International investment bank DC Advisory is looking to hit the ground running as it builds out its New York-based US operations with the bank making additional hires, responding to RFPs and already running its first US mandate.  

Recently recruited Managing Directors Anthony Edwards and Hannah Schofield told Infralogic that the bank is in team-building mode with plans to hire more local personnel in the next one to two months.

“It’s an opportunity to build a business and leverage their [DC Advisory’s] success in Europe here in the US,” said Schofield, who will lead the bank’s debt advisory business and work with rating agencies, structuring and placing debt transactions. “The team is not starting from scratch and most of the company’s existing clients are already in the US and have been asking them about getting boots on the ground.”

The aim is to replicate what DC Advisory has done in the EU in the US, she said.  

In Europe, DC Advisory completed 20 transactions worth USD 7.43bn in 2022, according to Infralogic’s Full Year 2022 Rankings and Trends report.

 “One of DC Advisory’s unique aspects is that the bank doesn’t have a balance sheet and is product agnostic so with that independence we can offer the best advice to clients,” Schofield said.

DC Advisory is owned by Daiwa Securities Group Inc., one of Japan's leading financial institutions.

“In most instances debt remains more cost effective than equity despite rising rates and for funds to get the returns they need, they need leverage,” Schofield said. “Some refinancing will be delayed because of the current high interest rate environment, but it can’t be delayed forever. The team is speaking to clients about refinancing opportunities.”

Schofield and the growing team are already active in the US market. DC is “currently running one US mandate in the fiber to the home space and actively responding to a number of RFPs for mandates,” Schofield said.  

DC has no restrictions on the sectors in which it will pursue mandates, but Edwards — who will lead the bank’s M&A execution and sponsor coverage on both the buyside and sellside — said it will target deals in the middle to upper middle markets.

Going with the flow

There’s been plenty of capital raised for the infrastructure sector in recent years and Edwards believes that the company is going to see all the subsectors busy although it won’t be all plain sailing.  

"There has been a change in the discount rate for acquisitions and there could be a potential slowdown in deals getting done,” he said. “What a buyer wants to pay and what a seller wants to receive is likely to diverge, but I still feel the infrastructure sector is going to outperform other sectors.”  

“Certainly, there are some headwinds around fundraising but an important question for asset managers is how quickly their deployment will happen,” Edwards said. “Investors commit capital on the basis of returns to their investors.”

While the cost of debt and likely discount rates have gone up — and there is general uncertainty in the economy, “Investors have to have confidence in their business plan and that’s harder today than it was 24 months ago,” Edwards said. “How to price that risk is key. Infrastructure as an asset class is supposed to be inflation linked and as we go through this economic change we’ll see if that correlation holds.”  

Edwards believes there will be opportunities to invest in or acquire struggling companies, as someone with a broken capital structure needs to either sell, find a capital infusion or restructure.  

“Infra funds have turned their lens on new sectors,” he said. “Telecoms is now ‘infra,’ with all the stable and defensive characteristics. Telecoms deals in the US were previously financed in the leveraged loan market but can now be financed in the infra market. The sole focus on infrastructure at DC Advisory and the understanding of the financing and equity perspectives gives the firm a unique position in the market.”

The “digital overbuild” is real in European markets, but the US market is different, Edwards said.

“Biden’s plan to subsidize telecoms as the fourth utility is going to continue and the pandemic demonstrated the mismatch between the haves and the have nots in terms of access,” he said. “If renewables is the ‘E’ in ESG, then telecoms is the ‘S’.”

With regards to the renewables sector, Edwards pointed to DC Advisory’s 50/50 joint venture with Green Giraffe, which already has an office in the US. Edwards believes the partnership will be a differentiator in terms of the company’s knowledge of the renewables and energy transition sectors.

There will be a lot of overlap between the bank’s European and North American clients and both Edwards and Schofield said that they will bring their existing relationships to the platform.

“The overarching element that we need to remember is that infrastructure is essential,” Schofield said. “The fundamentals of the asset class remain, which was proven in the Great Financial Crisis, COVID-19, etc. Demand for the asset class will remain but banks may be more selective over which relationships they’ll be supporting.”

“Institutional money is more focused on relative value and pricing is therefore quicker to react to the broader sentiment of the capital markets," she said.

In terms of what financial innovations DC Advisory can offer, Schofield said that the bank has been successful in providing platform level financings where sponsors can issue new debt, but the infrastructure is already implemented around issuance and the documentation for the platform is in place. These could be common term platforms, which have been less widely used in the US, she said.

“The infrastructure landscape is evolving, and we are increasingly talking to clients that have historically relied on the leveraged loan market because they were not thinking they could secure infra-style financing,” Schofield said. “But the volatility in that market has highlighted the need to reassess liquidity sources and, where appropriate, helping our clients access institutional debt should help reduce their refinancing risk in the future.”

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