Stearns.

THE BEST DEFENSE IS A GOOD OFFENSE

It was a tactic Blaylock had honed while playing ball. "I thought, OK, who'd be a good potential capital partner? Bear Stearns is a very entrepreneurial firm; they have that culture and quickness in their decision making. I decided to run it by them," Blaylock explains. He called on Jimmy Sites, Bear Stearns' head of fixed income, who brought it to President and CEO James "Jimmy" Cayne and Chairman Alan "Ace" Greenberg.

A week later, Blaylock had the go-ahead from the investment bank for a limited equity partnership stake in the firm.

Reportedly, the terms were $10 million in capital for a 25% stake; Bear Stearns would also do the clearing of trades for the start-up. "We invested in the man," says Cayne. "His demeanor and knowledge of the matketplace had him perfectly positioned to take advantage of certain sectors He was a salesman who'd already made his mark."

The capital-based partnerships that large firms have in black banks, like Bear Stearns in B&P or Merrill Lynch's stake in Utendahl, have been called into question by other black-owned investment banks. But Blaylock has no qualms about a white-owned firm having an equity stake.

"This is a capital-intensive business, period. If you're going to offer quality service--the full range to corporate America--and compete against the Goldman Sachses of the world, you've got to have access to capital," states Blaylock. Quips Irvin. Sumitomo [Bank of Japan] owns 12.5% of Goldman, and no one asks them if they're running their firm."

Both B&P and Bear Steams confirm that the investment is a passive one. "It's like us owning stock in any other company," says Fares Noujaim, co-head of capital markets at Bear Stearns.

In a business where capital--or access to it---determines whether you can compete for a deal, B&P says it'll probably always need a capital partner. However, the firm has been buying down Bear Stearns' interest. At the end of 1997, it was 22%; by April 1998, it was down to 17%. "If I'm sitting across the table from the treasurer of WalMart and they want to do a $500 million tenure, knowing I can say yes gives a tremendous amount of flexibility," adds David E. Ourlicht, managing director of capital markers.

MAKING THE BIG PLAY

The deal that garnered B&P all its fame was the first corporate bond offering by an African American-owned firm for a Fortune 500 company. But the deal that put the firm into position was a $300 million offering for the TVA. In August 1996, the firm served as the lead manager on the bond deal underwritten exclusively by black-owned firms. The deal was planned as a $200 million sale of notes rated "Aaa" by Moody's. B&P, along with co-managers Doley Securities Inc., Grigsby Brandford & Co., Pryor McClendon Counts & Co. and WR Lazard, had orders that exceeded the amount of bonds available. As a result, the Southern utility boosted the sale by another $100 million.

"Part of our measure of the success of the transaction was the underwriters' ability to deliver new investors," said TVA CFO David Smith. According to all parties, 70% of the bond buyers were first-time purchasers of the utility's securities.

That's a testament echoed by all the other companies that have done deals with B&P. "We looked at the TVA deal in particular and talked with their treasurer," explains James F. Link, treasurer of Texaco. "It was his view that they delivered a high quality of service, and we found that to be exactly the point."

The deal couldn't have come at a better time. Texaco had just gotten into some very hot water with off-color remarks by its former treasurer, Robert W. Ulrich, and settled a multimillion-dollar racial discrimination suit filed by several black employees. There was pressure from the Rev. Jesse Jackson, and New York State Treasurer H. Carl McCall threatened to sell the state's major pension fund stake in the oil giant if the company didn't do something quickly. Texaco's new chairman, Peter I. Bijur, promised very publicly to increase its use of minority vendors.

The energy and utility businesses are two sectors of the firm's focus--and Ron Blaylock's specialty. His 16-year investment banking experience has been on asset allocation swaps, structuring bond portfolios, and trading asset-backed securities along with residential and commercial real estate mortgage investment conduits (REMICs).

Blaylock approached both the TVA and Texaco because "they [utilities] have large minority consumer bases. And, from a good business perspective, we thought they'd be receptive." However, he says both deals sprang from relationships his firm had been working on for a long time, and not a coincidence of transgression in the case of the latter.

B&P had targeted the TVA for a year and a half, demonstrating its abilities through small deals via participation in syndicates and sharing ideas. "This has been a particularly sacred area reserved for the Goldman Sachses, Merrill Lynches and Morgan Stanleys of the world," adds Blaylock.

As for Texaco, Link says B&P initiated the contact, attributing it to the firm's research, which revealed that the oil company had $500 million in debt maturing in 1997. "They presented us with their credentials and their ideas relative to the market. We were looking for the right time to offer a 10-year security."

The deal went "extraordinarily well," according to Link, who says other investment banks Texaco uses called while the transaction was in progress to get in on the action. They commented on how it was properly priced. "We announced it in the morning, and we closed it shortly after lunch. That's about the time you would anticipate for a transaction that's 51 $150-$300 million," Link explains.

While analysts say it's pretty hard to mess up a Fortune 500 company deal, it is possible to misprice the interest rate. When going to market, the underwriter wants the bonds to be priced within a certain range. A strong demand for an offering helps to lower the interest rate, making the cost of the deal to the company lower. Factored into the equation must be an accurate assessment of the company by the broker/dealer, and a base of clients that can afford to buy the securities.

It's an area that B&P seems to be hitting just right. "We didn't want to have a firm that would be overwhelmed by a company like Bear Stearns," says Paul Saleh, senior vice president and treasurer for Walt Disney. "What was really important to us was that they would be able to place the bonds and not come along for the ride. We were very, very pleased," he says of B&Ps' performance as joint lead manager (along with Williams Capital Management) on a $200 million bond deal of medium-term notes completed in January.

According to Cayne, B&P outsold them on the deal. "For Disney, he brought total diversity. At the end of the day, he'd out sold us. You're talking about a guy that's at the top of his game and dearly has a place on the Street."

Now, make no mistake, Blaylock or any other investment banking firm is not in the business for notoriety, it's all about the money that can be made--buying, selling or advising companies, institutional investors and individuals on securities transactions. While the financial market is among the most heavily monitored and regulated, it is also among the most lucrative. Fees can range from 1%-2% of a bond offering amount to the underwriter, to 4%-5% to take a company public. The investment bank makes its money on the amount of the offering it decides to take. For example, as the lead agency on a $300 million bond deal, that firm would get to sell 50% of the offering, yielding it anywhere from $3 to $4.5 million in fees. It's why large investment banks have historically kept the business to themselves.

William H. Hayden, senior managing director for Bear Stearns' public finance department, sees a correlation in the new opportunities for corporate and asset-backed deals for minority-owned firms with the municipal area. "The growth in corporate business mirrors the rise of minorities and women in the corporate area. The CFO of Disney is blade; dearly there's a receptive ear. There had to be that comfort level there, and as the [minority-owned] firms become more capable, there will be plenty of business to access," says Hayden.

DIVERSIFICATlON OF PRODUCT

If B&P is scoring in the big leagues, its chairman attributes the firm's success to the team of investment pros he assembled. Blaylock's firm is recognized as having very well trained minority Wall Street investment bankers among its ranks. The strategy is to add team members who bring significant expertise in areas the firm is pursuing.

Ourlicht, B&P's managing director of capital markets, was formerly a vice president at Dillon, Read & Co. He started in the business as an investment banker for Daniels & Bell (now Charles A. Bell), the oldest black-owned firm on the Street. Nathaniel Christian joined the firm (shortly after Milton Irvin) as executive vice president and chief administrative officer.

B&P has also managed to lure three key people in capital markets from Pryor McClendon Counts & Co., another black-owned investment bank, including veteran banker Charles W. Johnson, now managing director of B&P's Baltimore shop. The firm has also established a regional base in Atlanta.

The strategy has also propelled Blaylock to cast his net out to other firms and corporations for black and white talent, including Morgan V. Hunter, the former president and COO for Scott Paper Co. and R.J. Reynolds Tobacco Co. as vice chairman of the board. L. William Maier, a PaineWebber and Bear Stearns alum, was tapped to become senior managing director in fixed-income sales at B&P.

Blaylock, who earned his M.B.A. in finance from New York University, is quick to point to four Morehouse grads and a fellow Georgetown alum among his partners, along with B&P's share of Harvard and Wharton M.B.A.s. He's also quick to note that the firm will have two summer interns from "the House."

"Our depth of management dearly separates us from the pack," says Blaylock. "Minority- and women-owned businesses have traditionally done investment banking for municipalities. What has evolved over the past few years is taking that step to corporate America, and our firm has the talent to take that step," he adds.

It's the money shot the firm plans to stay with. "We want to be an example that a minority- or woman-owned firm can really provide superior quaky financial services to corporate America," says Irvin "What separates our ability to do deals now is our ability to move the product. So not only are we giving good advice, we're also moving the product. That gives a treasurer or CFO of a major company comfort that we can do business," he adds.

Blaylock says the strategic vision was to start with core expertise in commercial real estate and mortgage- and asset-backed securities, then build off those cores with product extensions that are within the firm's ability to master. "We don't want to be vulnerable to any one product sector," he adds.

Besides the recent $300 million asset backed deal for the General Motors Acceptance Corp. (GMAC), B&P has done a $765 million deal for MBNA America Bank National Association (Maryland Bank)--one of the largest credit card issuers in the country--and a $146.9 million collaterialized mortgage obligation (CMO) for Oregon Commercial Mortgage Inc. Its expansion areas include deals like Disney, Avis Rent-A-Car Inc., Polo Ralph Lauren Corp. and Royal Caribbean Cruises Ltd.

However, the firm keeps its focus on a few key areas. Primarily, those offerings have been for energy, utility and telecommunications companies, along with various government agencies, including the Department of Veterans Affairs.

With a gleam in his eye, Blaylock points to a new tombstone for an 8 million share noncumulative preferred stock deal for Federal Home Loan Mortgage Corp. (Freddie Mac), done this past March. On it, B&P was listed as an equal co-manager along with Bear Stearns, Goldman Sachs, Lehman Brothers, J.P. Morgan, Morgan Stanley Dean Witter and Salomon Smith Barney. Merrill Lynch played lead.

"This job shows the new paradigm and business frontier that we're in. It's distribution and intellectual capital; that's the essence of what we're doing--the large deal," says Blaylock. "When you have 15-20 of these. and other minority- and women-owned firms are doing it, then that's when we will have made it."