You might think aerospace has been grounded in Los Angeles, but then you might think wrong.
Los Angeles-based Compass Aerospace Inc. has just raised $110 million in a private debt placement, under the wing of Warren Woo, managing director in the Century City offices of Donaldson, Lufkin & Jenrette Securities Corp. Woo and DLJ were lead underwriters, helped out by Libra Securities Inc. in West Los Angeles.
Compass Aerospace issued 10-year senior subordinated notes at 10.25 percent, which Woo said “is a very good rate, given the size of the company and that it was a first-time issuer.”
In the pilot seat as chairman of Compass is Doug Hayes, who recently bailed out from DLJ in Los Angeles after 11 years on board there as a managing director.
Compass, which is projected to generate about $80 million in sales this year, is a maker of parts for commercial airplane manufacturers such as Boeing Co., as well as for the military, NASA and aerospace companies.
Compass, in effect, is a miniature industry roll-up: six companies that have been combined into one, including three Los Angeles-area concerns, which are Western Methods Corp., Aeromill Engineering Inc., and Clark & Wheeler Engineering. Those companies as well as three others are now operating companies of Compass.
Hayes plans no layoffs, as he anticipates growth of 20 percent to 25 percent a year. “Because of the combination, we can assemble groups of parts instead of just manufacturing them, and we can bid more competitively for business,” he said.
Hayes also observes that air carriers need more planes. “The domestic airlines are full, and they must get rid of noisier, older jets, by regulation,” he said. “Additionally, airlines are going to a ‘city-pair’ system, replacing the old hub-and-spoke.”
The city-pair system means airlines are connecting more cities with direct flights, rather than routing passengers through hubs and that the new system will require more planes. In addition, in countries all over the world, travelers are abandoning buses and trains in favor of planes, just as Americans did a generation ago, said Hayes.
Best of all, Wall Street is ready to finance airplane and aerospace manufacturers. “We were pleasantly surprised by the response (to the Compass debt offering) on Wall Street,” said Hayes. “Our deal was very well received. Los Angeles is renowned for its infrastructure of aircraft companies. Even Airbus (the European airplane consortium) buys from here. This is an industry with a great future.”
So maybe the next high-tech growth industry in Los Angeles is one of its first aerospace.
With the recent sale of San Francisco-based Sumitomo Bank of California by Sumitomo Bank Ltd. of Japan, rumors have been swirling around other Asian-owned bank franchises in California, including Los Angeles-based Sanwa Bank California, and San Francisco-based Union Bank of California, which is owned by Bank of Tokyo-Mitsubishi Ltd.
Investment banker Richard Barrett, formerly with Salomon Bros. in Los Angeles and now with DLJ in New York (as of April 1), is mentioned as one who may figure in the sales of Japanese-owned banks or in the potential sale (regarded as “pending” in banking circles) of San Francisco-based bank holding company Wells Fargo & Co.
By the way, Woo of DLJ said last week that Barrett still lives in Los Angeles, “but commutes to New York City.”
Woo would not comment on Barrett’s possible role, if any, in upcoming bank sales. But he did say of Barrett’s flying to New York every week: “That’s too far to commute.”
At least one local banker with Union Bank has had his fill of mergers.
“Every week, I get asked if we are for sale. But then, every week I get asked if Wells Fargo will be sold,” he said. “But I figure, if somebody from the East buys Union, they’ll lay off people in San Francisco, but not down here. The HQ staff is there. We’re line people.”
Latest shop talk: Wells Fargo will be sold on Memorial Day weekend, because huge bank sales usually take place over three-day weekends, giving bankers, accountants, lawyers and public relations specialists an extra day to work away from prying eyes, en route to a start-of-the-week merger announcement.
Investment banker Bruce Pompan, vice president in the downtown Los Angeles offices of ING Barings (the Dutch financial giant), has just finished raising more than $300 million in debt and equity for FirstWorld Communications Inc., a San Diego-based provider of fiber-optic-based telecommunications services to the San Gabriel Valley (including Glendale, Burbank and even parts of Hollywood), the South Bay, and Anaheim.
FirstWorld only began network operations in July 1997, and at last count, had just 45 commercial customers, although that includes the city of Anaheim.
FirstWorld says that thanks to its cable, and great hardware and software, its commercial clients will be able to access telephone lines to talk, transmit data and use the Internet much more rapidly all by one-stop shopping with FirstWorld.
Telecommunication industry titan Donald Sturm, founder of MFS Communications Inc., is a major shareholder in FirstWorld, as well as FirstWorld’s chairman, president and CEO.
FirstWorld may be new, but Wall Street not only embraced, but lunged at the $260 million worth of 13 percent bonds the company sold in early April, said Pompan. “The deal got upsized from $135 million,” he said. “It nearly doubled.”
Prior to underwriting the high-yield bond offering, Pompan helped FirstWorld raise $50 million in private equity, and also $23 million in a revolving credit facility from West Los Angeles-based Foothill Capital Corp., which is part of the Chicago-based Norwest Co. financial empire.
For Angelenos, the underwriting is good news, even if FirstWorld is based in San Diego. “FirstWorld will be spending on building the networks in San Gabriel and the South Bay,” said Pompan. “And business in those areas will be able to take advantage of the services.”
Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.