Rocket Scientists with Attitude

Rice Financial carves out a profitable niche in the municipal interest-rate swaps market

career as an architect of complex securities transactions.

Like most engineers, Rice, when asked to define derivatives in general and the basic concept of a fixed-to-floating interest-rate swap in particular, literally draws a picture of the transaction on a napkin-his engineering background coming into play, he says. In simple terms, an interest-rate swap is much like refinancing a home mortgage, only on a much more complicated level, he says.

“Suppose you know someone, your neighbor, and [he or she] says, ‘You pay my floating-rate mortgage payments and I’ll pay the fixed-rate payments,’” explains Rice. What the firm does is serve as an intermediary, matching clients who want to exchange fixed-rate payments for floating-rate payments.

In the hypothetical example above, “you don’t know your neighbor. We give you the floating payments, you give us the fixed, and we find someone else to match the fixed-rate payments,” Rice says.

As the intermediary among the parties involved in interest-rate-swap transactions, Rice Financial serves as the principal and counterparty, not the agent. That means the firm executes the contract itself, putting its own capital on the line, resulting in potentially greater profits for the firm.

While the firm is named after the tall, confident Rice, he often calls upon other members of his team-his inner circle of rocket scientists, if you will-to describe his firm’s operations and the details of past swap transactions. Several of them cut their teeth either in derivatives or in public finance.

The firm’s two other early partners, Michael Murray, 33, and Brian Nevel, 29, both Howard University alumni, served stints at Merrill’s municipal financial engineering desk. Their educational backgrounds in high-tech fields helped prepare them for the derivatives market: Murray earned a B.S. in computer systems engineering; Nevel received a B.B.A. in actuarial science.

Currently, Murray, in the securities industry for 10 years, heads up Rice Financial’s structuring and modeling efforts, performing quantitative analysis and hedging transactions. Before joining Rice Financial, he led the financial engineering group at Merrill Lynch’s municipal markets division, where he reviewed all of its major quantitative analysis, designed Merrill’s bond financing models and supervised training of all new recruits. While at Merrill, Murray structured several billion dollars of the firm’s senior managed tax-exempt debt issues, including a $1.1 billion New Jersey State Authority financing.

And Nevel, the third member of Rice Financial’s technical triumvirate, is responsible for the design and execution of interest-rate swaps and other municipal derivatives. He joined Rice Financial shortly after its founding six years ago from Merrill Lynch, where he served in its public finance group. Nevel, in the securities industry for seven years, structured a number of complex municipal financings totaling more than $1 billion while at Merrill, including lease appropriation, capital appreciation and derivative securities. He was also responsible for developing new financial products for municipal clients and trained new analysts and associates in debt-structuring techniques.

When Rice, Murray and Nevel meet with clients, they often sketch out the details of a potential transaction on a blackboard, just as they do in the office. In

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