Cowen to Buy Some CRT Businesses Including Distressed Unit

  • Deal will dilute Cowen's tangible book value in first year
  • CRT will use proceeds to invest in equities, rates business

Cowen Group Inc., the New York-based boutique investment firm, agreed to buy some CRT Capital Group businesses, including the special-situations and emerging-markets units as well as the divisions that deal in distressed and high-yield debt.

“Credit trading is going to be way more interesting than it has been over the last five years,” Jeffrey M. Solomon, Cowen’s president, said Tuesday in a conference call with analysts after the deal was announced. The acquisition allows Cowen to “line up in front of what we think is going be a huge opportunity,” he said.

While Solomon declined to disclose a purchase price, he said on the call that it wasn’t a material transaction. The deal will “mildly” add to book value and dilute tangible book value in the first year, New York-based Cowen said in a statement.

Cowen’s purchase of most of broker-dealer CRT’s credit businesses comes after a decline in risky corporate debt intensified last year. Moody’s Investors Service said last month that the number of U.S. companies at the highest risk of default had approached levels not seen since the worst of the financial crisis, creating opportunities for money managers who invest in distressed securities.

Scaling Back

Small companies such as CRT, which is led by former Lehman Brothers Holdings Inc. executive Theodore Janulis, have tried to wrest trading business from large Wall Street banks in the years since the crisis. In the past 12 months, CRT has exited or scaled back trading operations in mortgage bonds and U.S. Treasuries. The company is backed by private-equity firm Aquiline Capital Partners.

The slumping value of distressed debt triggered a loss last quarter for Zurich-based Credit Suisse Group AG, and the business no longer belongs in the firm’s strategy, Chief Executive Officer Tidjane Thiam said Feb. 24.”

“If the bigger players are no longer using capital to trade, and they’re really not providing liquidity the way they’ve been providing liquidity, the only thing that matters is unique ideas and finding buyers and sellers,” Solomon said. “That’s the business that firms like ours should be in.”

Cowen is targeting 57 CRT employees and has already signed employment agreements with some key workers, Solomon said.

New Investments

CRT will use proceeds from the sale to invest in its equities, banking and rates businesses, the company said in the statement. Stamford, Connecticut-based CRT acquired the institutional-equities business of Sterne Agee from Stifel Financial Corp. in April 2015.

“We are excited about the future of our equities and investment-banking franchise,” Bill Jump, CRT’s president and head of equities, said in the statement. Jump said CRT had gained market share in 2016.

Cowen shares rose 3.7 percent to $3.69 at 10:23 a.m. in New York. The stock has declined 3.7 percent this year, compared with a 3.6 percent decline in the Russell 2000 Index.

Alex Yankus, a spokesman for Aquiline at Brunswick Group, declined to comment about the transaction.

Willkie Farr & Gallagher acted as legal adviser to Cowen. Macquarie Capital served as financial adviser to CRT and Sidley Austin LLP was legal adviser.

Before it's here, it's on the Bloomberg Terminal.