Rocket Scientists with Attitude

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

essence, they try to break down a complicated deal into its component parts to demonstrate to clients how it will benefit them.

In the municipal market, relationships with state and local officials are crucial to winning investment banking deals. To that end, and as part of its overall strategy to pump up its core derivatives business, last November Rice Financial acquired the municipal bond underwriting business of Philadelphia-based Pryor, Counts & Co. (No. 15 on the B.E. Investment banks list) for an undisclosed sum (see, “Rice Is on the Move . . . Again,” Newspoints, February 2000). Rice Financial then folded it into Houston-based Apex Securities (No. 4 on the 1999 B.E. Investment banks list), renaming the unit Apex Pryor Securities. Rice Financial purchased broker-dealer Apex Securities in June 1998. Terms of that deal also weren’t revealed.

The new firm will continue to underwrite general municipal bond deals, and the combination of the two should push Apex Pryor higher into the municipal underwriting rankings, from about 25th to 15th, says Rice. Apex Pryor Securities’ geographical coverage now includes the Northeast, complementing the formerly Southwestern clientele of the broker-dealer u

Rice explains that the Pryor deal, and the Apex transaction before it, strengthened the firm’s core derivatives business by expanding the client base it can pitch its interest- rate products to-municipalities and other local entities accustomed to executing “plain vanilla” municipal bond transactions.

“Municipalities tend to base their financing decisions on who their underwriters are. The underwriters bring their clients different ideas to get their financing needs done,” says Rice. “We’re looking to take these bond relationships and move them toward derivatives relationships.”

“Municipalities are more conservative by nature. To take an exotic product to a treasurer or finance executive, you have to show superior knowledge of the product and be able to answer any and all questions,” adds Murray.

With the addition of Apex Pryor’s underwriting capabilities, Rice Financial also relies on its top investment bankers to help persuade clients to add municipal derivatives to their financing menu.

For example, Leonard Jones, 39, managing director and head of Apex Pryor’s investment banking division, is actively involved in structuring several kinds of municipal bond transactions. These deals include new money issues, current and advanced refundings (transactions involving replacing higher-interest bonds with lower-interest ones), and interest-rate swaps.

Jones’ 14 years of experience includes commercial and investment banking deals in the U.S., Africa and Latin America. He was a vice president at Morgan Stanley & Co. (now Morgan Stanley Dean Witter) and at Smith Barney Inc. (now Salomon Smith Barney).

And Rodney Ellis, 46, managing director and founder of Apex Securities, has contacts in municipal government through several elected and appointed positions. These relationships have helped Rice Financial win new derivatives business. Currently serving as a Texas state senator, Ellis was recently appointed acting governor for a day while Gov. George W. Bush and Lt. Gov. Rick Perry were outside the state. Other posts he’s held include assistant to U.S. Congressman Mickey Leland and legislative assistant to former Lt. Gov.

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