Libra Takes ‘Mezzanine’ Investing to Next Level
USB Libra Investments, a firm created when a Minneapolis banking giant bought a Los Angeles investment boutique last year, recently raised $50 million from investors to provide $3 million to $7.5 million in funding to growing companies.
Last year, U.S. Bancorp, one of the nation’s larger banks, purchased Libra Investments Inc., one of Los Angeles’ best-kept secrets in finance, for an undisclosed amount.
Libra, specializing in corporate finance, advisory work, research and junk bond trading, was formed about eight years ago by Jess M. Ravich and several others from now-defunct 1980s brokerage Drexel Burnham Lambert.
The firm has kept a low profile, despite its growing business. Assets in its private equity and “mezzanine” capital arms have nearly doubled to a combined $100 million since the company’s inception. Those funds, run by Jim Upchurch, are invested in companies with annual revenues of $10 million to $200 million.
There is little nationwide data tracking of the mezzanine capital markets, though this type of financing is aptly named. A mezzanine is a low-ceilinged story between two main stories of a building, and mezzanine financing is typically a bridge between the stages of a company as it grows from being a fledgling to a solid or medium-sized firm.
Libra Mezzanine Partners, which has invested about half of the $45 million in its fund, made several investments in 1998, including $2.5 million in Closet World, an Industry-based manufacturer; $3 million in Parking Co. of America, a privately held Los Angeles parking and transportation company operating in eight states; and $4.5 million in Quantic Industries Inc., a San Carlos-based firm that makes aerospace-related products. The year before, the fund invested $1.5 million in Pritikin Longevity Center, which allowed that Santa Monica-based firm to move its wellness center into the Loews Santa Monica Beach Hotel.
“We see a lot of opportunity in the middle-and-micro market to make mezzanine investments, and we don’t see a proliferation of capital for those companies,” said Upchurch, 40, president and chief operating officer of USB Libra. “So we’re filling a void here.”
The $50 million just raised by USB Libra’s private equity arm, Libra Capital Partners, will be earmarked for companies with experienced management teams, defendable industry positions, strong cash flow and realistic business plans, Upchurch said.
In 1998, Libra invested about $19 million of mezzanine capital in several companies. In 1997, the year the firm started its mezzanine financing, it invested $1.5 million in a single company. In corporate finance that year, the firm participated in 49 deals worth about $5.8 billion.
While about 20% of the money in the two investment funds is from wealthy individual investors, the rest is from large institutions, such as insurance and pension funds. The private equity fund’s two major institutional investors are Phoenix-based Finova Group Inc., which is a co-general partner, and parent U.S. Bancorp. The rates of return to both individual and institutional investors are expected to average 25% or more a year, once the stakes in the companies are sold, the company says.
But investments are just one aspect of Libra’s business. Corporate finance and trading are major revenue generators for the firm. And as a subsidiary of U.S. Bancorp, with $74 billion in assets, Libra can take on larger financings than it could on its own.
For example, in December alone, Libra was a co-manager on more than $400 million of financing that included a $200-million preferred-stock deal for CD Radio Inc., based in Washington; $55 million in senior notes for DVI Inc., an asset-based financing company in Doylestown, Pa.; and $150 million in first mortgage notes for Golden Northwest Aluminum Inc., an aluminum maker in the state of Washington.
In the past, Libra also has worked with such clients as Cherokee Inc., the Van Nuys licenser of apparel, and Bally’s Grand hotel-casino in Las Vegas.
But Libra, with about 65 employees, is probably best known for its trading expertise, and it expects to increase its active trading levels to more than $5 billion of equity and debt securities this year, compared with about $3 billion last year.
“Things are going great,” said Ravich, 41, who remains chairman and chief executive of the firm. He believes USB Libra is increasingly offering the bank’s clients one-stop-shop financing capability.
Jeffrey D. Benjamin, who joined Libra in 1998 from Union Bank of Switzerland in New York, where he was in charge of the high-yield bond business, is the firm’s co-CEO.
U.S. Bancorp’s purchase of Libra is just one in an unprecedented wave of mergers in the financial-services industry in recent years. Banks are moving quickly to expand into the more lucrative area of investment banking now that regulations separating consumer banking and investment banking are easing.
However, many high-profile acquisitions between the two types of companies have run into snags because of different cultures; consumer bankers are seen as more staid, slower-moving and traditional, while investment bankers are considered more entrepreneurial, creative and risk-taking.
Most recently, there have been reports of conflict at NationsBanc Montgomery Securities, so named when NationsBank Corp. became the owner of longtime San Francisco investment bank Montgomery Securities last year after merging with BankAmerica Corp. Several of the firm’s top investment bankers have left, including company founder Tom Weisel.
But Ravich says the U.S. Bancorp merger, by contrast, has gone smoothly.
“Based on the last four months, we’ve been aligned pretty well,” he said. “They understand who we are and are supportive of allowing us to grow and not trying to change us.”
Debora Vrana covers investment banking and the securities industry for The Times. She can be reached by e-mail at debora.vrana@latimes.com.
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At a Glance
Company: USB Libra
Headquarters: Los Angeles
Type: Investment firm
Number of employees: 65
Chairman and CEO: Jess M. Ravich
Parent: U.S. Bancorp
Year formed: 1998
