KGS-Alpha Capital Markets LP, the brokerage that trades mortgage-backed securities and corporate bonds, raised $65 million in debt to boost trading as competitors close and consolidate.
Jefferies Group LLC advised on the five-year, unsecured debt offering, Levent Kahraman, the former Barclays Plc mortgage-bond trader who helped found New York-based KGS-Alpha in 2010, said yesterday in a phone interview. He declined to give more information about the terms of the deal.
KGS-Alpha outlasted other bond brokerages that started after the 2008 collapse of Lehman Brothers Holdings Inc. in a bet that bigger competitors would pull back. Kahraman’s firm focused on businesses that paid off quickly rather than wagering that heavy upfront investment would generate longer-term returns, a strategy that doomed some rivals, he said.
“This business is just too volatile and the winds shift too frequently to make that big an investment and hope that the revenues show up years down the line,” said Kahraman, 43, the brokerage’s chief executive officer.
The loan will help KGS-Alpha expand inventory so that it can do more trading for clients. The company prefers to grow through hiring rather than acquiring competitors, he said.
KGS-Alpha started with about $80 million from a group led by Arsenal Capital Partners LP, a New York-based private-equity firm, and raised an additional $75 million in 2011. Some rivals that started bond-trading businesses after the financial crisis, including BTIG LLC, Chapdelaine & Co., and LaBranche & Co., shrank or closed as bigger competitors recovered.
Two other bond brokerages backed by private-equity firms, Pierpont Securities Holdings LLC and Cortview Capital Holdings Inc., merged this year. Gleacher & Co., with investors including MatlinPatterson Global Advisers LLC, closed its businesses.