Women-owned firm R. Seelaus announced last week that it will begin underwriting, structuring, arranging, and distributing leveraged loans, bringing a trend that has permeated the investment-grade space into the competitive lower rungs of credit.

R. Seelaus is one of few so-called “diversity and inclusion” broker-dealers to take aim at the lucrative world of leveraged loans, which is dominated by a handful of large arrangers. As many a French or Japanese bank has found, barriers are high for new entrants.

“The best part about being able to push into this vertical for us is ideally to provide more opportunities for women to have seats in leverage finance,” CEO Annie Seelaus told 9fin. “Hopefully we can be another spot for women in an area of finance where women have been underrepresented.”

D&I firms like R. Seelaus are working to break down these barriers. They have had success in the investment grade space, especially since the onset of the pandemic, and widespread Black Lives Matter protests in 2020. 

In November of that year, insurance company Allstate priced a $1.2bn investment grade bond that was actively syndicated by Black, Latino, women and veteran-owned businesses. That spurred more active roles for D&I firms in 2021, including a deal for John Deere.  

Leveraged issuers have not displayed the same level of enthusiasm. In levfin, D&I firms are typically seen in passive or co-manager roles, with a select few borrowers maintaining strong relationships with such firms.

“I've seen very little movement there yet,” said an investor who manages an ESG-centric credit portfolio. “It’s still total domination by three to five underwriters in the high yield space for the vast majority of the new issue volume.”

One issuer leading the charge on D&I syndication is OneMain Financial. Last year, it issued a $750m social bond, promising the use proceeds to serve “credit-disadvantaged communities around the country”. 

BNP Paribas, Citi and Mizuho structured the deal. But the joint bookrunner list included R. Seelaus as well as Hispanic broker-dealer Ramirez, veteran-owned firm Academy Securities and African-American and women-owned firm Siebert Williams Shank—alongside levfin heavy-hitters like Barclays and Goldman.

“Seelaus has been terrific about getting us in front of both different-size and diverse investor blocks,” said Rich Tambor, chief risk officer at OneMain Financial. “For us, it’s getting access to their client base, and then exposing their client base to us as an investment opportunity.”

Earlier this year, Norwegian Cruise Line featured R. Seelaus in its bookrunner group. Several other recent issuers have featured such firms, although only as co-managers: Royal Caribbean, medical device company Embecta, and Twitter.

Involvement is even more sparse in the leveraged loan space. One of the few examples was a $1.86bn TLB for Carnival in 2020; led by JPMorgan, the deal featured Siebert Williams Shank as part of a larger bookrunner group.

The biggest barrier to entry in loan syndication, noted Seelaus, is availability to capital. For that reason, private equity firm Stone Point is committing capital to R. Seelaus’s efforts, through SPC Capital Markets.

Still, loans involve greater risk than bonds, noted Tambor at OneMain—and as a less institutionalized asset class, with many challenging operational quirks, it can be difficult for new entrants to break into the syndication process. 

“Should there be an opportunity for us to be part of the loan syndication process and bring in investors, then that's a place where we can certainly add value,” Seelaus said.

In the high-grade market, the trend didn’t take hold until issuers—and their long-standing house bankers—gave D&I firms active bookrunner roles. That hasn’t happened much yet in levfin, but Seelaus is optimistic. 

“All the D&I firms push out in a lot of different directions and anytime any one of us can open a door, and others follow,” she said. “That's a win.”