TSL January 2018

Representing the Asset-Based Financing, Factoring & Supply Chain Finance Industries Worldwide Jan/Feb 18

Innovation Issue Profiles of Innovators P.12

IN THIS ISSUE

Secured Lenders Find Opportunity in Organic and Eco-Friendly Companies P.26

State of the ABL Market 2018: Opportunities and Challenges for Lenders P.30

The Evolving Fintech/Bank

Ecosystem P.34 Blockchain and 5G-Enabled Internet of Things (IoT) Will Redefine Supply Chains and Trade Finance P.42

TSL INTERVIEW

Ellen R. Alemany

Creating a Culture of Success at CIT P.46 CFA Education Foundation Steps

Into The Future P.48 DEPARTMENTS

Collateral // THE CFA BRIEF // TSL Profile What Would You Do? // Revolver

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Contact Kyle Sligar acquisitions

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No matter how we say it, we’re happy to have you CFA 2018 Welcomes Service Providers as Members This is a milestone in our 75-year history, and the next step in becoming the essential community for all organizations and professionals who deliver and enable commercial lending.

To learn more about joining CFA, community.cfa.com/membership or contact James Kravitz, Business Development Director, (646) 839-6080 or jkravitz@cfa.com.

www.cfa.com

special advertising section ADVERTORIAL

AUTOMATING DAILY OPERATIONS FOR THE ASSETBASED LENDER Managing an Asset-Based Lending portfolio is a juggling act of meeting deadlines and careful examination of a client’s activity. Many start-up lenders initially rely on Excel spreadsheets to manage their portfolio, creating complex manual calculations to review each client’s activity and mitigate risk. Using spreadsheets, there is a tipping point where it can become unwieldy to expand your portfolio beyond a handful of clients.

Eventually a lender must invest in dedicated ABL Management software like the ABLM.NET and StuckyNet-Link (SNL.NET) systems from William Stucky & Associates, Inc. (Stucky).

Moving beyond spreadsheets is as much about having an industry-recognized portfolio management tool as it is about automating the daily tasks to streamline the workflow. This can mean borrower access to SNL.NET for Borrowing Base posting, developing interfaces for Cash Receipt Posting, utilizing the on-line Advance Approval process, and the automation of the Ineligible Calculation, all of which are available in the Stucky ABLM.NET and SNL.NET systems.

The missing piece to one of these processes, the Calculation of Ineli-

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DON’T MISS CFA’S 2018 EVENTS! WWW.CFA.COM

gibles, has been the conversion of a client’s Accounts Receivable aging from its native format (.PDF, Text or Excel) to a format that can be readily imported into the Stucky ABLM.NET system. In the past this conversion process was left to 3rd-party software known as Monarch. The Monarch process involved creating a template, comprised of complex formulas, to reformat the data into an acceptable file. With the introduction of the AR Wizard by WSA, the process is now vertically integrated so that all the tools necessary to receive, convert and review the A/R Aging are all included within a suite of Stucky’s ABL systems.

Historically, the Calculation of Ineligibles would involve a borrower sending their A/R Aging, on paper via FedEx. The actual calculation of ineligibles would involve a calculator, a ruler and a highlighter. More recently, the process improved slightly. An A/R Aging would be received via E-Mail, but the Collateral Analyst would still need to review the detail A/R Aging manually, or convert it to an Excel spreadsheet for calculation. With the latest innovations from Stucky, a borrower submits their A/R Aging via SNL. NET, a delivery method superior to EMail because it is secure and encrypted. The A/R Aging is converted from its native format (.PDF, Text or Excel) to a comma delimited file (DAT file) using the AR Wizard. Finally, the converted A/R Aging is imported into ABLM.NET where various ineligible categories are calculated, such as invoices over 90 days old, cross-aged debtor balances, past-due credit-memos, foreign receivables, contra balances, etc., which ultimately impacts the borrowers Availability position. Implementation of this process converts a task which could take up to two hours if done manually to a 10 or 15-minute operation.

The AR Wizard by William Stucky and Associates, Inc. makes the Aging Import Process effortless. It provides the basic text conversion functions (converting a .PDF, Text File or Excel file to a DAT file) in a user friendly application that “learns” as you use it. Text File and .PDF Agings are still acceptable and Excel files, which in the past were considered too modifiable to be a reliable source of data, can now be used with the A/R Wizard.

If a client widens an Excel column or even moves a column to a new location, the AR Wizard is not looking for the LOCATION of the data (as was the case with previous text conversion tools) but rather looking for the TYPE of data. So if a Date field is identified with a format of “09/15/2016”, the A/R Wizard is looking for the structure of the format of this data, rather than its specific location. That way, if the date column is moved to another location, then the AR Wizard will find it.

The AR Wizard is integrated into ABLM.NET version 3 and will be provided to all current Stucky Clients who are using the ABLM.NET system, as part of the Stucky maintenance package.

Please contact Alan Jasenovic, Vice President - Sales/Training, at William Stucky & Associates for a demonstration: (435) 336-2957 Alan@StuckyNet.com or visit www.StuckyNet.com.

Software Solutions Offered by WSA ABLM.NET StuckyNet-Link.NET

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For information on our software products, please contact: Rosanne Doyle 678-682-8184 Rosanne.doyle@stuckynet.com

w w w.s t u c k y n e t.c o m

Representing the Asset-Based Financing, Factoring & Supply Chain Finance Industries Worldwide

Volume 74, Issue 1

January/February 18

FEATURES 12 The Innovation Issue TSL celebrates innovation in the commercial finance industry.

26 Secured Lenders Find Opportunity in Organic and Eco-Friendly Companies

Innovative lenders are answering the demand for capital from eco-friendly companies. Read on to find out what it takes to service this increasingly popular industry.

By Myra Thomas

12 30 State of the ABL Market 2018: Opportunities and Challenges for Lenders

Attorneys from Skadden, Arps, Slate, Meagher & Flom LLP alert lenders to what they should be prepared for in 2018. By Seth E. Jacobson, Gerard C. Martin, David M. Wagener

34 The Evolving Fintech/Bank Ecosystem

This roundtable discusses fintech partnerships with banks, trends and challenges. By Eileen Wubbe

38 Mining Portfolios and Cheering the Return of Buyouts

ABL lenders see increase in syndicated loan volume.

By Maria C. Dikeos

42 Blockchain and 5G-Enabled Internet of Things (IoT) Will Redefine Supply Chains and Trade Finance

Emerging technologies can introduce greater efficiency and new capabilities to supply chains and trade finance. By Josias N. Dewey, Robert Hill and Rebecca Plasencia

48

26 46 The TSL Interview: Ellen R. Alemany, Creating a Culture of Success at CIT Ellen R. Alemany is chairwoman and chief executive officer of CIT Group and chairwoman, CEO and president of CIT Bank, the company’s bank subsidiary. She was named CEO in April 2016 and became chairwoman in May 2016. By Michele Ocejo

48 CFA Education Foundation Steps into the Future The CFA Education Foundation has been re-imagined to provide the industry with dynamic new initiatives such as a Market Sizing and Impact Study and a forwardlooking Confidence Index. The changes also include a reworked governing structure. The mission of the CFA Education Foundation is to cultivate education, innovation and charitable works for the betterment of the Commercial Finance community. By Michele Ocejo

DEPARTMENTS 11

Letter From CFA’s CEO, Rich Gumbrecht, introduces TSL’s first Innovation Issue.

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Collateral The latest issues affecting the ABL and factoring industries, including company news and personnel announcements.

25

TSL Profile MidCap Business Credit is an independent commercial finance company founded in 2004 that provides working capital loans from between $2 million - $10 million and up for companies unable to obtain traditional bank financing. Steve Samson, president, and Seth Cooper, national sales manager, discuss MidCap’s longevity and being a consistent face to the market. By Eileen Wubbe

51

What Would You Do? In this edition of What Would You Do?, the Chief Credit Officer of Overadvance Bank considers his options after a UCC search uncovers a potential issue with the Bank’s UCC-1 financing statement against its borrower. By Dan Fiorillo and Jim Cretella

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The CFA Brief 53 61 63

Among CFA Members CFA Chapter News Calendar

62

Advertisers Index

64

Revolver Jennifer St. John Yount of Paul Hastings discusses Emerging Structures in Asset-Based Lending: The Tension Between Innovation and Risk.

STAFF & OFFICES Michele Ocejo Editor-in-Chief & CFA Communications Director Eileen Wubbe Senior Editor Aydan Savaser Art Director

Editorial Offices 370 Seventh Avenue Suite 1801 New York, NY 10001 (212) 792 -9390 Fax: (212) 564-6053 Email: tsl@cfa.com Website: www.cfa.com

Advertising Contact: James Kravitz Business Development Director T: 646-839-6080 jkravitz@cfa.com

The Commercial Finance Association is the trade group for the asset-based lending arms of domestic and foreign commercial banks, small and large independent finance companies, floor plan financing organizations, factoring organizations and financing subsidiaries of major industrial corporations.

The objectives of the Association are to provide, through discussion and publication, a forum for the consideration of inter- and intra-industry ideas and opportunities; to make available current information on legislation and court decisions relating to asset-based financial services; to improve legal and operational procedures employed by the industry; to furnish to the general public information on the function and significance of the industry in the credit structure of the country; to encourage the Association’s members, and their personnel, in the performance of their social and community responsibilities; and to promote, through education, the sound development of asset-based financial services.

The opinions and views expressed by The Secured Lender’s contributing editors and authors are their own and do not necessarily express the magazine’s viewpoint or position. Reprinting of any material is prohibited without the express written permission of The Secured Lender.

The Secured Lender, magazine of the asset-based financial services industry (ISSN 0888-255X), is published 9 times per year (Jan/Feb, March, April, May, June, July, September, October and November) $65 per year non-member rate, and $100 for two years non-member rate, CFA members are complimentary, by Commercial Finance Association, 370 Seventh Avenue, New York, NY 10001. Periodicals postage paid at New York, NY, and at additional mailing offices.

Postmaster, send address changes to The Secured Lender, c/o Commercial Finance Association, 370 Seventh Avenue, New York, NY 10001.

collateral INDUSTRY NEWS

THE INDUSTRY IN BRIEF

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Wells Fargo Capital Finance names Cyndi Giles Head of Lender Finance Group 20-year Banking Veteran to Join Capital Finance Business Wells Fargo Capital Finance, part of Wells Fargo & Company (NYSE: WFC), named Cyndi Giles head of its Lender Finance Group effective November 29. In her role, Giles will lead a team that provides financing solutions for specialty finance companies, including asset-based lenders, factors, equipment leasing and finance companies and other nonbank lenders. She will be based in Dallas, Texas and report to Steve Macko, head of Industries Group, Wells Fargo Capital Finance. Giles is replacing Andrea Petro, who successfully launched and led Lender Finance for 17 years.

“Lender Finance is an important part of the Capital Finance business and I am pleased to have Cyndi lead this growing business,” said Macko.

“Cyndi’s experience and previous leadership roles in the financial industry will be instrumental in leading this great team as we continue to serve the needs of our clients.”

Giles is a 20-year banking industry veteran, joining Wells Fargo in 2011.

She most recently led teams of commercial lending professionals based in the bank’s Oklahoma City Middle-market Banking hub and its Tulsa office, which serve privately held companies with annual revenues of greater than $20 million across a broad spectrum of industries, including manufacturing, wholesale, retail, distribution, construction, and clean tech. Giles has a passion for developing mentorship programs and is an active member of the community. She has held board positions for March of Dimes of Dallas and Suicide Crisis Center of North Texas. Giles earned a bachelor degree in finance from Texas A&M University.

Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lend-

DON’T MISS CFA’S 2018 EVENTS! WWW.CFA.COM

ing services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries, and provides traditional asset-based lending, specialized senior and junior secured financing, accounts receivable financing, purchase order financing and channel finance to companies across the United States and internationally. Dedicated teams within Wells Fargo Capital Finance provide financing solutions for companies in specific industries such as retail, software and hi-tech, healthcare, commercial finance, staffing, government contracting and others. For more information, visit wellsfargocapitalfinance.com.

Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Wells Fargo’s vision is to satisfy its customers’ financial needs and help them succeed financially. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,500 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 42 countries and territories to support customers who conduct business in the global economy. With approximately 271,000 team members, Wells Fargo serves 1 in 3 households in the United States.

Wells Fargo & Company was ranked #25 on Fortune’s 2017 rankings of America’s largest corporations. News, insights, and perspectives from Wells Fargo are also available at Wells Fargo Stories.

Citibank Names Joseph Lehrer Senior Vice President for Asset Based Finance Citibank, N.A. (Chicago) announced Joseph Lehrer has been named

senior vice president for the Bank’s Asset Based Finance group. In this capacity Lehrer is responsible for Citi Commercial Bank’s Asset Based Finance presence in the Midwest. He is focused on sourcing, structuring and closing ABL solutions for companies with minimum revenues of $150 million and credit facilities of $35 million or greater, for working capital, growth, re-financings, restructurings, acquisitions or re-capitalizations. A particular focus is on businesses with international operations due to the global reach of Citibank.

Lehrer has over 25 years of experience in the commercial finance industry. He was with JPMorgan for over ten years and held various leadership positions within the bank including head of the restructuring group for Bank One Capital Markets Inc. Before that he was a senior vice president at Bank of America Business Capital and most recently he was with Fifth Third Bank’s ABL group.

Lehrer earned his BS in accounting from Indiana University, is a Certified Public Accountant (inactive) and holds FINRA series 7 and 63 securities licenses.

Lehrer is active in many trade associations and holds various leadership positions with the Commercial Finance Association (CFA) such as current Vice Chair of the Convention Planning Committee, past member of the Executive Committee and past President of CFA’s Midwest Chapter.

CIT Names Marc Adelson to Commercial Services Team CIT Group Inc. (NYSE: CIT), announced that Marc Adelson has joined the company’s Commercial Services business as managing director and Northeast

GemCap Acquires Factor Portfolio, Opens Atlanta Office GemCap acquired the portfolio of FTrans, a well-established factor, and hired the FTrans Atlanta-based team.

“GemCap is excited to expand into factoring. While continuing the excellent service from FTrans, GemCap expands the typical factoring product by offering inventory and equipment financing,” said David Ellis, Co-President at GemCap. “We welcome the high caliber FTrans staff into the GemCap team and are very excited to expand our geographic footprint to Atlanta.”

“This acquisition greatly expands GemCap’s lending range. We are now able to fully service clients with needs as low as $50,000, as well as service our traditional clients with ABL needs up to $10 million,” added Jim Thieken, executive vice president.

GemCap, an innovative lending firm, provides senior-secured, commercial asset-based loans and factoring to low and middle-market businesses within the United States and Canada, as well as in-transit inventories en route to the United States. Factoring ranges from $50 thousand to $5 million.

ABL loans range from $1 million to $10 million. Collateral groups include: inventories (consumer & industrial), receivables, and equipment.

Gordon Brothers Expands Australian Operations Gordon Brothers, the global advisory, restructuring and investment firm, announced two appointments to its Australia team. Matthew Aubrey and Fenton Healy join the firm as managing directors and will focus on expanding the group’s liquidity and assetbased solutions for clients across the region.

“We are thrilled to welcome Matt

and Fenton to the group,” said Tim Stewart, head of Australia for Gordon Brothers. “Their shared experience in asset valuation and remarketing will form a strong base for the product offerings, services and principal investments in which we specialize.”

Aubrey brings 17 years of experience across commercial, industrial and retail sectors. Prior to joining Gordon Brothers, Aubrey was the owner and director of Plant & Equipment Solutions, which specialized in asset management and disposition solutions and was acquired by GraysOnline in 2012.

“Gordon Brothers holds a unique position in the Australian marketplace and has been growing rapidly. I’m excited to be part of this next phase of expansion,” stated Aubrey.

Healy also joins from GraysOnline, where he held numerous sales, senior management, directorial and leadership roles and was one of the original shareholders. He has over 20 years of experience in asset valuation and liquidation.

“There’s tremendous opportunity to further develop financial and liquidity solutions for the Australian market.

I’m excited to build upon the existing Gordon Brothers platform to provide the liquidity firms need,” added Healy.

Gordon Brothers launched its Australian operations in the spring of 2017. The firm focuses on providing investment, interim operations and disposition solutions to companies and their advisors at all points in the business cycle and throughout the supply chain. Gordon Brothers operates out of 25 offices across five continents, including North America, South America, Europe, Asia and Australia.

Since 1903, Gordon Brothers (www. gordonbrothers.com) has helped lenders, operating executives, advisors, and investors move forward through

INDUSTRY NEWS

regional manager. In this position, Adelson will manage the largest region for the Commercial Services business and be responsible for new business development and portfolio management. He will report to CIT’s president of Commercial Services, Marc Heller.

“Adelson’s 30 years of experience in financial services and lending makes him a valuable addition to the team,” said Heller. “The Northeast Region is where we have many longstanding client relationships and is also an area where we will continue to pursue growth and diversification initiatives.”

“I’m excited to play an integral role in delivering value for our clients and helping to sustainably advance business in the Northeast,” said Adelson.

Adelson joins CIT from Monroe Capital where he was a managing director responsible for middle-market originations. Prior to that, he held senior positions with Medallion Financial, Capital Business Credit and Getzler Henrich & Associates. From 2000 to 2008, Adelson served as a co-head of business capital for CIT’s asset-based lending group, and then as senior managing director of CIT Group UK, London, England.

Founded in 1908, CIT (NYSE: CIT) is a financial holding company with more than $50 billion in assets as of June 30, 2017. Its principal bank subsidiary, CIT Bank, N.A., (Member FDIC, Equal Housing Lender) has more than $30 billion of deposits and more than $40 billion of assets. CIT provides financing, leasing, and advisory services principally to middle-market companies and small businesses across a wide variety of industries. It also offers products and services to consumers through its Internet bank franchise and a network of retail branches in Southern California, operating as OneWest Bank, a division of CIT Bank, N.A.

THE SECURED LENDER JAN/FEB 2018 7

INDUSTRY NEWS

collateral

change. The firm brings a powerful combination of expertise and capital to clients, developing customized solutions on an integrated or standalone basis across four service areas: valuations, dispositions, operations, and investments. Whether to fuel growth or facilitate strategic consolidation, Gordon Brothers partners with companies in the retail, commercial, and industrial sectors to put assets to their highest and best use. Gordon Brothers conducts more than $70 billion worth of dispositions and appraisals annually. Gordon Brothers is headquartered in the U.S., with 25 offices across five continents.

degree from Tulane University in New Orleans, LA. PNC Business Credit is the senior secured lending division of PNC Bank, N.A., and its subsidiaries and a part of The PNC Financial Services Group, Inc. PNC (NYSE: PNC) is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking, including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

Marc S. Price to Lead PNC’s Growing Commitment to Retailers PNC Bank, N.A., announced the appointment of Marc S. Price, senior vice president, to head a newly established retail finance unit for PNC Business Credit. With more than 20 years of commercial finance leadership experience, Price will oversee PNC’s growing commitment to this specialty vertical.

He will be based in Boston, MA, and report directly to Peter Mardaga, western division executive.

“As the retail industry undergoes unprecedented transformation, there is increasing demand for flexible capital to fuel changing business models,” said William Kosis, group executive of PNC Business Credit. “Expanding our long-established lending presence with retail firms under Marc’s leadership is an important growth opportunity for our company.”

Price most recently served as cohead of Monroe Capital’s retail vertical, having previously been co-founder and leader of originations for Salus Capital Partners. He holds a bachelor

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DON’T MISS CFA’S 2018 EVENTS! WWW.CFA.COM

David Peress Named to New Leadership Role as Executive Vice President, Hilco Retail Services Hilco Global announced that it has named David Peress to the new position of executive vice president – Hilco Retail Services, effective immediately.

In this newly created position, Peress will provide critical oversight and coordination among all Hilco retail valuation and monetization client teams and collaborate closely with the leadership at Hilco Merchant Resources and Hilco Valuation Services.

Peress adds this new role to his existing responsibilities at Hilco Streambank, where he and his partners have continued to grow and expand Hilco’s intellectual property practice in exciting new ways.

Jeffrey B. Hecktman, CEO - Hilco Global indicated that the new role was developed to “further demonstrate Hilco’s commitment to deliver innovative retail solutions and optimized results for our retail clients, their advi-

sors, lenders and investors at a time of great change in the sector.” Hecktman added, “David takes on this new responsibility in recognition of his outstanding reputation in the retail lending and IP marketplace where he is known for his expertise as a successful dealmaker and thought leader.”

As EVP of Hilco Retail Services, Peress will be responsible for supporting and building the overall Hilco Global retail valuation and monetization platform, with an emphasis on four critical service areas: (i) Intellectual Property Valuation, (ii) Inventory Valuation, (iii) Field Exam and Audit, and (iv) Asset Monetization. In each of these areas Mr. Peress will play a pivotal role in the coordination and delivery of holistic retail solutions with a mandate to leverage the entire Hilco Global retail platform to its fullest extent.

From a business development standpoint, and in collaboration with Hilco’s existing business development teams across its retail platforms, Peress will be actively working with the retail lending and investment community, including private equity sponsors, strategic and financial advisors, attorneys and retailers.

Peress said, “I’m excited to add this new role to my current responsibilities at Hilco Streambank. As retail lenders and investors continue to adapt to the dramatic changes taking place in the marketplace, we are committed to delivering innovative thought leadership and best in class retail valuation services to our long-time retail client relationships as well as developing new relationships in the retail finance sector.”

Hilco Global (www.hilcoglobal.com) is an independent financial services company and the world’s preeminent authority on helping businesses maximize the value of their assets. Hilco Global is considered a world class

White Oak Appoints Darius Mozaffarian and David Hackett as Co-Presidents White Oak Global Advisors, LLC (White Oak), announced the appointment of Darius Mozaffarian and David Hackett as co-presidents of the firm, where they will oversee the day-to-day operations of White Oak’s entire investments business, spanning all lending products, affiliates and investment teams from originations to portfolio management. Mozaffarian and Hackett will continue to serve as members of the firm’s Investment Committee and Operating Committee, in addition to assisting with firm-wide strategic and fundraising efforts. Mozaffarian and Hackett have been acting co-presidents since the beginning of the year, with their appointments becoming effective after the promotion of John Felix and Tom Finnigan to co-heads

of Originations and Underwriting, respectively.

“I have had the privilege of working with Darius and Dave well before White Oak’s inception, and they have been invaluable to our success so far,” said Andre Hakkak, co-founder and chief executive officer of White Oak. “I am excited to have their continued leadership and guidance as White Oak expands its platform to meet the ever-evolving needs of our borrowers and investors.” Together with Barbara McKee, Hakkak co-founded White Oak in 2007. “Darius and Dave have done an outstanding job of jointly driving our investment engine over the past decade. Individually they are each creative, thorough and meticulous, but it is their teamwork, mutual respect and collegiality that make the whole much greater than the sum of their parts,” McKee added.

Mozaffarian joined White Oak in May 2008, became a partner in 2010, and has been a member of the firm’s Investment Committee since 2011.

He has had primary responsibility for originating and structuring new transaction opportunities for White Oak’s private debt funds, and has led the firm’s Originations team since 2010. Previously, Mozaffarian served at Goldman, Sachs & Co. in the leveraged finance group of the investment banking division, where he worked on myriad buyouts, corporate restructurings and rescue financings within the leveraged loan and high-yield bond market. Mozaffarian is currently licensed with Series 7 and 63 designations from FINRA. Hackett joined White Oak in January 2008, became a partner in 2010, and has been a member of the Investment Committee since 2011.

He has had primary responsibility for structuring and underwriting new investments for White Oak’s private

debt funds, and has led the firm’s Underwriting team since 2010. Hackett is also a member of the firm’s Valuation Committee and was responsible for the development of the firm’s Portfolio Management group. Prior to joining White Oak, Hackett served as portfolio co-manager at North Point Investors, a real estate investment company investing in public real estate securities.

White Oak Global Advisors, LLC is a leading global alternative asset manager, specializing in originating and providing financing solutions to facilitate the growth, refinancing and recapitalization of small and medium enterprises. Affiliates of White Oak Global Advisors, LLC include White Oak Commercial Finance, White Oak Healthcare Finance, White Oak Asset Finance GP, LLC, White Oak Trade & Specialty Finance, and White Oak Europe. Since its inception in 2007, White Oak Global Advisors, LLC’s disciplined investment process aims to deliver risk-adjusted investment returns for our investors while establishing long term partnerships with our borrowers. www.whiteoaksf.com

INDUSTRY NEWS

company, having earned this reputation after decades of providing solutions for both healthy and distressed businesses to yield the maximum value. Hilco Global focuses on helping businesses with asset valuation, asset monetization, and advisory solutions.

With over 20 operating companies’ Hilco provides a comprehensive suite of integrated strategic services’ including valuation; acquisition and disposition; private equity investment; and consultative services. Hilco Global often provides investment capital, demonstrating an ability and willingness to share risk and reward.

Hilco Global professionals serve as auctioneer, sales agent or an investor in virtually every class of tangible and intangible asset on a corporation’s balance sheet, including inventory, M&E, real estate, accounts receivable and intellectual property.

THE SECURED LENDER JAN/FEB 2018 9

TSL Innovation Profiles On the following pages, The Secured Lender celebrates innovation in the commercial finance industry by featuring several industry players who are thinking outside the box.

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DON’T MISS CFA’S 2018 EVENTS! WWW.CFA.COM

Welcome to TSL’s first Innovation Issue.

When we conceived this concept, we wanted a way to surface, share and encourage the kinds of ideas that make the CFA a vital and dynamic community. While breakthroughs in Artificial Intelligence and Bitcoin tend to grab the headlines, sometimes it’s the small things that add up to make a big impact.

A new variation on a product structure; a new tool; a new or simpler way of doing something better or smarter – all of which build value. It just takes one person to recognize a challenge and think outside the box about how that challenge can be overcome or turned into an opportunity to light the spark. Cheers to the CFA Community members on the following pages who did just that.

As the innovators in this issue prove, the CFA Community has no lack of creative, driven, leaders in all areas of the commercial finance industry. As previously demonstrated in our CFA 40 Under 40 Awards issues and our Women in Commercial Finance issue, and now here in our Innovation Issue, it is obvious that our industry is teeming with imaginative ideas that create opportunities.

That spirit of innovation carries over into your Association. We’re excited to be entering into a New Year filled with exciting possibilities. The Commercial Finance Association recently announced we are expanding our community to include service providers as CFA members.

This is a significant milestone in the Association’s history. By fostering a culture of inclusiveness, trust and continuous reinvention, we will become the essential community of all organizations and professionals who deliver and enable commercial lending.

We are also reimagining the CFA Education Foundation to provide the industry with dynamic new initiatives such as

a Market Sizing and Impact Study and a forward-looking Confidence Index. Be on the lookout for this valuable information later this year. The changes also include a reworked governing structure.

We welcome Gregory Slowik, CFA’s CFO, as the Foundation’s first executive director. You can find details about the CFA Education Foundation on page 48 of this issue.

We’ll be fostering new thinking within our education program and event offerings in response to feedback from our 2017 member survey. We will be adding programming and resources particularly targeted to our mid-career and young professionals, and working to strengthen the CFA brand.

It’s not too late to get involved in shaping these and other initiatives.

There are countless ways to deepen your engagement, from committees and subcommittees, a growing mentoring program, new projects getting underway, and thought leadership opportunities in The Secured Lender, to name a few.

Along with our individual profiles, this issue includes feature articles highlighting advances in our industry.

On page 38, Josias Dewey, Robert Hill and Rebecca Plasencia of Holland & Knight LLP explore some of the most promising uses of blockchain, IoT and 5G technology as well as some obstacles to implementation.

“Eco-friendly” is not just a buzz phrase. More and more consumers are

committed to an “eco-friendly” lifestyle and businesses are taking notice.

Innovative lenders are answering the demand for capital from these companies. Myra Thomas discusses the issue on page 26.

TSL’s senior editor, Eileen Wubbe, covers the partnerships between fintech companies and banks on page 34.

On page 42, Maria C. Dikeos of Thomson Reuters updates us on the syndicated market.

Ellen R. Alemany is chairwoman and chief executive officer of CIT Group and chairwoman, CEO and president of CIT Bank, the company’s bank subsidiary.

She was named CEO in April 2016 and became chairwoman in May 2016. Ellen was also a keynote speaker at CFA’s Annual Convention in Chicago this past November. Don’t miss the interview with Ellen on page 46.

On page 30, in State of the ABL Market 2018: Opportunities and Challenges for Lenders, attorneys from Skadden, Arps, Slate, Meagher & Flom LLP alert lenders to what they should be prepared for in 2018.

Thank you for everything you do to make the CFA a thriving and innovative community. We encourage you to continue to let us know about new and original ideas, processes or products you or a colleague may have created so we can share them for our collective benefit.

We hope this year is your best yet, and one filled with rewarding possibilities.

“As the innovators in this issue prove, the CFA Community has no lack of creative, driven, leaders in all areas of the commercial finance industry.

Warm regards, Richard D. Gumbrecht CFA CEO

THE SECURED LENDER JAN/FEB 2018 11

THE INNOVATION ISSUE Process Innovators

Wells Fargo’s Learning & Development and Instructional Design Groups Keeping Financial Analyst Program Relevant with Online Learning

To ensure that Wells Fargo’s Financial Analyst Program (FAP) remains relevant in an age of evolving technologies and shifting information consumption habits, the Capital Finance early talent team has partnered with internal Learning & Development and Instructional Design groups to develop a seamless online learning path entitled “Fundamentals of ABL.” The training site, built using an in-house version of WordPress that includes branded templates and interactions, delivers ABL training content in a linear format that walks a user through sequential training modules step-by-step. To promote engagement and knowledge retention, the learner-centric modules feature a series of interactive knowledge checks, entertaining brainteasers, and mini-case scenarios. A curriculum checklist serves as a roadmap to track training progress and the user’s completion status is recorded in Wells Fargo’s learning management system.

The collaboration between multiple groups within Wells Fargo to increase the ease and effectiveness of content delivery is just one example of our commitment to innovation. We continually strive to provide best-in-class solutions to educate, develop, and support our team members. The team members involved are: Sheri Fenenbock is a vice president and national program manager for early talent training programs in Wells Fargo Capital Finance. She is responsible for recruiting early talent, developing asset-based lending curriculum, and facilitating training. She spent the first 10 years of her career in credit-related portfolio and underwriting positions before transitioning to learning & development. Sheri has a finance degree from California State University, Northridge and is based in Santa Monica, CA. Jenny Niec is a senior instructional design consultant at Wells Fargo. In this role, she helps business partners create and implement learning programs, improve team member skills and performance, and meet business goals. She joined Wells Fargo as a learning and development consultant in 2006. She holds a bachelor degree in speech communication and political science, and a master degree in communication studies, both from Ball State University. Prior to her time at Wells Fargo, she worked as a trainer and training manager at soft-

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SHERI FENENBOCK Vice President and National Program Manager at Wells Fargo

JENNY NIEC Senior Instructional Design Consultant at Wells Fargo

ware and printing companies, and as an instructor at universities.

Jackie O’Connell is an early talent regional program manager at Wells Fargo. She is responsible for the training and development of team members in early talent programs such as the financial analyst program and summer intern program. Jackie has been with Wells Fargo for over 12 years in various roles and holds a B.S. in finance from the University of Delaware and an M.B.A. from Pace

University.

Chris Arnst is a senior learning & development consultant at Wells Fargo. In this role, he partners with business leaders to provide learning consultation and content delivery services in order to meet human capital and business goals. He first joined Wells Fargo in 2002. His career with the company has spanned Community Banking and Wholesale Banking, with roles in customer service, communications, marketing, and learning. He

TSL PARTICIPANTS

They executed our deal with the kind of precision we need in the middle-market lending space.

Howard Widra, Partner, Apollo Capital Management, L.P., and David Moore, Chief Financial Officer, MidCap Financial

WHOLESALE BANKING ASSET-BASED LENDERS FACTORS EQUIPMENT LEASING AND FINANCE COMPANIES OTHER SPECIALTY FINANCE COMPANIES

MidCap Financial, in alliance with Apollo Capital Management, L.P., provides debt solutions to middle-market companies. When its management joined with equity sponsors to establish the company in 2008, they called on the experience and syndication capabilities of our Lender Finance team to support their new venture. We also arranged additional financing for MidCap’s expansion.

When you set goals for where you want to take your business, we want to help you get there. Learn how we can work together to move your business forward at wellsfargocapitalfinance.com/midcap.

Š 2018 Wells Fargo Capital Finance. All rights reserved. Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lending services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries. IHA-5315402

THE INNOVATION ISSUE Process Innovators

CHRIS ARNST Senior Learning & Development Consultant at Wells Fargo

JESSICA-MAE MEJIA Learning & Development Consultant at Wells Fargo

holds a bachelor degree in strategic communications and design from the University of Minnesota.

Jessica-Mae Mejia is a learning & development consultant at Wells Fargo. In her role, she develops business solutions that help clients reach their strategic goals, reimagine processes, and establish new ways of working. Jessica is passionate about innovation, and her expertise includes marketing/communications, technology, employee engagement, and corporate learning. She has a B.A. in psychology and a minor in business administration from Loyola Marymount University.

InterNex Capital: Innovative Process Enables Faster Underwriting Simon Hermiz is co-founder and managing director of risk at InterNex Capital. InterNex offers revolving lines of credit collateralized by accounts receivable. Simon has been instrumental in the overall build and design of the InterNex business risk and operational platform and processes since our business inception in August 2015. He has worked diligently to design a dynamic borrowing base AI system to calculate our customers’ loan eligibility on a real-time basis, enabling on-demand draws for our clients. This is a key market differentiator for InterNex.

To optimize InterNex’s origination and underwriting for new clients, Simon developed an automated borrower scoring algorithm to rate our prospective borrowers in the underwriting process.

He was also instrumental in developing a new model to calculate overall dilution of the accounts receivable. His innovation took a traditional manual process that typically required onsite visits to an automated process that can be done “inhouse” in often less than two days and allows for faster underwriting completion and on-boarding of new clients.

As it relates to client servicing, Simon has developed and worked with our bank partner to enable accounts receivable payment information to be sent from the bank’s lockbox accounts to our portal system (“Velocity”) via an application programming interface. Through a special algorithm, this payment

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information matches against customer invoices which SIMON HERMIZ allows us Co-Founder & to record Managing Director of payments Risk at InterNex Capital. and, in turn, to adjust the borrowing base real time to enhance our borrower’s availability.

Simon was also a leader in developing customized reports based on data in Velocity to meet the informational needs of his customers.

In all of the above developments, Simon has helped InterNex optimize and maintain a constant view into our core collateral to manage our facilities, while at the same time driving timely execution and customer experience for both prospective and existing clients.

Simon is a true innovator who is always

looking to enhance client experience, drive efficiency and optimize overall risk management.

Prior to co-founding InterNex Capital, Simon was the CEO at NoteX, a startup serving institutional investors in marketplace lending. Simon was credit-trained at Fifth Third Bank and The Bank of New York Mellon.

Veritas Financial Partners: Leveraging Technology in a Competitive Marketplace Krista Livingston is vice president/operations manager with Veritas Financial Partners. She joined Veritas Financial Partners in June 2012 as an analyst. Her primary responsibilities include maintaining company archives, managing the relationship with Veritas’ document custodian and overseeing the loan eligibility process with Veritas’ primary lending institution. Krista also assists in company loan syndication and capital raise efforts. She received her Bachelor of Science from The University of Central Florida and received her MBA through Florida Atlantic University’s Executive MBA program.

Krista has spearheaded Veritas’s recent initiative to enhance Veritas’ loan management software, allowing the company to leverage technology to drive efficient and novel solutions in a safe and compliant manner. In this role, Krista served as primary point of contact communicating Veritas’ objectives to their third-party data consultant and to the software provider.

This role required rigorous process mapping, testing, and successful data conversion prior to rollout.

Mark Seigel, President of Veritas, said, “In today’s competitive marketplace, being able to deliver customized structures to

address complex working capital needs is a valuable differentiator for us. Krista’s exceptional work KRISTA LIVINGSTON in this regard has Vice President/Operations enhanced Veritas’ Manager with Veritas ability to do so while Financial Partners also meeting our own data needs as well as those of our investors and senior lender.”

Krista continues to serve as a beta tester for Veritas’ loan management software provider, aiding in their rollout of continuto support the Veritas mission of providing ous improvements.

“By utilizing growing technology platfirst class financing solutions to its clients and lending partners,” said Krista. forms, our Operations Team can continue

Wolters Kluwer Lien Solutions: Mitigating Risk Associated with UCC Filings As the chief executive for the Wolters Kluwer Lien Solutions business, Raja Sengupta leads an expert team that’s leveraging the power of artificial intelligence (AI) to drive innovation in the regimented, yet fraught-with-risk world of securing rights to borrower’s collateral through UCC filings.

Many lenders view UCC filing as a simple administrative task, but, in reality, the lender’s interest is at risk until the lien is perfected. In close partnership with its Customer Advisory Board (55 members from every level of lending institutions) Lien Solutions, with Raja taking the lead, is building advanced analytics to help customers mitigate risk associated with UCCs. UCC filings are meant to enable lenders to secure the right to an asset.

However, those rights can be at risk because of the complexities of completing a UCC form. Those complexities lead to incorrect filings, putting liens at risk. For example, during a routine analysis, Lien Solutions found that a large bank with established procedure and quality control still had 6% of its filings not perfected. Without a perfected lien, a lender’s right to

an asset is not secure. By leveraging analytics, a bank or lending institution can rely on continRAJA SANGUPTA ued visibility into Chief Executive Officer at the most imporWolters Kluwer tant parts of their Lien Solutions lending process which leads to reduced risk.

With the help of advance analytics and artificial intelligence, customers can assess their lien portfolio health in a holistic manner with dashboards With the right analytics, a goal of and KPIs. They can assess the risk to zero unperfected loans is realistic their portfolio by drilling into lien perfor a bank. That kind of innovation is fection issues related to debtor name invaluable to lenders. accuracy, debtor’s financial status and legal standing or other inaccuracies in filings. They can also improve their operations and process by identifying patterns of rejections and other quality issues using machine learning.

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THE INNOVATION ISSUE Process Innovators

McMillan LLP: Offering Service and Value Innovation Tim Murphy is an executive partner at McMillan LLP, one of Canada’s leading business law firms. He is also managing director of McMillan Vantage, a public affairs consultancy. As a member of the firm’s four-person Executive Committee, he leads the firm’s innovation initiatives, including a strategic alliance with IBM on data analytics and the hiring of a data scientist to produce pricing and staffing templates.

He also led the establishment of an insourced “no overhead” LPO at McMillan, known as Prefix Law. He is currently working on improving and expanding the firm’s technology interface with clients, including the use of AI. “There is no reason for big firms to leave service and value innovation to new players.

We want to provide what clients value — quality service at the right price – through us. To that end, we created PreFix LLP, a subsidiary law firm which uses the talent bank of one of Canada’s largest legal recruiters, to provide more standardized services at more standardized prices. With a significant emphasis on fixed prices for routine matters, this allows us to provide custom advice and routine service at a highly competitive price,” said Tim.

As a lawyer, Tim’s practice focuses on transactions with a public component with a particular emphasis on project finance, infrastructure, energy and public/private partnerships. Tim also brings extensive experience in the public sector.

TIM MURPHY Formerly Chief of Staff to the Prime Executive Partner at Minister of Canada, Tim provided McMillan LLP strategic advice and direction to the Cabinet, the Prime Minister and to senior levels of the public service. His public sector experience also includes serving as Chief of Staff to the Finance Minister Lexpert and IFLR 1000. He is also an adjunct of Canada, as a Member of Provincial Parliaprofessor at the University of Toronto ment in Ontario and as a strategic advisor Faculty of Law in the JD and LLM courses in to governments at all levels. Tim is ranked the Law and Policy of Public Private Partnerin Projects by Chambers Global, PLC Which ships and a frequent commentator on public Lawyer and in Project Finance by Who’s Who policy and legal issues. He is the author/ediLegal, the Legal 500 Canada, Canadian Legal tor of Construction Law in Canada.

Far West Capital: Self-Taught “IT Guy” Builds a Better CRM When Matt Smulski began at Far West Capital nearly ten years ago, executives at Far West didn’t know how much they would need him. He joined the company just a few months after it was founded, as a talented account manager; but, in Matt’s fashion, he quickly made himself useful in even more ways, becoming their go-to IT guy when the company was too small to have an IT role.

Eventually, that would become his full-time job. These days, he has moved from being vice president, IT to most recently becoming senior vice president of operations. Matt is always rethinking and reimagining the technology that helps the team at Far West do their jobs better, whether by building a custom CRM that helps them better monitor risk and client engagement in their portfolio, or by building a client-facing business analytics dashboard that will help clients better understand their cashflow.

“He started with us as an account manager and noticed that we needed a better way to communicate about client accounts. So he built one. Matt didn’t ask for permission or budget. He just quietly did it on his own, in his own time. It started off as just a smarter file management system and evolved into a powerful, custom-built CRM

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tool that helps us far better monitor risk and client engagement in our portfolio. It’s ingrained into the operations of our company, and it’s amazing.” said Cole Harmonson, CEO & co-founder of Far West Capital.

“I didn’t have all the technical MATT SMULSKI knowledge—not at all—but I did Senior Vice President know where to look for it. It’s like of Operations at changing your oil: It’s easy once you FarWest Capital know how, but if you don’t, you go to Auto Zone to get help,” Matt said.

“Find out where and who your resources toward a philosophy they call “fintouch” are and don’t be afraid to use them. You — where innovation is focused on serving don’t need to know everything, exhausclient’s success — Matt has led the strategy, tively, to accomplish your goals. Just start development, and implementation of their with what you know. The rest will follow. most critical tools, both internally and But start. It doesn’t matter if you’re learning externally. Because of Matt, Far West is process is imperfect and awkward. You’re better prepared to serve clients in 2018 and learning, and that’s what counts.” beyond.

As Far West evolved their services

Commercial Finance Partners: A CRM Driving Growth When Marcus Ferrari and Darren Palestine decided to start Commercial Finance Partners in 2014, the two founders realized that they needed a way to stand above the competition and provide a different value proposition to hopefully obtain new referral business and grow a new company.

“We took a hard look at the current brokerage model and realized that there were many holes — transactions referred to brokers by bankers that went ignored, a lack of followup, and also a mentality of referring transactions out as quickly as possible, without any concern if the lender was a good fit, if the files were organized or missing, or if the transaction was viable,” Marcus said about the early stage planning of Commercial Finance Partners. “As Commercial Finance Partners had a duel role of lender and intermediary, we were able to leverage our experiences on the lending side to create value in the brokerage.”

With Marcus’ passion for technology, he rolled out a CRM that featured many of the ideas that were forged from how CFP would like to review a financing package. While initial deal flow was slow, both Marcus and Darren kept making minor changes to the sales management tools, adding new fields when a missing item was realized and continuously adapting.

Marcus recalls the beginning of CFP: “In the beginning, we received opportunities from our referral partners, and used the CRM to log information about the lead, the typical items, name, phone number, email, etc. As we started analyzing transactions more in depth, both for our direct book of business and brokerage, we realized the CRM needed to stand out and provide functionality that allowed for transactional analysis.”

As deal volume increased, so did the need for automation and sophistication. CFP switched from a lesssophisticated CRM to a costly version of Salesforce, realizing the need for

MARCUS FERRARI Founder at Commercial Finance Partners

functionality to ensure success. The move also allowed the company to offer API to various lending and referral partner, greatly improving efficiency both on inbound and outbound communication. Marcus added tools to analyze financials, cash flow, transactions involving leveraged buyouts, and other important transactional metrics, further speeding up the analytic process. CFP was able to hire underwriters and increase the sales team. Typically, adding additional employees can be disruptive to a startup, but having an effective sales and underwriting management tool allowed integrating new employees smoothly. The adoption, a key indicator of how well the CRM functions, is extremely high.

Currently, CFP averages and manages around 400-500 referrals a month and has grown the team, including inside and outside sales team, as well as inside and outside underwriting.

While the lead volume seems like an astronomical number, the company is able to effectively action each opportunity, using a combination of internal talent and the CRM sales platform.

“Our customized CRM has effectively become a company management tool.

We are able to identify transactions

for our book of business, accurately match lenders with transactions that fit their lending capabilities, and provide our referral sources detailed updates on the progress of the transactions referred to us,” commented Marcus. “Over the years, the CRM adapted as the business grew. What started as a lead management tool effectively morphed into an underwriting tool. There are often days that we are able to do the jobs of a dozen people through our technology.”

Marcus also serves as a national director for Interface Financial Group, a multinational company which specializes in construction and spot factoring. Prior to forming CFP, Marcus was a managing director and national sales director for Bibby Financial Services.

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THE INNOVATION ISSUE Process Innovators

LCG Advisors: Borrower Cybersecurity Assessment Provides Critical Information Paul Epstein, co-founder and managing partner of LCG Advisors, has been leading LCG’s due-diligence focus for nearly 14 years. LCG performs collateral field examinations and quality of earnings reviews for many of the largest banks and commercial finance companies in the world, as well as many middle-market private equity groups, hedge funds and family offices.

While servicing many industries over the years, LCG has a Healthcare Advisory Group that focuses on healthcare transactions with companies that have multiple payor classes, such as hospitals, assisted living facilities, physician networks, etc. LCG also has a Financial Institutions Group that focuses solely on specialty finance transactions such as consumer finance companies, leasing companies, asset-based lenders and factors, merchant cash advance lenders, etc.

In mid-2017, Paul, along with cofounder Brian Smith, realized that cybersecurity issues were so prevalent with businesses and industries of all sizes, that understanding a borrower’s overall approach and status with regards to cybersecurity should (and will) be a standard extension of the field examination or quality of earnings process. Cybersecurity provides just as likely a transactional risk to a lender as any other “traditional risk” that is currently discussed and appropriately prepared for. LCG, in partnership with Abacode Cybersecurity, has created a borrower cybersecurity assessment report which provides the lender or investor with critical information regarding their client’s systems, external and internal threats, cybersecurity insuranceclaim qualifications, and industry or regulatory (such as HIPPA) compliance deficiencies. It is widely understood that cybersecurity threats change every day, and it is not going away.

Instituting some form of cybersecurity basic blocking and tackling, no different than underwriting a new deal or monitoring an existing one, will eventually be a standard duediligence requirement for nearly all

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PAUL EPSTEIN Co-Founder and Managing Partner of LCG Advisors

lenders and investors.

“Cyber-risk went from being an afterthought to one of the top areas of risk and focus when completing debt or equity transactions. Whether the risk is regulatory (such as HIPAA or Government Contract Compliance, etc.), or threat-based (such as information seizure or complete lockdown), cyber-risk is just as likely to have an impact on cash flow or collateral in this day and age as any ineligible criteria or economic condition we have been evaluating for the last 20 years. Since we are already focused on and embedded within the transaction space through collateral field examinations or quality of earnings reviews, our goal is to efficiently provide cyber-risk assessments without overly burdening an alreadycomplex process,” said Paul.

Prior to LCG, Paul was the executive vice president of CitiFactors Financial Group, Inc. in Orlando, Flori-

da, where he was involved in developing CitiFactors into one of the leading niche commercial finance companies in the Southeast United States. In addition to his role at LCG, Paul also serves on the Board of Advisors for the University of Tampa Entrepreneurship Center at the John H. Sykes College of Business, and the Board of Directors for the Florida chapter of the Commercial Finance Association.

He earned his Bachelor in Finance from the University of Tampa.

Ruskin Moscou Faltischek: Innovating Dispute Resolution Lenders and other players in the financial services marketplace have generally tried to avoid litigation in employment disputes by utilizing arbitration provisions in their employment agreements. At the same time, however, they have provided for litigation in their loan documents and intercreditor agreements.

Jeff Wurst, a senior partner at Ruskin Moscou Faltischek in New York, is working together with the American Arbitration Association to advance the use of arbitration in disputes between lenders and their contract parties, including borrowers, guarantors, colenders, participants, etc.

According to Wurst, the cost and time involved in litigation has become prohibitive. This is exacerbated by the judiciary’s growing lack of familiarity with commercial finance and UCC law, creating a need for alternatives to the traditional judicial process.

Wurst cites the American Bar Association Business Law Section’s Task Force on Alternative Dispute Resolution in Commercial Finance Transactions and its Section of Dispute Resolution, Arbitration Committee Subcommittee on ADR in Commercial Finance Transactions’ Final Report and Supplementary Arbitration Rules for Commercial Finance Transactions, adopted in 2011, as a basis to start to rethink and innovate how lenders resolve their disputes with contract parties.

While major litigations often attempt resolution by mediation, whether voluntarily or through the prodding of the state or federal judge, it is rare for a lender to provide for arbitration — instead of litigation — in its documents.

Wurst emphasizes that the cost of arbitration is a fraction of the cost of litigation, to a great extent because discovery is minimal, if at all. Decisions are typically required to be issued by the arbitrator within thirty days following the close of the hearing.

Arbitration also provides an oppor-

JEFF WURST Senior Partner at Ruskin Moscou Faltischek

tunity to craft a process specifically tailored to resolving lending disputes.

Arbitration is a creature of contract and the parties are responsible for choosing (or creating) a process that adequately addresses potential disputes. Leaders in the financial services industry—like Wurst —who concentrate in lending disputes are uniquely equipped to develop a process that will efficiently address the industry’s disputes.

Courts frequently recognize the importance and utility of alternative dispute resolution mechanisms. For example, the rules of the Commercial Division of the New York trial courts were recently amended to require that as of January 1, 2018 “counsel for each party … submit to the court at the preliminary conference and each subsequent compliance or status conference … a statement … certifying that counsel has discussed with the party the availability of alternative

dispute resolution mechanisms … and stating whether the party is presently willing to pursue mediation and/or arbitration.”

The icing on the cake, Wurst points out, is that arbitration can be a confidential process and not easily reported in the press or other public vehicles.

According to Wurst, the first step in advancing the process of dispute resolution begins with a modification to the loan documents by changing the provisions on jurisdiction for disputes from the courts to arbitrators who are well versed in Commercial Finance and UCC law. Like any other innovation, first steps can be the hardest. Wurst encourages lenders to take a hard look at their employment agreements and question why what is good for employment agreements would not be good for loan agreements.

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THE INNOVATION ISSUE Product Innovators

HPD Software: Launching a First-of-its-Kind Product Kevin Day, CEO at HPD Software, is committed to making the company the go-to provider of secured lending software, globally. He is applying the in-depth knowledge and experience he has gained throughout his 25+ years at the company to do just that.

His long history in the industry means that Kevin truly understands the constantly evolving issues as well as the needs of the client. His experience with HPD’s technology and the market is a huge asset for the company – which is thriving with him at the helm.

After taking over as COO in 2009 and then CEO in late 2016, Kevin applied his extensive market knowledge to initiate a series of changes for HPD Software, and indeed for the industry. Most significant amongst these changes was the complete integration of HPD’s market-leading solutions into a single platform called LendScape.

Launched in early 2017, the LendScape solution is a first of its kind in the market.

Where previously HPD and other software providers offered separate solutions, LendScape offers a seamless end-to-end experience for HPD’s clients and their users.

This unique platform offers any size funder the ability to run their entire portfolio from

has taken notice. During 2017 HPD Software has been shortlisted for several awards, including the B2B Business of the Year for the Amazon Growing KEVIN DAY Business Awards, the CEO at HPD Software Technology Solution Provider of the Year (Vendor) for the Receivables Finance International Awards via BCR Publishing and the Best International Solua single solution, without ever having to tion Provider and Business Product Innovation switch systems to grow their business. of the Year (LendScape) awards via Business This complete integration, coupled with a Moneyfacts. Additionally, The Financial Times strategic shift to subscription-based pricing listed HPD Software as one of the Fastest delivered via a SAAS model, has propelled Growing Companies for 2017.

HPD Software to new heights – in 2017 there And this is just the beginning for Kevin. was a six-fold increase in new client signBy driving over $2m in annual investments ings compared to the previous year. into R&D, Kevin is positioning HPD Software With Kevin spearheading this unique for continued success in an ever-changing innovation, the secured lending market market.

Express Trade Capital, Inc.: Financing Companies with a Mission Ashley Orlando started at Express Trade Capital, Inc. as an intern in 2011. Soon after, she graduated from Sacred Heart University with an accounting degree and a concentration in fashion.

Ashley began working for ETC full-time after graduation, developing organized procedures for our PO financing department in addition to managing client accounts.

Ashley is currently vice president at Express Trade Capital and has recently established a new business division within ETC, an Eco-Financing division.

This sector of ETC’s business focuses on working with clientele that are producing eco-conscious consumer goods.

This includes natural and organic food products, green beauty and personal care products, ethically-made fashion, and sustainable home goods. ETC understands and appreciates the influence that they can have on consumer markets, which is why they love working with companies that inspire positive

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change in various industries. ETC is able to assist such companies by offering factoring, P.O. financing, shipping & logistics, and potential seed financing.

“The launch of our eco-diviASHLEY ORLANDO sion has been very exciting for Vice President at us at Express – not only has it Express Trade allowed us to successfully merge Capital our ethics as a company with the services that we are able to provide to our clients, but it also is very encouraging knowing that our services sumers,” said Ashley. have a direct positive impact on the In Ashley’s free time, she manages accessibility of better-for-you products her vegan and eco wellness blog where reaching the masses. Our eco-financing she provides reviews and recommendaclients are making thoughtful products tions for better-for-you, mission-driven with a mission behind them and, with products that are making the world a our financial assistance, they are able better place. to get their products out there on more (Editor’s Note: For more information shelves and in the hands of more conon eco-financing, turn to page 26.)

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THE INNOVATION ISSUE Product Innovators

AeroPay Express: Reinventing a Factoring Company “It is no secret that factoring has been a struggle over the past 10 years. Increased competition, net fee erosion and other lending options have all sucked the fun out of the business. That said, after 30 years in the business, I was not ready to give up. As a student of business history, I looked to the past to try and reverse the trend. History tells you everything changes and factoring was ripe for change,” said Stephen Troy.

Stephen’s epiphany occurred two and a half years ago with the reading of an article by attorney Steven Kurtz and a visit by some executives from an Indian software company. Both were pushing the idea of reverse factoring as an area of growth. During a meeting at the CFA convention, executives from the Indian company explained how their software could be used for reverse factoring. Stephen explained why it would not work and other lenders agreed with him. U.S. laws are different than India’s, he explained. “Reverse factoring had been tried and just doesn’t work here.,” said Stephen.

One thing they said changed his thinking. They explained their software was powered by the same system credit card companies used to settle transactions. “That got me thinking. American Express, Visa, and MasterCard had been slowly entering the B2B space, early paying invoices for the Fortune 500. Fortune 500 invoices haven’t been seen by factors in years. That moment, I stopped thinking like a secured lender and started thinking like a lender. Why couldn’t we act like a credit card company?”

Stephen explained.

Stephen said, “I asked myself, what is it we really do? I realized we weren’t secured lenders at all. Yes, we do get a security interest in our client, but that’s not whom we are giving credit to. Security merely gives us priority over our clients’ accounts receivable. The actual credit we give is to the buyer who owes the AR. We do not have a security interest in them. We, in essence, give the debtor unsecured credit. In actuality, we have always been unsecured lenders. Security has

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STEPHEN TROY President/CEO at AeroPay Express

only given us first priority to pick the bones of my client should they go out of business. It didn’t give me any secured rights over the debtor who owes the money.” Stephen realized that a whole industry built around article 9 of the UCC might not make sense in the 21st century.

Convincing his trained staff of factoring professionals and his bank that collateral doesn’t matter was a challenge. The company would no longer have clients and debtors, it would have buyers and sellers.

In the end, Stephen and his team created AeroPay Express. Instead of financing invoices for a client in need of cash, they lend money unsecured to debtors/buyers to pay sellers early. Strangely similar to factoring, just backwards. “Where Visa and MasterCard do random small charges between consumers and business, AeroPay Express “Early Pays” invoices on behalf of buyers/debtors to sell-

ers/clients. “Instead of looking for factoring clients, we now sign up factoring debtors.”

From the onboarding of our first AeroPay customer six months ago, AeroFund Financial’s outstandings have grown 50% while reducing payroll 20%. Impressive, but now it’s a race for market share. Visa, MasterCard, Amex and a host of independents are going after this market.

“Why am I so open about this?

I want my competitors to join me in total disruption of the secured financial industry. Our next move is to be a brand. Like Visa, MasterCard and American Express which issue cards through a consortium of regional and national banks, AeroPay Express can be the “Early Pay” brand issued through commercial finance companies and small community banks around the world,” Stephen concluded.

Coral Capital Solutions/Kashable: Factoring Team Creates Socially Responsible Loans for Employees Einat Steklov and Rishi Kumar launched Coral Capital Solutions together in the midst of the credit crisis to enable small businesses and startups in tech, telecom and new media to help them get the financing they needed.

Rishi and Einat recruited an experienced management team and added automation to the process of purchasing and management of receivables in order to bring about greater efficiencies and economies of scale to the factoring business.

The company has become an innovative source for evaluating factoring, purchase order and trade financing in new and fast developing markets for dozens of small and midsize businesses that have come to now rely on Coral Capital for their daily operations.

Building on this success and over a billion dollars in receivables financing, Einat and Rishi launched Kashable – creating an entirely new method of evaluating and underwriting consumer credit for personal loans. Kashable provides socially responsible loans for employees, offered as an employer-sponsored voluntary benefit program. By going through employers and incorporating reliable employment data and analytics to the individual consumer underwriting process, Rishi and Einat have delivered affordable credit to a very broad population that might not otherwise have access to mainstream credit options.

Einat and Rishi are working with large corporations and their benefit consultants to help fix a chronic problem at the workplace – employee financial stress.

The Kashable Loan Program offers CFOs and Heads of HR a better alternative to resolve their employees’ financial emergencies outside of 401k loans, replaces the need for a cash advance from the employer with a personal loan from Kashable and provides a reliable source of credit for employees to pay for healthcare deductibles. The Kashable Program is used by major corporations as a valueadded benefit and retention tool. The ability to offer this unique underwriting method of consumer credit is due to innovative thinking and a determination to deploy advanced technology developed in-house by the Kashable team

EINAT STEKLOV Founder at Coral Capital Solutions

RISHI KUMAR Founder at Coral Capital Solutions

-- to deliver a better credit solution to a population that needs it the most.

Outside of running Coral Capital Solutions and Kashable, Einat has served as the President of the Contemporary Credit Club of NY, a trade association that brings together people from all facets of the asset-based lending industry, and has also served as a board member of the IFA. She regularly meets with and mentors young, aspiring entrepreneurs at her alma mater, the Columbia Business School and, through her involvement with the IFA and CFA, shares her experience and advice with those just starting their careers, and making strategic decisions about starting their own financing companies.

As an MIT computer scientist and a former derivatives trader on Wall Street,

Rishi Kumar has combined the engineering techniques he developed in analyzing big data with cutting-edge financing and underwriting. Rishi’s operational and technical skills were instrumental in making Kashable a reality for employees in all walks of life, allowing them to better fund their healthcare expenses, and manage emergencies, while preserving and protecting their retirement accounts. Rishi has also actively assisted the CFA executive team in formulating data/research strategy as a past member of the CFA Data Subcommittee.

THE SECURED LENDER JAN/FEB 2018 23

THE INNOVATION ISSUE Product Innovators

Utica Leaseco, LLC: Financing Without a Net David Levy, founding member and CEO of Utica Leaseco, LLC, started the company with his partners in 2005.

They were intent on providing easily accessible capital to American companies whose credit situations preclude them from receiving traditional bank financing.

In the 12 years since, Utica has become an important funding source for struggling companies and brokerage firms alike. By focusing only on the customers’ character and collateral, never credit, David and Utica have helped turn around over 400 companies. Important innovations do not happen overnight and cannot be conceived without a significant amount of trial and error.

Utica’s innovative practices are showcased in all phases of the financing process. Utica’s product structure, as well as its focus on strategic and industry partnerships, contribute to Utica being one of the quickest and most reliable ways for non-bankable firms with equipment-heavy balance sheets to secure financing.

David said, “Term financing without a safety net of credit in the funding process, is very innovative in and of itself. Layer

that with our willingness to fund into any verifiably liquid pool of machinery and equipment and we believe we are very unique. No fixed charge coverage ratios, no financial covenants; these are DAVID LEVY also innovative approaches pioFounding Member and neered by Utica.” David added, CEO of Utica Leaseco, LLC “At Utica Leaseco, we are constantly looking for ways to refine the financing solutions we provide. This includes being acutely sensitive to changes in the tax codes and the need to modify our offerings based on the executive vice president position with those changes.”

Dovebid Valuation Services in 2000. He has David is a 30-year-plus veteran of the been the director of mergers and acquisifinancial services industry with a focus tions at MNP Corporation since 2004 while on asset management and control. David also maintaining his post at Utica Leaseco. started his career as a machinery and David attended the University of Michigan equipment appraiser with Norman Levy for undergraduate studies and The Harvard Associates in 1982, before moving on to hold Business School for executive education.

Bank Leumi: Spearheading an Innovative New Division Doug Meyer, senior vice president and group head in the Northeast Middle Market for Bank Leumi, joined Leumi in August 2015, but he has already achieved success in driving new business to the bank as well as in expanding our business into lucrative new areas.

He has converted several middle-market clients, holds responsibility for the bank’s entire book of New York-based financial services companies and has expanded our relationships with clients substantially, driving increases in the bank’s deposit base.

Most significantly from a business standpoint, Doug spearheaded the recent launch of Leumi’s water division. Officially launched in March 2017, the water division provides banking services to water-focused companies looking to expand internationally. Water is a $500-billion market in the U.S. that is growing exponentially (according to a Bank of America Merrill Lynch research paper from 2012) and is increasingly becoming a hot area of innovation and technological advances. Given these factors and Leumi’s extensive experience with the water industry in Israel, Leumi identified the area as prime for U.S. growth. Doug, who has

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volved in community service, engaging with numerous organizations that appeal to him on a professional and DOUG MEYER personal level. He is a Senior Vice President member of the Water and Group Head in the Environment FederaNortheast Middle Market tion and the American for Bank Leumi Water Works Association. With a passion to address clean water been interested in and involved with the scarcity in developing nations, he has also water sector for years, has taken the project served on the Board of Directors for the from its inception to launch and beyond.

Water Collective since its inception in 2011, He has been instrumental in preparing the and has held the position of Chairman of the strategic vision for the business line, laying Board since May 2015. He is a Board Member the ground work for implementation, cofor STEM from Dance, a Junior Board Memordinating marketing efforts and, crucially, ber for the Bubble Foundation and is active initiating the launch. Doug now serves as with the nonprofits Boys Town and the New the National Industry Head of the division, York Blood Center. overseeing all business within the sector.

Outside of the office, Doug is very in-

tsl profile

m

idCap Business Credit is an independent commercial finance company founded in 2004 that provides working capital loans from between $2 million - $10 million and up for companies unable to obtain traditional bank financing. Steve Samson, president, and Seth Cooper, national sales manager, discuss MidCap’s longevity and being a consistent face to the market.

MidCap Business Credit has proven it is in the market for the long run. With its headquarters in West Hartford, CT and a national footprint to include Canada, four loan production offices throughout the country, the company prides itself on its consistent approach to the market, including through the financial crisis.

“We’ve got a seasoned management team that’s been together for five-plus years,” explained Steve Samson, president. “Similarly, we also have seasoned senior lenders representing us as BDOs. They collectively average more than five years tenured with MidCap. We work with small and mid-size manufacturers, distributors, wholesalers, and service companies throughout the United States. In addition to receivable and

MIDCAP BUSINESS CREDIT

inventory revolvers, we can do machinery and equipment and real estate term loans. We’re industry agnostic.”

MidCap Business Credit’s asset-based loan programs bring liquidity to working capital, to allow business to expand or receive additional support. MidCap’s financing can be used to refinance existing borrowing arrangements, purchase inventory, perform leveraged buyouts and acquisitions, take advantage of trade discounts, enable growth and expansion and pay accounts payable and payroll.

Samson stressed MidCap is a trusted partner with their referral sources, not only with getting a deal to close but also dealing with their borrowers on a fair basis, even if performance expectations aren’t met.

“We strive to see the transaction through to the end without any material changes to the deal,” Samson stressed.

“We are a trusted partner, not just to the referral sources but also to the borrowers.

“The decision-makers in our credit committee like to meet the companies and ownership groups up front on every deal,” said Cooper. “I don’t think a lot of other shops do that.”

“MidCap is still small enough so that I or our chief credit officer goes out and visits with every client prior to closing the transaction,” Samson echoed. “We’re involved very heavily in the early stages of the transaction, including the preterm letter stage.”

Like most lenders, MidCap has successfully navigated and responded to increased competition and pricing pressure, particularly on the upper end of their market.

“New commercial finance companies have been forming, focusing on the higher end of our target market,” Samson explained. “We’ve seen our pricing come down over the past two or three years fairly considerably. Like most, we also

continue to see the continuous churn or runoff of the portfolio. We work very hard to grow at a moderate clip, essentially.”

MidCap Business Credit is also keeping an eye on the proliferation of online lenders. “We do watch out for online lenders from a portfolio perspective because we would be very concerned if some of them did an incremental financing, and that would be a telltale sign that our portfolio company has got a pretty bad liquidity crunch going on,” Cooper noted. “They are down market from us but we definitely watch for it. I am certainly concerned that they will move up market in the future, but right now they’ve stayed pretty much sub-$2 million, maybe even less than that, so we have not run into them.”

Eileen Wubbe is senior editor of The Secured Lender.

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Secured Lenders Find Opportunity in Organic and Eco-Friendly Companies

BY MYRA THOMAS Innovative lenders are answering the demand for capital from eco-friendly companies. Read on to find out what it takes to service this increasingly popular industry.

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TSL PARTICIPANTS

Bryan Ballowe

Mark Bienstock

Stephen Troy

managing partner,

managing director,

CEO,

TradeCap Partners

Express Trade Capital

AeroFund Financial

Ian Watson

John Willis

CEO North America

senior vice president and

Bibby Financial Services

senior relationship manager,

A

Renasant Business Credit

s the demand for organic foods, as well as energy-efficient technologies, environmentally-friendly and sustainable products and services grows, so too has the need for financing for these innovative businesses. But lending to companies in untried fields can be tricky.

Traditional lenders prefer companies in industries with historical data. But even for firms in the renewable-energy space with more of a track record, such as solar energy or certain biofuel companies, the due diligence and underwriting required is complicated, leading Main Street

lenders to often steer clear. Fortunately, that’s where savvy secured lenders are stepping up to the plate to provide the special expertise to service this unique client base.

Providing Customized Solutions The explosion in organic foods and sustainable products is particularly keen. In 2015, U.S. organic food sales increased by 11 percent to about $40 billion, topping the three-percent growth rate for the overall food market, according to the Organic Trade Association’s 2016 Industry Survey. Additionally, data from Grand View Research indicates the global organic and natural hair care, skin care, and cosmetic products market is projected to grow to $25 billion by 2025.

According to Mark Bienstock, managing director, Express Trade Capital, the growing number of eco-friendly companies is translating into a jump in financing

THE SECURED LENDER JAN/FEB 2018 27

requests. Express Trade Capital set up its eco-financing division in March to handle that demand, providing financing solutions for clean-label food and beverage, natural health and beauty, sustainable apparel and home furnishings companies.

Bienstock notes that financing is especially critical for smaller and fledgling companies with innovative ideas at their heart. “It’s certainly a specialty area, and every business has its nuances,” he adds. “Most lenders don’t want to be in a new arena.” Organic food companies, for instance, get the seal of approval from

Financial. The Perishable Agricultural Commodities Act of 1930 (PACA) is just one reason why. Fresh and frozen produce are regulated by the Act, which serves to collect licensing fees and protect sellers from non-payment. Growers, distributors and wholesalers’ sales are then protected by a trust. “A lender cannot get title to the goods or the underlying invoice until they are paid for,” says Troy. “Many lenders will stay away because they have no priority over the invoice should a supplier fail to pay for the goods.” Additionally, a security interest in fresh fruits and vegetables

“In our experiences with businesses looking to produce green product solutions, these are companies run by seasoned entrepreneurs with balance sheets that require additional financing to fulfill deliveries,” he says. The companies are often undercapitalized. “Our purchase-order funding solution has in the past been a good source of incremental capital instead of giving up equity.”

That can be particularly important for company founders who are looking to keep control of an eco-friendly business and follow through on their socially responsible focus. a number of USDA-certified agents. However, the “natural” designation for food ingredients and production continues to evolve. Given the landscape, secured lenders need deep knowledge to underwrite the risk. “We check through the food chain, whether it’s farm facilities or packers,” says Bienstock. “You can’t move into something like this overnight.” But even with the special considerations for “eco-companies”, Bienstock admits that due diligence and underwriting boil down to one thing: “We need to know that they understand their business and their industry,” he says.

The Nuances of Due Diligence For agricultural businesses, obtaining financing can be especially difficult, admits Stephen Troy, CEO, AeroFund

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opens lenders up to future liability if they handle funds that are never paid to a grower. Troy’s company, AeroPay Express, provides unsecured agricultural loans to eco-friendly companies, making sure growers, wholesalers and distributors are paid. “We pay the vendors and don’t take title to the goods or take a security interest in the invoice and so we have no future liability,” he says. “We don’t handle proceeds of the sale.” Many organic food and eco-friendly companies simply can’t borrow from private finance companies or banks, and they are often not big enough to qualify for federal farm programs. That’s where creative lending solutions like AeroPay Express are certainly welcomed.

The considerations for each client can

be very specific, too. John Willis, senior vice president and senior relationship manager, Renasant Business Credit, describes the nuances in understanding a used motor oil recycling company. He notes that credit underwriting of an oil recycler requires an evaluation of the market cycles and the environmental realities that have a bearing on the collateral value and cash flow of the borrower.

“During times of high oil prices, recyclers of used motor oil and petroleum waste by-products pay to obtain raw used stock since the high market value of their recycled finished goods affords an adequate profit margin,” he says.

Conversely, during times of low oil prices, the market value of recycled finished goods drops such that the used oil products are not worth much. “At this point, waste material generators pay recyclers to collect their waste material to avoid adverse environmental, storage capacity and regulatory consequences,” says Willis. This incentive for waste generators to pay recyclers for the removal of their waste material is primarily driven by the environmentally-sensitive nature of the material. This mechanism of paying for raw stock and charging to collect raw stock is essential to a recycler’s survival when oil prices are low.

But it takes a sophisticated lender to understand the environmental risks, as well as the fluctuations in this specialized industry.

Empowering Eco-Entrepreneurs While financing is certainly necessary for young businesses to grow, secured lenders also have another role to play when it comes to organic and environmentally focused companies. Secured lenders can offer a consultative role, in addition to financing, to guide an eco-business to best practices with their suppliers and, in turn, help sustain the company’s growth. That guiding hand is essential for businesses on the cutting edge, such as regional food enterprises that are fueling the local food movement. According to a report from the Federal Reserve Bank of St. Louis, “regional food enterprises often

have innovative business models that require unconventional capital to help their operations grow and allow them to generate regional socio-economic benefits.”

The financing needs are pretty much the same for other types of environmentally-focused companies. Bryan Ballowe, managing partner, TradeCap Partners, notes, “In our experiences with businesses looking to produce green product solutions, these are companies run by seasoned entrepreneurs with balance sheets that require additional financing to fulfill deliveries,” he says. The companies are often undercapitalized. “Our purchase-order funding solution has in the past been a good source of incremental capital instead of giving up equity.” That can be particularly important for company founders who are looking to keep control of an eco-friendly business and follow through on their socially responsible focus.

Understanding the Terrain When it comes to innovative businesses, secured lenders are vital to bridging financing gaps, especially during the pre-shipment of products. “We’ve seen companies with great direction and management, and we can help to realize orders,” Ballowe says. “We all have a responsibility in the overall grand scheme of things to help enable companies that are trying to help our environment. The company leaders are forward-thinking and entrepreneurial, and they’re likely spending their own money for a cause they believe in—breaking new ground.”

Eco-business covers quite a bit of territory. Every situation and company is unique. Secured lenders have to be prepared to develop a safe lending arrangement to accomplish what the client and lender need. That means changing with the times and the demand. “Six to seven years ago, we saw an uptick in biofuels, but in the last couple of years, there’s been an uptick in consumer products,” says Ballowe. Fortunately, adaptability is the bailiwick of asset-based lenders, factors and specialty finance companies.

According to Ian Watson, CEO North

America, Bibby Financial Services, one of the strengths of secured lenders is the “broad reach and agnostic approach” to the industries considered. “Our aim is really to understand the context of the business and the principles behind it and work out how to support them most appropriately,” he says. “We need to try and understand the driver of the business.” That might mean understanding the certifications on organic food products offered or the unique cost structures of a recycled metals company.

It’s all about the context of the business, he notes. “We have to verify the claims

products and services.

Often, the motivation to run an ecocompany comes from a desire for the business owner to operate with socioeconomic benefits in mind. Socially responsible businesses might not show the same financial returns as a company in some other industry. The measurement of success can be very different.

And while secured lenders are not in the business of charity work, they are much more amenable to considering outof-the-ordinary companies due to the nature of the financing products they offer. “As asset-based lenders, our desire to

Due diligence for any given transaction is dictated by the peculiarities of the business, such as the environmental aspects of the industry. For example, a solar panel company would require significant underwriting of competing forms of energy, government subsidies, and political vulnerabilities, notes Willis.

But despite the significant challenges in underwriting this type of client, Willis says that the ABL industry is supportive of businesses that deliver beneficial products and services. the company is making about sustainable or organic products, and it can be a difficult process.” Secured lenders need to be ready to adapt, especially since many of the eco-friendly products and services offered are not in regulated industries and the designations tend to evolve. “It drives us to be a little smarter and do more due diligence,” he adds.

Due diligence for any given transaction is dictated by the peculiarities of the business, such as the environmental aspects of the industry. For example, a solar panel company would require significant underwriting of competing forms of energy, government subsidies, and political vulnerabilities, notes Willis.

But despite the significant challenges in underwriting this type of client, Willis says that the ABL industry is supportive of businesses that deliver beneficial

support environmentally-friendly companies will always be tempered by an underwriting of the collateral and cash flow of each loan opportunity,” says Willis. “However, emerging industries with new challenges to solve is a good thing.”

Luckily, for organic and environmentallyfocused companies, secured lenders are opportunistic by nature, existing to underwrite challenges and ready, willing and able to deliver tailored and practical financing solutions. TSL Myra Thomas is an award-winning editor and journalist with 19 years’ experience covering the banking and finance sector.

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2018:

STATE OF THE ABL MARKET

OPPORTUNITIES AND CHALLENGES FOR LENDERS

BY SETH E. JACOBSON, GERARD C. MARTIN, DAVID M. WAGENER Attorneys from Skadden, Arps, Slate, Meagher & Flom LLP alert lenders to what they should be prepared for in 2018.

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Asset-based lending is now firmly entrenched in the mainstream of financial products, yet its role in the market continues to evolve. Market participants are exploring new ways to use the low pricing and operational flexibility provided by asset-based loans, while lenders enjoy their low historical loss rate. However, new opportunities – and challenges – will require strategic forethought and flexible implementation by asset-based lenders. ABL markets, as with the broader loan market, have experienced a continuing imbalance between supply and demand, resulting in increased competition for funded loans and, ultimately, more borrower-favorable loan terms. Meanwhile, regulatory pressures constraining bank ABL lenders from leading or participating in deals with highly leveraged capital structures or in distressed situations may be softening, as demonstrated by recent developments regarding federal guidance on bank leveraged lending. As financial transactions become increasingly global, foreign ABL markets present new opportunities, while non-bank ABL lenders simultaneously challenge traditional providers.

Financial sponsors continue to influence the ABL marketplace – as with loan markets generally – pressuring loan arrangers to market transactions with tighter pricing and more flexible terms. Thomson Reuters LPC reports that in 2017, well before year-end, lending to private equity-sponsored companies in the U.S. market hit a record high – over 50% higher than 2016 levels according to the Loan Syndications and Trading Association. Their statistics also show that, the first three quarters of 2017, sponsor ABL loan issuance has accounted for 35% of the U.S. ABL market.

In addition to driving transaction volume, sponsors typically run competitive auctions for lead left roles in transactions. It has become commonplace for sponsor/borrower counsel to prepare auction terms grids and/or commitment papers as the

baseline for the auction. This creates efficiency for the sponsors as they can compare loan terms on an even basis.

This competitive dynamic results in loan arrangers presenting more flexible and borrower-friendly terms than they may have proposed absent the auction. In a further effort to control costs and negotiate documentation in an efficient manner, many sponsors base ABL transactions for their portfolio companies on pre-agreed precedents. The developing trend is that the precedent sets a floor for terms, but sponsors and their portfolio companies are often able to make improvements over the course of negotiations.

Meanwhile, lenders that are unwilling to compete are likely to be frozen out of lucrative arranger and agent roles, not to mention ancillary business.

Similarly, modern loan markets have created pressure on ABL lenders to adapt terms to conform to bond or term loan market norms. The balance sheet of a modern business often has multiple layers of financing, serving different purposes. The more the terms of these products differ, the more complexity and less perceived flexibility borrowers have in their overall financial structure. Throughout this decade, the “convergence” of terms in the high-yield bond and term loan B markets has been well documented.

A similar phenomenon has been occurring in ABL markets, as sponsors and CFOs have sought to unify the terms of their loans to the maximum extent possible. This dynamic is most apparent in sponsor auctions, where sponsors seek to require that terms of ABL financings will be based upon those of the borrower’s bonds or term loans, with only specified changes for the ABL. In these circumstances, ABL lenders are forced to enumerate the sacred ABL terms (beyond the borrowing base) that cannot be conformed with the rest of the capital structure – springing cash dominion, field examinations and appraisals, borrowing base and other ABL-specific reporting,

THE SECURED LENDER JAN/FEB 2018 31

among others. ABL lenders also seek to constrain certain, particularly sensitive terms – builder baskets based on retained excess cash flow or consolidated net income, unlimited baskets for restricted payments, investments and payment of junior debt based on meeting a maximum leverage ratio, and large general baskets (all of which the typical ABL lender expects to replace by payment conditions), as well as “soft” EBITDA addbacks based on run rates of cost savings initiatives and synergies, and a myriad of other terms that may be more common in the bond and term loan marketplace.

Similar (but less intense) dynamics occur when a corporate CFO asks its prospective ABL lender to adapt an existing, or already-negotiated, term loan document to incorporate only necessary ABL terms.

ABL lenders are able to adapt to these demands due in part to the increasing focus on asset-based lending as a product – rather than as a line of business. The biggest deals – and rewards – go to the financial institutions that demonstrate the ability to deliver asset-based loans as part of an integrated capital structure, providing the most efficient solutions to the problems faced by CFOs and sponsors.

Another important factor to which ABL lenders have had to continually adapt is the role of government regulation, which stepped up significantly after the financial crisis. In particular, bank ABL lenders have been significantly constrained since March 2013, when the Board of Governors of the Federal Reserve System, the FDIC, and the OCC, in response to the financial crisis, issued the Interagency Guidance on Leveraged Lending. The intent of the Leveraged Lending Guidance, as perceived by the financial industry, was to address systematic risk to the U.S. financial system caused by the loan market. Bank ABL lenders, in particular, viewed the guidance as a significant constraint on their flexibility, preventing them from making ABL loans that they would anticipate

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to be low-risk and profitable, and restricting their ability to amend, renew, or refinance existing ABL loans to leveraged borrowers. The result has been a significant distortion in the ABL marketplace, pushing potential ABL transactions away from regulated banks and toward alternative financing providers, or preventing certain transactions from occurring at all.

In October 2017, after a review prompted by a request by Sen. Patrick Toomey, the U.S. Government Accountability Office determined that the Leveraged Lending Guidance constitutes a “rule” for purposes of the Congressional Review Act (CRA). Under the CRA, this determination throws the enforceability of the Leveraged Lending Guidance into doubt, and permits Congress during a specified time period to issue a joint resolution that would disapprove the Leveraged Lending Guidance. Such disapproval would prevent the Leveraged Lending Guidance from being effective, and would block its reissuance in substantially the same form. It is unclear how this situation will play out – but there is a significant possibility that the Leveraged Lending Guidance will be reworked in a more permissive form, or else nullified entirely until a replacement can be enacted. Either result would have a positive impact on ABL issuance by banks, and roll back the regulatory advantage enjoyed by alternative lenders (who are not subject to the same legal constraints).

Another positive development for ABL lenders has been the expansion of the international market for ABL products. Multinational businesses face significant challenges in finding flexible financing that permits multinational borrowing based upon global assets. Asset-based lending is becoming a more common solution to this dilemma. ABL lenders are becoming comfortable lending into an increasing number of jurisdictions – from the U.S. and Canada, to European jurisdictions including England, Ireland, The Netherlands, and Germany, to Austra-

lia and New Zealand, among others.

In addition, lenders are sometimes able to structure transactions on a one-off basis in other jurisdictions, based upon a borrower’s distribution of assets and global capital structure, and considerations of local bankruptcy, insolvency, and commercial law.

Over the past decade, certain foreign jurisdictions have adapted their laws to become more ABL-friendly, further expanding the potential footprint of the ABL market. Some U.S. lenders have even arranged standalone foreign asset-based facilities, with no U.S. component.

From a borrower’s perspective, the optimal asset-based loan structure would provide a single, worldwide borrowing base, available to support credit needs in every jurisdiction (regardless of the location of the business’s financeable assets). The practical reality still remains much more complicated, as various legal and practical constraints require that each multinational ABL transaction be tailored to the individual borrower. For example, Section 956 of the U.S. income tax code constrains the ability of foreign subsidiaries of U.S. entities to provide guarantees of indebtedness of their U.S. parents (although any loosening of these restrictions could create substantial new flexibility for structuring ABL transactions, and would warrant a revisiting of the structures of many existing transactions). Under current law, multinational businesses that have foreign parents have the potential to enjoy substantially more transaction structuring flexibility than multinationals with a U.S. parent.

Similarly, non-U.S. laws regarding restructuring, insolvency and financial transactions generally – including laws having an impact on effectiveness of guarantees, priority of claims, and other matters – require careful consideration, both in the establishment of prudent availability reserves, and in the structuring of how borrowing base availability may (or may not) be shared among U.S. and foreign

subsidiaries. Foreign counsel can play an important role in determining how these factors affect optimal structure and implementation, although the lender and its U.S. counsel must often know what questions to ask in order to avoid unexpected consequences.

Fortunately, foreign counsel are becoming increasingly sophisticated in advising on ABL transactions, particularly in those jurisdictions that are more accommodating of ABL transactions generally.

Whereas the U.S. ABL market is a mature and highly competitive market, overseas markets are becoming important to ABL lenders at an accelerating rate, and present a significant, long-term opportunity for expansion and growth. Lenders and their counsel, however, must understand the legal and business challenges inherent in ABL lending in these markets. Those who develop the mindset to ask the right questions have the opportunity to be successful. Sometimes creative solutions can solve a particularly difficult issuer request, such as structures that sell receivables from one subsidiary located in an unfavorable jurisdiction, to another subsidiary that is more favorably located.

While pursuing these opportunities, ABL lenders must keep an eye on the business cycle – both on a macro level and as it relates to specific industries.

Important industries for asset-based lending have historically included (among others) retail, steel, auto supply, rental equipment, logistics, paper and office supplies. Each of these industries is affected in different ways by the business cycle and by disruptive forces in the marketplace. Retail represented almost 19% of ABL volume in 2016, according to Thomson Reuters LPC, and this market, in particular, has been hit hard by the online-shopping effect. Traditional retailers – historically an important sector for ABL – have had to rethink their business models in order to compete, and not all have been successful in this regard.

Fitch Ratings has reported that retail

institutional leveraged loan default rates have surged in 2017.

However, it is a testament to the inherently robust nature of ABL products that loss ratios have not followed. Fitch Ratings has stated that, while more than half of the 33 general retail bankruptcy cases since 2005 have ended in liquidation, they “tend to have outstanding first-lien recoveries”. ABL lenders are protected, even in liquidation, by the structure and collateral-focus of ABL loans. The ABL borrowing base automatically resizes availability with the expansion or contraction of the underlying business; as a result, providing substantial control (and an early warning trigger) to the lender and minimizing potential losses. ABL loans are also self-liquidating, particularly in cash dominion – receipts automatically repay outstanding loans, and reborrowing requires the borrower to meet its draw conditions.

At the same time, ABL lenders enjoy significant opportunities in restructurings. Debtor-in-possession (DIP) financing levels grew 700% from 2015 to 2016 – to $7.5 billion, according to Thomson Reuters LPC. In an environment of high leverage and rising interest rates, there are likely to be borrowers that collapse under the weight of their capital structures and require super-priority financing in chapter 11 – a natural role for ABL lenders. Roll-up DIPs, where prepetition ABL facilities are refinanced by court order as postpetition DIP financings, provide substantial protection to prepetition ABL lenders. Loss ratios on ABL facilities in bankruptcy remain low, even in liquidation, and restructured businesses, with cleaner balance sheets, will still need revolving financing liquidity.

Combined, these trends point toward a bigger, more global ABL marketplace, where pressure to provide more flexible terms and finance more aggressive transactions continues, in a less-aggressively regulated marketplace. This will be true at least until

rising interest rates – and default rates – slow down the acquisition and leveraged loan markets. TSL Seth Jacobson is a partner and global co-head of the banking group at Skadden, Arps, Slate, Meagher & Flom LLP. Gerard Martin and David Wagener are counsels in the banking group.

This article represents the opinions of the authors only and not of Skadden, Arps, Slate, Meagher & Flom LLP or its affiliates, and is not intended and should not be construed as legal advice.

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The Evolving Fintech/ Bank Ecosystem

BY EILEEN WUBBE The financial technology (fintech) industry’s new offerings are continuing to disrupt the financial ecosystem, including new products from robo advisors, blockchain and bitcoin, reg techs, insure techs, banks and Alt Fi. Investments in fintech have skyrocketed because of the upward trend to invest in innovation. Fintech is apparent in any industry involved with payments, finance, insurance or customer service.

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Online business loans have increasingly become the priority of a number of fintech lenders. In the ABL industry, Fundation has announced partnerships with Regions and Citizens Bank; JPMorgan with OnDeck Capital; Santander U.K. and ING in Spain with Kabbage; and Biz2Credit with Citibank, Customers Bank and Oriental Bank. As more awareness and knowledge about the financial technology industry grows, fintech is no longer considered a threat to banks, but most report they offer the chance for a collaborative and synergistic partnership.

This roundtable discusses fintech partnerships with banks, trends and challenges. It features: Andrew Bertolina, CEO, Finvoice; Pak Chan, director of business banking, retail marketing, Santander UK; Justin Hannemann, head of new product and service design (customer and innovation), Santander UK; Rob Kleiber, chief operating officer, Biz2Credit; Benoit Legrand, head of FinTech, ING Group and Vinay Mendonca, global head of Product & Propositions, Global Trade and Receivables Finance, HSBC. How are fintech companies partnering with banks and why are more pairing up?

HANNEMANN: There seems to be a transition happening over a relatively short period of time where some of the arrogance and drive and the tenacity of the fintechs and the startups has started to correct towards becoming a lot more open-minded for partnerships. One reason is the pressure of VCs and their shareholders for a return. I think fintechs are especially realizing that without a brand, or if it’s lending-specific, the cost of funds advantages is extremely difficult for them to be able to reach a critical mass either on the demand or the supply side.

CHAN: I think coming from a business perspective, banks are traditionally a one-stop shop. We do everything for our customers. What we’re finding

obviously with the progression of technology and then fintechs, is that a lot of new organizations coming up who are very focused on one problem statement that a customer would have and putting all their energies into solving that one problem statement.

Therefore, fintechs can potentially can deliver a better solution, mainly the customer experience of the solution, than a bank can.

LEGRAND: We have always considered fintechs and banks a good marriage.

ING, which currently has 115 partnerships with fintechs, offers a big client base (almost 37 million customers), immense knowledge of the financial sector, while capital and fintechs offer agility and specific technological know how. This combination is a winwin-win: a win for fintechs, a win for banks, and most importantly, a win for customers as they will benefit from a differentiating customer experience as a result of these partnerships. ING was the first global bank to leverage the Kabbage Platformä.

KLEIBER: Banks are trying to figure out how to make the experience simpler for their customers, and at the same time, reach more customers in a streamlined process. With the need to upgrade systems, banks are looking to fintechs to provide the services to go to market in a faster and more efficient way. Building internally simply takes too long and has too high of a price tag. Many times, once the project is complete, the technology is outdated and the project is over budget.

The fintechs traditionally in this space have been trying to partner with banks to fund their declines. That was the model deployed by the CAN Capitals of the world and some of the other more traditional players, who kept coming to banks and looking to fund their declines. We didn’t see too many of those partnerships really take hold.

The shift occurred when the conversation moved from funding bank

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declines to helping them grow their business. At Biz2Credit, we do view banks as an important part of the ecosystem and certainly friendly. The partnerships have shifted from “Let’s see how the online lenders can get more decline volume” to “How can the online lenders, with the technology platforms that they’ve built, help banks to reach more clients in a digital environment?”

BERTOLINA: We try to solve this problem of small business credit through software and we think software is infinitely scalable across geographies.

We sell software that allows brickand-mortar lenders, to do three things.

First, they can originate like a fintech, a small business can apply for money in five clicks; second, they can underwrite through a number of data integrations, thirty-plus data integrations and reduce fraud by 40 percent; and third, they can service a loan or factory in line with tech scalability. A lender can grow a portfolio about three times without growing a head count. Finvoice is a white label software solution, so that means if you apply for a loan, for example, at one of our clients, then you will never know that Finvoice is there, but we are the entire kind of software experience.

MENDONCA: In March 2017, HSBC announced a strategic partnership with Tradeshift, the world’s largest business commerce platform. Tradeshift connects 1.5 million buyers and sellers across 190 countries, with transactions totaling half a trillion US dollars per annum.

Together we have launched an integrated proposition which allows large corporate buyers to automate and fully digitize paper-heavy, procure-to-pay processes for all their suppliers. Clients access all their supply chain transactions on a single, cloud-based platform, accessible from the device of their choice. This proposition provides businesses with an intuitive accounts payable solution that improves visibility, enhances risk management and dramatically increases efficiency. This cutting-edge proposition

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has transformed the client experience, combining the benefits of accounts payable automation with integrated early payment capabilities.

How have banks gone about partnering with online lenders?

HANNEMANN: For Santander UK, it’s all about viewing external opportunities through the eyes of the customer to see where the potential gaps are in taking the best-in-breed that are available through fintechs and applying them internally. The approach that we took, which was very non-banking, around speed and flexibility, almost what a fintech would do in value, and go to market more or less over other things, aside from great experience. We took the approach of working with Kabbage, which has around 250-plus people and is focused on a great lending experience, as opposed to working with a very small team internally and trying to pull the same thing off. But thinking about them in their entirety from a lending perspective, it’s very easy to carve out elements of a lending proposition, operationally-focusing on just the decision engine or just the score card or just the model or just the platform or just the UX or just the front end. The temptation is for many banks to more or less take off very small elements of that.

With Kabbage, we made a principled decision very early on to really try and take off as much of the value as possible that Kabbage had to offer in order for us to be able to learn across a breadth of potential benefits as opposed to narrowing that down.

Especially against a conservative industry, the tendency is to want to take a very small risk approach to partnering. However, I think we put our money where our mouth was. In fact, we did a venture, which is our global VC arm, and took an equity stake and went in as full on as you possibly could imagine to work with them as a partner in order to be able to realize that benefit.

LEGRAND: We have an intensive scout-

ing process. The fintech should really be a match to achieve your strategic goals.

Kabbage ticked all these boxes and we’re now looking at how we can further expand the partnership, as we just did with the launch in France and Italy.

MENDONCA: HSBC has a Strategic Investment Team, which is responsible for identifying, investigating and analyzing potential fintech partners. HSBC currently has relationships with a number of emerging fintechs including: Bud, GT Nexus, Kyriba, Tradeshift, as well as established players such as Google, IBM and Microsoft.

Clients expect their bank to understand their business and provide propositions which are relevant in the emerging digital marketplace. HSBC is delivering transformative supply chain solutions at pace.

KLEIBER: It typically starts with an open conversation that is brought on by internal discussion surrounding the large opportunity of small business lending. Biz2Credit can help banks with their volume targets, specific asset classes, customer onboarding, underwriting and scorecards. We are seeing strong interest from banks in improving the origination and underwriting process through our aggregated data and scorecards. With over 220 engineers and data scientists, we are at the forefront of innovation and risk modeling. Banks are able to take our platform under a White Label to quickly go to market and serve more clients.

What are some of the benefits and challenges of fintech/bank partnerships?

CHAN: I think some benefits of us partnering with the online lender are from a bank’s perspective, and what we get is access to some very specialized technology in the sense it can deliver great experiences. What we get is access to know how and a partner who really specializes in an area. If we offer that type of proposition to our customers, it would enhance overall service to what we offer our customers.

One of the biggest challenges that new fintechs have is trying to achieve scale. It’s

very hard for them and, therefore, they tend to be very unprofitable for many years for that reason. A lot of the challenges are from understanding the partnership and the equal value that both organizations will get out of it and, therefore, they see a basis of going forward. I think that’s a really key one. Then there’s also the practical challenge of just putting it in place in a much-regulated environment. So, for example, with our collaboration with Kabbage, not only was the technology very different and you have an IT integration challenge, but you’re also talking about very different geographies, one being U.S.-based and the other one U.K. There are different regulations ranging from the Cloud all the way through license to offer lending and branding.

I think another key challenge for fintechs is how patient their investors are because for these it’s a long-term payback; it’s not short term. Until they get the scale, they’re not going to be able to return much investment back to their investors, but yet they need their investors to believe in them and give them that time in order to get to scale.

KLEIBER: From my perspective, some of the challenges that a fintech company will have working with a bank or even new companies with great ideas out there, is the vendor management process in banks can be exhaustive. I think you’re going to hear a lot of partnership announcements over the next year or two simply because of the process to come to agreement and launch into market can take a lot of time in some of the larger organizations. Just getting through an RFP process can take from months up to a year in some organizations or longer.

I’d say many of the fintech companies that are out there will not survive the vendor management process. Venture firms are throwing money at some fintech companies that have some volume or a product, but they don’t have profitability.

I think when banks are looking to fintech partners, they certainly have to ask the question: “Will this company be there in five years?” So I think many of the companies that are out there with great ideas

aren’t able to bring them to some of the large banks just from a financial viability standpoint.

BERTOLINA: I think there are downsides for the banks. They don’t own their IP so they’re either in a position where they need to buy the company or continue to license it. Because there are risks, banks have an extensive vendor management process. If you have a technology that licenses its software or its advanced analytics (e.g. ML/AI), the bank is dependent in some way dependent to a vendor. The banks want to mitigate vendor risk, especially with respect to their core functions. For large banks this is even more important and thus they have very arduous bank vendor management processes.

There is an inherent conflict between what a fintech can provide and the bank, and if it becomes too important then the bank will often try to either acquire or lock up a long-term agreement with this technology provider.

What do you expect to see in the coming years? How will technology continue to reinvent finance?

HANNEMANN: I can potentially see a crossover of collaboration outside of just technology, especially in situations where customer ownership or loyalty is driving through a platform. In fintech and financial services I think we’ll see more collaboration. I see technology probably driving a lot hard across the digital transformational theme that’s playing out across banking, the need to be able to move off high cost legacy tech stacks to more cloud-based, agile micro-server structures in order to be able to drive more value back to customers without having to, or being charged a fortune to, make some compliance changes internally. So they need to think about evolving the technology into new stacks. They are trends we’ll continue to see partly-driven by what other players are doing in the broader market, but also by efficiencies in technology.

adoption of alternative risk models within traditional banks. Banks will continue the shift to cloud at a rapid rate, opening up new opportunities to grow their segment. I think the next phase will be the application of AI and ML into risk scorecards and portfolio monitoring.

When a bank partners with fintech companies, they are able to be at the forefront of innovation and take advantage of our learnings from our marketplace. We are able to deliver a customized solution meeting bank requirements in a short period of time, which is a true advantage of a fintech.

Our current footprint includes North America, India and Australia with platform development underway in other key countries.

LEGRAND: Technology is an enabler, but a crucial one. We are probably only at the beginning. AI, IoT, blockchain; there are many drivers that will continue to transform banking. Our strategy is to develop the goto platform for financial needs and beyond and to become part of others’ platforms.

All the technologies I mentioned will play a role in this, but the main thing is: it’s about creating a differentiating customer experience. TSL Eileen Wubbe is senior editor of The Secured Lender

KLEIBER: We’re starting to see a greater

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Cheering Mining Portfolios and

The Return Of Buyouts, ABL Lenders See Increase In Syndicated Loan Volume

BY MARIA C. DIKEOS

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Brushing aside unsettling and, at times, unsavory, geopolitical headlines, U.S. asset-based lenders completed almost US$83bn in syndicated loan volume through the end of November 2017 to surpass full year 2016 results (US$76bn).

With a few weeks left in the year, 2017 syndicated asset-based lending (ABL) is poised to mark the third, if not the second, highest annual total on record (Fig. 1).

Lenders said market steadiness and unmitigated signs of growth led to a sense of optimism. This was supplemented by low default rates and the general feeling that credit fundamentals remain strong. There were a number of sobering voices pointing out that after eight years of positive – albeit tepid – economic growth, the market is due for a downswing. But from a technical standpoint, there was little to hint at an imminent downturn.

Moreover, any cyclical market shift would more than likely present the ABL community with more lending opportunities rather than less. Especially if it was accompanied by a partial rollback of leveraged lending guidance.

Against this backdrop, the constraints imposed by regulatory rules, including leveraged lending guidance, was old news in the context of the 2017 ABL market. Arrangers noted that the new battleground was arguably around the uneven application of regulations from bank to bank and, more specifically, the appetite and ability of some lenders to push risk further than others.

This regulatory nuance became a more pressing concern in the context of the supply/ demand imbalance, which has undermined both asset-based and cash-flow lending in the last few years.

On a positive note, at just over US$25bn, new asset-based loan assets through the end of November 2017 represented the highest total since full year 2008 (US$27bn) (Fig. 2).

2017 also saw the return of large, new-money ABL financings including Staples, Toys R Us and BassPro. Some of these credits had complicated stories.

BassPro lenders, for instance, waited

TD

Fig. 1 Almost US$83bn of Syndicated ABL Volume Completed Through November

over a year, pending regulatory approval, before the deal could close – but they all got done. Over US$68bn in large corporate ABL deal flow, specifically, was syndicated through November (Fig. 3). Of this total, nearly US$20bn or 28% represented new loan assets.

The results did little to satiate lender

appetite. Sixty-eight percent of syndicated ABL volume was concentrated among deals of less than US$200m during the first 11 months of 2017. These smaller, clubbier deals did not require as many lenders. Even larger financings were clubbed up in a testament to deep market capacity despite the larger hold levels.

According to Fig. 2 Refinancings make up nearly 70% of 2017 volume a November Thomson Reuters LPC poll directed to the ABL community, about 60% of respondents (compared to 67% of respondents at the same time last year) indicated they had not been able to lend as much as they would have wanted in 2017.

Although

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Fig. 3 Large Corporate Borrowers Use ABL as Relationship Lending Tool

the limited size of the syndicated loans pipeline played a role at a high level, a number of additional factors came into play. Several arrangers noted that there were signs of more selectivity among banks as credit committees weighed relationship with issuers, borrower wallets, deal structures, credit quality and RAROC models more closely.

At the same time, M&A did pick up to garner 12% of year-to-date volume – the highest total in four years. Event-driven deal flow did not necessarily represent entirely new ABL assets for investors.

Over US$57bn of year-to-date ABL volume had some refinancing compo-

nent associated with it. This figure excludes event-driven transactions, which took out previously existing debt.

Much to the joy of the ABL community, sponsor-backed deals reemerged quite prominently to make up nearly 50% of new ABL volume in the second half of the year, up from 47% in the first half and the highest pro rata share of the market since the first half of 2011 (Fig. 4). Lenders noted that some of the wins they were able to garner came in combination with stronger origination efforts across their organizations, which allowed them to partner the asset-based loan with a broader debt-capital markets offering.

In many cases, these wins – while unquestionably value-add – nevertheless came with the tinge of thinner spreads and looser terms. The asset-based revolver, similar to the investment-grade revolver, became a relationship give-

Fig. 4 Sponsored Deal Flow Supports New ABL Issuance

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away in the context of a broader, multitiered institutional product offering.

Against this backdrop, a number of lenders pointed out that, even if they hit 2017 ABL volume goals, returns in many cases were down due to smaller fees. Among deals of at least US$75m, spreads wrapped around a mean of 175bp over Libor and ancillary business became a justification to doing deals.

At the end of 3Q17, roughly 55% of all syndicated asset-based loans were priced at 150bp over Libor or below.

More noteworthy, 125bp over Libor emerged as the market benchmark for high-quality ABL credits (Fig. 5). Average drawn spreads several weeks into 4Q17 have hovered at about 185bp over Libor (Fig. 6).

In a similar manner, strong demand for assets and diverging risk appetite undermined market discipline around documentation. This, say lenders, has been one of the gravest pain points in the ABL space, although it should be noted that cash-flow lenders in the leveraged market share the same grievance. According to the results of Thomson Reuters LPC’s 2017 survey of assetbased lenders, 78% of respondents, up from 58% in the 2016 results, indicated that deal structures and documentation loosened in 2017 and that this is expected to continue into 2018.

Among the biggest issues facing market terms? The lack of teeth in financial covenants, longer periods between diligence and waivers, pari passu sidecar facilities, and borrowing base which allows ever-deeper draw-downs against the assets.

In the context of the large corporate versus middle-market issuers, concerns cited were more nuanced, but troublesome nonetheless. Among large corporate deals, arrangers said borrowers and sponsors – or their counsel – are asserting more control over draft documentation. In many cases, ABL deal terms were being tweaked to conform to institutional term loan norms. Traditional ABL stalwarts including field exams and minimum facility usage are tenuous at best.

Fig. 5 Libor Plus 125Bp Becomes New Benchmark for Quality Credits

* spread dispersion for deals >=$75 million These changes, say arrangers, are the cost of doing business in today’s market and, more specifically, part of the repositioning of the ABL offering at many banks from standalone business product vertical. What remains to be seen is whether a comparable selection of large corporate terms trickle down into the middle-market space and, if so, what form they may take. TSL

well as the enhancement of data collection and expansion of product offerings. Dikeos has been with Thomson Reuters LPC since 2001; prior to that, she worked at a major investment bank. She has a B.A. from Wellesley College and Master in International Affairs from Columbia University and the University of Geneva.

Maria Dikeos is a director of Analytics and Global Manager of League Tables & Primary Market Loan Analysis at Thomson Reuters LPC in New York. Her focus is primary market analytics including the production of league tables, time series and industry analysis, as

Fig. 6 Historical Data - US: Average ABL Pro Rata Pricing

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BLOCKCHAIN AND 5G-ENABLED INTERNET OF THINGS (IOT) WILL REDEFINE SUPPLY CHAINS AND TRADE FINANCE

By Josias N. Dewey, Robert Hill and Rebecca Plasencia Emerging technologies can introduce greater efficiency and new capabilities to supply chains and trade finance. Josias Dewey, Robert Hill and Rebecca Plasencia of Holland & Knight LLP explore some of the most promising uses of blockchain, IoT and 5G technology as well as some obstacles for implementation.

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Today’s global economy depends on a myriad of complex relationships among numerous participants, many of whom are critical to supply chains around the world.

These supply chains are responsible for the incredible growth in the global economy over the last several decades. This global flow of commodities and finished goods depends on trade finance to allow participants to address payment and delivery issues and provide needed liquidity.

Approximately 80 to 90 percent of global trade is reliant on trade finance, which is estimated to be worth nearly ten trillion dollars a year. Yet, many of the world’s supply chains and trade finance solutions are still based on several-hundred-year-old processes and legal doctrines. Given these legacy practices, there are opportunities for greater efficiencies and new capabilities within the global supply chain. We will discuss several opportunities for improvement made possible by leveraging (1) blockchain and distributed ledger technology, (2) the Internet of Things (IoT), and (3) 5G technology. But the transition from paper documents, such as letters of credit and bills of lading, to digital smart contracts must first overcome several challenges. A significant investment will be required in order to implement many of the most promising solutions, some of which will require cooperation among numerous nations, shippers and manufacturers, among other market participants.

We believe the potential improvements are significant enough to justify the investment.

Existing Supply Chains and Trade Finance Currently, the movement of goods and commodities across the globe is driven by processes that have remained static over many decades and, in some cases, centuries. Supply chains developed around the need to move away from barter-driven trade to one based on units of account and stores of value, such as gold, which allowed for the acquisition of goods for money. These advances led to the rise of marketplaces around the world. Ocean shipping made it possible to move large quantities of goods and commodities from one port to another far more efficiently.

Since then, many advances in our supply chains have focused on addressing certain fundamental issues that arise out of transactions not involving the contemporaneous exchange of bartered goods or exchanges for money.

While a superior approach in terms of economic efficiency, “chicken and egg” situations continue to exist, such as sellers not wanting to ship goods for delivery before the purchaser has paid; and, likewise, buyers do not want to pay for goods that they have not received. Trade finance has evolved, in large part, to address issues like this through the use of financial intermediaries, such as a bank who issues a merchant letter of credit. While several emerging technologies have the potential to improve global trade, this article focuses on the two technologies that will likely achieve some of the most radical improvement—blockchain and 5G-Internet of Things (“IoT”). In isolation, either technology implemented by itself is capable of incrementally improving the industry; but, when taken together, they may significantly improve and alter existing processes.

Blockchain Technology A blockchain is often described as a decentralized peer-to-peer network that maintains a public (or in some cases, private) ledger of transactions. For this reason, blockchain technology is also called “distributed ledger technology” (or just “DLT”).

A computer science degree is not required to understand the fundamentals of how a blockchain works. The key concept is the existence of a replicated ledger, which can be thought of as a database or Excel spreadsheet. Because a ledger can store all kinds of information, blockchains can be used in many different contexts. Blockchains that primarily facilitate the transfer of cryptocurrencies, such as bitcoin, maintain a database that records how every virtual bitcoin is spent—but one can track any digital data object.

These ledgers are considered decentralized because transactions are often stored on several thousand computers connected to a common network overlaying the Internet. Each node contains a complete history of every transaction completed on a block-

chain beginning with the first transaction that was processed into the first block on that blockchain. This network of nodes is connected via the Internet, but in a completely decentralized manner (i.e., there is no single server to which all the nodes are connected). These computers all operate on a common software platform, which is often referred to as a “protocol”. In short, blockchains are networks of computers, all running a common software application that must come to agreement before making any change to the network’s ledger.

5G/IoT 5G refers to the next generation of wireless technology that will replace today’s 4G LTE standard. The formal standard defining 5G will be promulgated by the 3rd Generation Partnership Project, more commonly referred to as 3GPP, an international collaboration that unites multiple telecommunications standard development organizations. 3GPP structures its standards as “Releases.” The forthcoming Release 15 will be the first set of 5G standards. 3GPP plans to roll out the earliest minimal set of 5G standards in late 2018, with future iterations following after that.

Although 5G is not yet standardized, major development programs are well underway, with some companies making efforts to roll out pre-standardization 5G offerings for some applications. With the precipitous decrease in time between wireless network generations, there is a widespread belief in the industry that development cycles must be accelerated to meet anticipated future market demands. In the current pre-standardization phase, the term 5G encompasses a variety of technologies that will likely be used in next generation networking. One of the most important of these technologies is the so-called “new radio,” massive multiple input multiple output (“MIMO”) antennae that are expected to play an important role in achieving wireless network capabilities that far surpass the current 4G LTE technology. 5G is also likely to utilize “small cells” in some areas, which will allow denser and more effective network infrastructure than conventional base-station deployment alone.

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The aggregate effect of 5G technology will be to allow wireless networks with far greater capability to support bandwidthintensive content, large scale sensor arrays, and low-latency remote control applications than existing wireless networks. Some of these applications will be improved versions of existing commercial products and services. For example, mobile devices will have access to higher quality streaming video and better-augmented reality products that overlay additional data over real-time digital camera images.

Many of the most exciting applications will not directly interface with humans at all. Specifically, 5G will enable machine-tomachine communications over wireless networks on a far larger scale than any previous technology. This is a key aspect of a 5G-powered IoT, wherein huge numbers of man-made objects are interconnected via sophisticated wireless networks. This will allow great improvements in areas like real-time monitoring of supply chains, realtime control of electrical grids, connected (and eventually autonomous) vehicles, and smart agriculture, among many others.

Furthermore, the 5G IoT will mean that ever more companies will need to consider wireless issues that were not previously central to their businesses. These dynamics will create challenges and opportunities for both traditional telecommunications companies and for companies that the 5G wave sweeps into the wireless world.

Impact of Blockchain and 5G/IoT on Supply Chains and Trade Finance The promise of secure, real-time data about goods in transit requires bandwidth having capacity that doesn’t exist with our current infrastructure. 5G-enabled IoT is intended to greatly increase this capacity.

Without this upgrade to our telecommunication infrastructure, the development and adoption of some blockchain solutions involving logistics will be limited to pilots and other deployments at reduced scale. Blockchain technology is particularly well-suited to respond to both the challenges and opportunities of a 5G-enabled IoT. Therefore, it is very likely that each technology will spur greater adoption of the other.

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More specifically, blockchain can serve as both a way to log data in a form highly resistant to tampering and a tool to fight the introduction of malicious IoT devices into our networks. Threats to the network are exacerbated by the production of millions of inexpensive networked devices having little-to-no native security features.

The proliferation of these devices has led to large-scale DDoS attacks on large swaths of the Internet. These shortcomings also pose a threat to the safety of our homes (e.g., Nest) and vehicles (e.g., autonomous vehicles), both of which are becoming more dependent on embedded, network devices for normal operations.

Keeping this network of devices secure is also important to ensuring privacy rights are respected and sensitive information kept out of the hands of bad actors. By registering an IoT device on a blockchain, other devices on the network will know with a high degree of confidence that a device is what it says it is, without having to rely on a centralized server which might be more easily compromised in some circumstances. Multiple start-ups are working towards blockchain-based solutions to 5G IoT. In this way, blockchain approaches can make the 5G IoT better.

With a secure 5G/IoT network, supply chains can leverage the integrity of a blockchain’s logs (or ledger), which, when properly implemented, are nearly impossible to alter. Without this integrity, otherwise valuable data collected about goods in transit or the vehicles transporting them would be the subject of much more skepticism about their accuracy. This also has implications for those providing trade finance, who in many cases must be able to determine with relative certainty whether certain conditions have been satisfied. For example, a letter of credit should only be honored if presented with a draft that confirms the bill of lading or other applicable document of title has been negotiated to the purchaser. Under current practices, this is accomplished by the physical presentment of wet-ink documents. These manual processes and controls can be a cumbersome and fragmented process for lenders, sellers and buyers, which can lead to falsified documents and other fraud,

require redundant reconciliation, sale of counterfeit goods and a general inability to keep private-deal terms confidential.

Once the legal and business logic of trade finance transactions are reduced to code and embedded in self-implementing digital contracts (known as “smart contracts”), the delivery of a digital bill of lading can automatically transfer to the buyer upon a ship reaching port; and the seller automatically receives the purchase price without the need for physical presentment.

There are other significant benefits, including integrity and providence matters.

For the consumer, there is certainty that the product is what it says it is, whether dealing with luxury goods or non-GMO food products. For example, Walmart has engaged in a pilot program to ensure the safety of produce sent to the U.S. from a foreign producer. It is for these reasons and many others, that so much investment has been spent in supply chain and trade finance. The benefits gained by the number of parties involved in the supply chain far exceeds the potential cost to implement.

The use of blockchain technology, enhanced with the power of 5G, will serve not only to save companies millions of dollars in operating costs, but also in potential legal fees arising from disputes that could have been avoided had smart contracts been used. Take, for example, the typical supply-chain process. A smart contract prototype can streamline the supply-chain process and allow for the automatic payment of goods upon receipt and eliminate the need of having to deal with accounts receivables, waiting a 30-day period for payment of goods received, and paying for billing department personnel to track down distributors with outstanding invoices.

But the supply chain often involves much more than simply paying for goods received. Manufacturers have contractual relationships with their distributors that encompass a myriad of issues, including assignment of a particular territory, purchase volume requirements, and volume incentive rebates. A volume incentive rebate is a rebate provided by the manufacturer to a distributor that sells a certain volume of a particular product.

But disputes can easily arise with respect to whether the conditions precedent to earning the rebate were met, potentially resulting in the expenditure of substantial litigation fees and costs.

A blockchain-based smart contract could eliminate disputes regarding whether a distributor is entitled to a volume incentive rebate. Beyond having to sell a certain volume of a particular product, a volume incentive rebate often requires that the product be sold in a particular territory. With the use of blockchain technology coupled with the power of 5G, a shipment can be tracked so that both the manufacturer and the distributor instantly know exactly where they stand with respect to a volume incentive rebate.

For example, a tracking device on a shipment of 100,000 units of a particular phone model would allow information to be uploaded immediately onto the blockchain to show that the shipment was received in the distributor’s holding warehouse, which would trigger automatic payment by the distributor to the manufacturer. The shipment is tracked further to show to what areas the distributor is selling the units.

As the information is immediately loaded onto the blockchain, both the manufacturer and the distributor can see in real time how many units of a particular model have been sold in a particular territory to determine whether the conditions precedent to earning a volume incentive rebate have been met. If the volume incentive rebate is conditioned upon proof that all 100,000 units are sold within a particular territory, and the information uploaded onto the blockchain from the tracking device shows that 20,000 phones were actually sold outside the designated territory, then both parties know that the conditions have not been met and the rebate has not been earned. Because this information could be uploaded onto the blockchain immediately, it would be extremely difficult for a distributor to attempt to alter these records after the fact in an attempt to defraud the manufacturer. If the information uploaded onto the blockchain shows that the distributor satisfied all the conditions precedent, the rebate would be issued automatically to the distributor, without

the need for the distributor to follow up with the manufacturer for payment.

Should litigation still arise, the parties would have immediate access to the information that was recorded on the blockchain to determine whether a distributor’s claim that it is entitled to a rebate is legitimate and/or whether any defenses (such as the failure to meet certain preconditions) are available to the manufacturer. Hundreds of thousands of dollars in litigation costs, including the astronomical costs of electronic discovery retrieval and production, could be avoided entirely because the information has been recorded on the blockchain, eliminating the need to go back through each parties’ electronically stored information and old records to try to prove or disprove whether the units were all sold within the designated territory.

Challenges and Obstacles But for all the promise of blockchain in this context, there are still obstacles that must be overcome before all the world’s trade is completed on distributed ledgers.

Payment rails for the distributed systems currently under investigation are still not perfect. More specifically, unlike Bitcoin and Ethereum, most enterprise blockchain systems lack a native virtual currency.

While one can be easily added, there would also need to be agreement on standards and foreign exchange adjustments. As such, it is more likely that payments made will be triggered by electronic messages from the distributed ledger that instruct traditional fiat accounts to initiate an outbound payment (e.g., messaging with SWIFT codes). There is also a lack of uniformity in existing distributed ledger protocols and, as of today, no interoperability exists. That means different ledgers can’t currently communicate with each other, but there is hope. Development teams are actively developing interfaces to achieve interoperability across ledgers.

Furthermore, given the rather nascent nature of the technology, many companies prefer to overlay their distributed systems atop their legacy system to maintain a level of redundancy (i.e., “keeping the training wheels on”).

Possibly the greatest challenge, however, is addressing these and other issues within the context of dozens of nations, government agencies and industry participants across shipping, manufacturing and finance—just to name a few. This level of collaboration is difficult to achieve and does not evolve quickly. It will take time before many of these systems are deployed.

More discrete projects with modest goals may be available for commercial deployment on a larger scale within as little as two to three years. More ambitious projects will take longer, but the value proposition is too great to be abandoned.

Companies likely to be impacted by these changes should consider those impacts on their future competitiveness and market share. For some, failing to make an investment in these efforts will make it more difficult to compete against those actively engaged with the technology since the start. Attempting to replicate their efforts within a short period of time will likely prove challenging for many companies—deployment is not as simple as unwrapping a standard software application. For those interested in being early adopters, the possibilities presented by blockchain and 5G-enabled IoT present unique opportunities. The accelerating pace of development, however, means the window of opportunity will not remain open indefinitely. TSL Josias N. Dewey is a partner with Holland & Knight in Miami. He practices in the areas of financial services and real estate and is considered a thought leader on blockchain and distributed ledger technology (DLT). Robert S. Hill is partner in Dallas who practices in the area of intellectual property litigation. Rebecca M. Plasencia is a partner in Miami who practices in the area of appellate and complex commercial litigation.

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Ellen R. Alemany Creating a Culture of Success at CIT

Ellen R. Alemany is chairwoman and chief executive officer of CIT Group and chairwoman, CEO and president of CIT Bank, the company’s bank subsidiary. She was named CEO in April 2016 and became chairwoman in May 2016.

BY MICHELE OCEJO

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of the company’s strengths and challenges.

When the board was looking for a successor to the CEO, I raised my hand. I saw there was an opportunity to deliver shareholder value, and I felt it was the perfect time to jump in and chart the course for the next chapter.

It has been a terrific two years, and we have made a lot of progress.

Alemany is the former head of The Royal Bank of Scotland (RBS) Americas, the management structure that oversees RBS’ businesses in the Americas. She also served as chairman and CEO for RBS Citizens Financial Group, Inc. Prior to RBS, she served as CEO for Global Transaction Services at Citigroup. Alemany held a number of senior positions during her tenure at Citigroup, including executive vice president for Commercial Business and president and CEO of CitiCapital. She also held a number of executive positions in Citigroup’s Global Corporate Bank, including customer group executive of North American markets, global industry head of Media and Communications, U.S. industry head of Consumer Products, and customer group executive for the Global Relationship Bank in Europe, based in London.

Alemany received her MBA in finance from Fordham University. She serves on the boards of Fidelity National Information Services, Inc., The Center for Discovery and Operation HOPE. You assumed the helm at CIT during a challenging time for the organization and after being retired for two years. What about this role enticed you to come out of retirement?

The best assignments I have had in my career were in the commercial banking space, and I joined the CIT board so I could remain engaged in that area. Through my time on the board, I was able to get an in-depth view

Your name can be found on many “Most Powerful Women in Finance” lists. What do you think the industry can do to attract, retain and promote more women?

Diversity is really important and is something that has to be cultivated over time for lasting success. From a company perspective, I believe in sponsorship, which is different from mentorship. Sponsorship is about taking an interest in someone and their career and helping to promote them.

It is about taking action and that is how we can cultivate a more diverse workforce. Additionally, it is important to ensure that you have diverse candidates on the slate when there is an open position. This helps create more visibility and opportunities for those candidates.

From an individual’s perspective, I encourage employees to communicate their aspirations and speak up for themselves when needed. Determination and resilience are also critical for long-term success.

CIT has recently expanded in several areas including aerospace and equipment finance. What does this signify for the organization and are there other areas that we can expect to see growth?

We are focused on growth in our core competencies in the middle market and small business. Now that much of the strategic actions are completed and we have simplified and strengthened the company, we are focused on advancing our growth strategy.

We are adding talent in our core business to fill out gaps in the footprint and explore other industry niches like materials handling, industrial equipment financing and aviation lending to name a few.

We also added talent to our factoring business in the Northeast region, as well as recently started the CIT Northbridge Credit joint venture.

Can you tell our readers a bit about the cultural changes at CIT since you became CEO? Having a defined culture that supports the strategic direction of the company is an important factor to success. As we began to transform CIT to a bank model, we also created six specific core behaviors that would be the underpinning of our culture. They are: being customer-focused, accountable, high performing, risk-disciplined, collaborative and practicing straight talk. This serves as the roadmap for the culture we are creating.

Communication helps to reinforce the culture, and we do regular town halls and other employee forums to continually keep the behaviors top of mind. We also have a Chairwoman’s Award recognition program that celebrates those that truly embrace the culture. We have really worked to embed it in every aspect of the business.

Fifty-eight percent of middle market companies project growth over the next 12 months, according to the National Center for Middle Market. What are your views on this sector’s current challenges and the role asset-based lenders and factors are playing to help them overcome challenges?

CIT is here to help companies grow and our focus has always been on the middle market. This is our core expertise and our teams have extensive knowledge in their various industries, and we have the products to find financial solutions to meet their needs. We have a long history of providing asset-based lending and factoring, as well as other secured lending products. ABL lending, factoring and equipment financing can be a source of capital to companies that are growing.

There is a lot of competition in the marketplace today for financing. CIT’s strengths are that we have been in this business for over a century, and we have deep industry knowledge and decades of product expertise with collateral lending and factoring.

We help clients get deals done, and we have the stability of a bank-funded model. We are in this business for the long haul and that can be helpful for clients to know as they look to build their business. TSL Michele Ocejo is editor-in-chief, The Secured Lender, and director of communications, CFA.

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CFA NEWS

CFA EDUCATION FOUNDATION

Steps into the Future

BY MICHELE OCEJO

The CFA Education Foundation has been re-imagined to provide the industry with dynamic new initiatives such as a Market Sizing and Impact Study and a forward-looking Confidence Index. The changes also include a reworked governing structure.

The mission of the CFA Education Foundation is to cultivate education, innovation and charitable works for the betterment of the commercial finance community.

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“The scope of the CFA Education Foundation has been broadened to include providing data that will be valuable to the entire industry, including service providers, which are now eligible for CFA membership,” said Charles Johnson, chairman of the Foundation Board of Directors and CFA past chairman. Johnson is a financial executive with more than 45 years of leadership in the asset-based financial services industry. He retired from direct lending in 2011 and took on a new position as Director of Membership with CFA. Subsequently, he took on coordination of all fundraising activities of CFA’s Education Foundation.

“We know, anecdotally, that the commercial finance industry has a meaningful impact on the economy, but now we need quantifiable, objective proof. The Market Impact Study we are planning will provide this and help us with advocacy efforts, attracting capital, strategic planning and benchmarking,” said Johnson.

Another big change: The addition of an executive director. CFA’s CFO, Gregory Slowik, has taken on this expanded scope of responsibility. “I’m excited about this new opportunity and the future of the Foundation,” said Slowik. “We have set an aggressive agenda and I look forward to spending this year working with the Foundation Board to achieve our goals.” Slowik has been CFA’s chief financial officer since September 2016. He has over 20 years of financial and operational experience though multiple business environments, including non-profits, new media, broadcast television and home entertainment. Prior to CFA, Greg was the CFO/COO for a high-profile celebrity. He has also worked with Splashlight, The Tyra Banks Company, Junior Achievement of New York, House Party, Inc., Sony/BMG Home Entertainment. Earlier in his career, Greg served as director of business development for Sesame Workshop, and as senior manager of finance for American Express.

“The Foundation has relied on allvolunteer resources since its inception. The addition of a executive director is a big step in the right direction. With Greg’s direction and enthusiasm, the Foundation is off to a great start for 2018,” said Johnson.

“The Foundation needs to have its own legs to stand on, which is why we have restructured the governing body,” said Slowik. The new structure will include a seven-member Board of Directors which

Charlie Johnson

Greg Slowik

Chairman of the Foundation

CFA’s CFO and executive

Board of Directors and

director of the Foundation

CFA past chairman

includes the CEO of the Commercial Finance Association, plus three officers of CFA selected by the current president of CFA and three others selected from the Foundation’s other boards or councils (for a full current list, see page 00). All will serve one-year terms and will play active roles on the one or more of the Foundation’s committees (Development, Finance and Research).

Members of the Foundation’s Advisory Board and Leadership Council will also be called to serve on committees and to help broaden the scope of support provided to the Commercial Finance industry.

“We are looking forward to a transformational year for the Education Foundation.

Challenges arising from shifting membership and industry needs that have built over a period of years have resulted in a renewed commitment to bolster and expand the mission and value of the Foundation. I believe 2018 will see a renewed energy and focus on improving the tangible services and benefit provided by the Foundation and a path forward of growth and heightened industry relevance,” said Wade Kennedy of McGuire Woods, who is serving as chair of the Governing Board Development Committee.

“The Foundation has traditionally been funded primarily by the service providers to the industry. One of our priorities this year is to illustrate the Foundation’s value to lending members of CFA. It’s important that they recognize the vital work that is only possible with their contributions,” said Greg Slowik.

A major goal of the Foundation in 2018 is to support the CFA’s efforts to improve education, advocacy and the quality, breadth and depth of industry information available to our membership. This means significant

increases in charitable giving to the Foundation, especially from individual contributors and their employers who will often match contributions to non-profit educational foundations.

Andrea Petro, former CFA president and member of the Board of Directors of the Foundation, is leading this effort. “Many of us sit on boards of non-profits in our communities and generously support them financially. We should think similarly about our individual support of CFA Education Foundation. Individual contributions will make the difference in our ability to develop important data. Access to high quality information will assist start-up commercial finance companies to raise equity, mature finance companies to accurately develop valuations when selling and educate legislators and regulators about the important role the ABL industry plays in capital markets.”

Richard Gumbrecht, CEO of the Commercial Finance Association, is passionate about the Foundation’s ambitious endeavors: “As we move CFA into the future with our mission to be the essential community of all organizations and professionals who deliver and enable commercial lending, repositioning the Foundation and shoring up its value proposition to better complement CFA’s mission is an integral and critical step. I am confident that the combination of Greg and Charlie working with the Foundation’s tireless volunteer leaders will make 2018 an exciting and rewarding one for our community.”

For further details about the CFA Education Foundation, visit www.cfafdn.org or contact Greg Slowik (gslowik@cfa.com) or Charlie Johnson (cjohnson@cfa.com). TSL THE SECURED LENDER JAN/FEB 2018 49

CFA Education Foundation Leadership Foundation 2018 Board of Directors: William D. Brewer Dave Grende Richard Gumbrecht Charles G. Johnson David B. Kurzweil D. Michael Monk Andrea L. Petro Foundation 2018 Officers: Charles G. Johnson, Chairman of the Foundation Board of Directors D. Michael Monk, President William Brewer, First Vice President John DePledge, Vice President Jeff Goldrich, Vice President David B. Kurzweil, Vice President Dave Grende, Treasurer Greg Slowik, Executive Director & Secretary Richard Gumbrecht, Research Committee Liaison Wade M. Kennedy, Development Committee Chair Andrea Petro, Development Committee Liaison (Individual Giving Campaign)

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2018 Governing Board Wade M. Kennedy Bobbi Acord Noland Daniel D. Batterman Katherine Bell Gail K. Bernstein Michael A. Boeheim Anthony R. Callobre James C. Chadwick Arnold Cohen Ronald Glass Stewart W. Hayes Joseph A. Heim James J. Holman Seth E. Jacobson Barry L. Kassoff Theodore L. Koenig Robert Lau Joseph Lehrer Kevin J. Morley Paul Schultz John F. Ventola Jeffrey A. Wurst Peter York John T. Young, Jr. 2018 Advisory Board Denise Albanese Daniel Baker Andrea Pipitone Beirne Jason E. Bennett Gayle A. Berne Nelson R. Block Howard Brod Brownstein Massimo Capretta Andrew Cardonick Gregory A. Charleston Jonathan M. Cooper David L. Dranoff Lawrence F. Flick, II Joel Getzler Thomas A. Greco R. Marshall Grodner Guy F. Guinn Richard Hawkins Bayard Brantley Hollingsworth J. Craig Howe Michael E. Jacoby Robert D. Katz Randall L. Klein Christopher C. Kupec Sidney Lambersky Leigh Lones Timothy M. Lupinacci

Leonard Lee Podair Kenneth R. Pogrob J. Tim Pruban Jeff Rogers Steven M. Rosenberg Donald E. Rothman Thomas E. Schnur Amar Shah Susan E. Siebert Graham Stieglitz Jeffrey H. Verbin Michelle White Suárez Gary M. Zimmerman Foundation Leadership Council Mark A. Alimena Thomas J. Allison Mitchell B. Arden H. Bruce Bernstein Jack Butler Kris Coghlan David Crumbaugh Shirley E. Curfman C. Edward Dobbs Arnie Dratt Michael C. Eisenband Harvey I. Forman Richard Jay Goldstein Jonathan N. Helfat Joseph Hodkin Mario J. Ippolito Ronald H. Jacobson Martin I. Katz Richard M. Kohn Daniel J. Krauss David B. Kurzweil Kenneth A. Latimer Charles E. Levin Michael W. Lissner Charles G. Ludmer David W. Morse Arthur B. Muir Jay G. Ochroch Howard Rein Ronald B. Risdon Jeffrey M. Rosenthal William H. Schorling Steven J. Seif, Esq. Baker A. Smith Marshall C. Stoddard, Jr. Daniel D. Tiemann Michael Trager

what

i

WOULD YOU DO?

n this edition of What Would You Do?, the Chief Credit Officer of Overadvance Bank considers his options after a UCC search uncovers a potential issue with the Bank’s UCC-1 financing statement against its borrower.

Amend and Misstate?

About four years ago, Overadvance Bank extended a $50-million credit facility to Pinto Parts Inc., a manufacturer of motor vehicle parts. The credit facility consists of a $40-million revolver used to finance working capital expenses, and a $10-million term loan used to finance the purchase of specific items of equipment.

The credit facility is secured by substantially all assets of Pinto Parts, other than equipment, as Pinto Parts finances a material portion of its equipment through other lenders. As such, the Bank’s collateral package is limited to specific items of equipment financed by the Bank’s term loan. Consistent with this arrangement, the UCC-1 filed by the Bank describes the collateral as “all assets” of Pinto Parts, but limits the equipment collateral to those specific items listed in a schedule attached to the UCC-1.

A year after the credit facility closed, the Bank approved a request by Pinto Parts to sell the equipment covered by the Bank’s security interest, and to replace it with other, unencumbered equipment. As part

of the Bank’s consent, the Bank arranged to file a UCC-3 amendment to its existing UCC-1 filing to release the old equipment and add the new equipment.

Of late, Pinto Parts has performed surprisingly well. So well, in fact, that Pinto Parts recently requested an increase in the revolving line by an additional $20 million. The Bank approved the line increase request, but subject to bringing in a participant to fund at least half of the requested increase. Given Pinto Parts’ financial performance, the Bank received considerable interest from various financial institutions to purchase the participation.

A week ago, the Chief Credit Officer received a call from one of the potential participants concerning the Bank’s UCC filings against Pinto Parts. The potential participant expressed concern that, when the Bank amended its UCC-1 financing statement last year, it appears that the Bank “replaced” the entire collateral description with just the equipment purchased by Pinto Parts last year, rather than supplementing the prior collateral description to add the new equipment. As such, the potential participant explains, the UCC-3 amendment filed by the Bank effectively released all the collateral covered by the Bank’s original UCC-1 financing statement other than the newly purchased equipment.

After your panic attack subsides, if you were the Chief Credit Officer, what would you do?

Let’s look at the UCC-3 amendment filed by the Bank when it allowed Pinto Parts to swap out the equipment that was subject to Bank’s security interest. A UCC-3 is used to amend a prior UCC-1 financing statement. The form of UCC-3 amendment has four options for collateral amendments: delete collateral, add collateral, restate collateral or assign collateral. Overadvance Bank chose the “restatement” option. The purpose of this option is to allow multiple collateral changes on the same UCC-3 (as opposed to having to file multiple UCC-3s

to accomplish all required collateral additional and deletions). However, the restated collateral is intended to replace all prior collateral descriptions, not supplement the existing financing statement description. A UCC-3 amendment to restate the collateral must fully describe all the collateral that the secured party intends to cover as part of the financing statement. Any collateral that is omitted from the restated collateral description, whether intentionally or mistakenly, will no longer be covered by the amended financing statement.

Here, Overadvance Bank chose the “restatement” option when it filed its UCC-3. However, rather than restate the full collateral description, Overadvance Bank only included the new equipment schedule. Meaning, rather than supplement its financing statement to include the new equipment, Overadvance Bank mistakenly narrowed its financing statement to cover only the new equipment. As a result, Overadvance Bank is currently not perfected against any collateral (such as inventory and accounts receivable), other than the new equipment.

The Chief Credit Officer instructs the loan officer to immediately file a UCC-3 amendment to restate the collateral with the full description. Once he receives evidence of the filing and is certain the filing is correct, he calls the potential participant to let her know that the Bank is now properly perfected and to offer her the opportunity to participate in the Pinto Parts credit facility.

To his surprise, she no longer wishes to participate in the credit facility. While the most recent UCC-3 amendment may be sufficient to perfect the Bank’s security interest, she is concerned with the priority of that security interest.

The Chief Credit Officer is a bit puzzled. His UCC was filed four years ago and there are no earlier filings of record. She explains to the Chief Credit Officer that, under Section

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what would you do?

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9-512(c) of the UCC, an amendment to add collateral to a financing statement is effective as to the added collateral only from the date of the filing of the amendment. Meaning, other than with regard to the equipment, the priority of Overadvance Bank’s security interest in the collateral covered by its financing statement runs from the date the most recent UCC-3 was filed, and not from the date the initial financing statement was filed four years ago.

The Chief Credit Officer begins to sweat a bit. For one thing, he realizes that, if Pinto Parts were to file for bankruptcy in the next 90 days, the Bank’s recently filed UCC-3 could be attacked as a preference. Thankfully, given the strong financial performance of Pinto Parts, he thinks this

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risk is minimal.

Perhaps more concerning to the Bank than the preference risk are the results of the recent UCC search conducted by the Bank. The search results revealed that, during the intervening period between the Bank’s initial UCC financing statement and the most recent UCC-3 amendment, several equipment lenders filed “overbroad” UCC-1 financing statements against Pinto Parts. The filings were supposed to be limited to specific equipment. However, the language seems to extend to accounts receivable as well and, because the filings were made before the Bank’s recent UCC-3, these filings against accounts receivable would have priority over the Bank’s lien.

The Chief Credit Officer knows he has some work to do before he can

even consider Pinto Parts’ requested facility increase. Most importantly, he needs to resolve the overbroad equipment filings, likely through subordinations or releases. Hopefully, the equipment lenders will cooperate. If not, the Chief Credit Officer may need to get creative in terms of incentivizing their cooperation. TSL Dan Fiorillo and Jim Cretella are Members of the law firm Otterbourg P.C.

the cfa brief AMONG CFA MEMBERS

CFA NEWS IN PRINT

Azadian Group, a commercial financing provider headquartered in New York City, has announced the opening of a full-time office in Chicago to service existing clients in the Central U.S. and to capitalize on opportunities in the region.

The company has hired Ryan Heckman, a banking and commercial lending veteran, to head up business development efforts out of Chicago. Heckman was most recently executive vice president at LQD Business Finance in Chicago. Prior to that, Heckman spent over 25 years in banking and commercial finance, including senior-level roles at Comerica Bank, National City Bank, LaSalle Bank, and Fifth Third Bank. (www.linkedin. com/in/ryanrheckman) “We are very excited to have Ryan on our team, spearheading our growth in Chicago and the Midwest region,” stated Raffi Azadian, CEO of Azadian Group. “Ryan’s multi-faceted background, well-rounded skill set, deep relationships and subject-matter expertise will be of great benefit as we work to break into and expand our business in this new territory.”

BAM: Debra Wilson-Zukonik has joined the company as chief credit officer. WilsonZukonik joins the company’s management team as a senior leader with more than three decades of commercial finance leadership experience.

Wilson-Zukonik has built credit requirements and led teams at organizations like Riviera Finance, Fidelity Funding Financial Group, USA Funding, and Vertex Financial,

where she was president for 16 years. She brings an extensive range of formal training and experience in commercial credit and collections, auditing, management, marketing and customer service to BAM. “Adding Debra to the management team sets us up for growth,” said Todd Ehrlich, CEO of BAM. “Her experience in the commercial finance industry will be invaluable as we expand our capabilities and grow into new markets outside of transportation.”

In addition to her tenure in the commercial finance industry, Wilson-Zukonik also co-founded FactorHelp, which provides products and services to factoring companies across the country. She has served on the executive board of the CFA, IFA and The Finance Forum and currently serves as a board member of the American Factoring Association. Wilson-Zukonik teaches credit and underwriting seminars, has been a featured speaker at factoring and finance conventions, and served as a subject matter expert for the IFA Account Executive certification program.

BAM is a leading provider of cash management and working capital solutions for transportation, construction, oil and gas and temporary staffing service providers, committed to helping clients increase their financial performance through operational efficiency. BAM’s proprietary payment processing and cash management engine, BAMwire™, allows businesses access to capital more quickly, reducing days to pay, improving credit scores and building stronger vendor relationships while increasing cash flow. Unlike traditional bank lending or factoring arrangements, BAM uses proprietary technology to improve access to capital across industries and service providers.

Bank of the West: Beth Hale was appointed to the position of executive vice president, head of Product and Payments Solutions in the Bank’s Retail Banking Group. In this role, Hale will be responsible for leading and managing the overall strategy focused on deepening and expanding banking solutions

for retail and small business clients. Hale has over 15 years of banking experience and has worked more than 25 years in the financial services industry. She will continue to be based out of Bank of the West’s San Francisco headquarters and will report to Ryan Bailey, executive vice president, head of the Retail Banking Group.

Throughout Hale’s four years at Bank of the West, her roles and responsibilities at the bank have grown. She has been responsible for creating and implementing strategy for the Bank’s branch and ATM operations, overseeing the consumer bank’s first-line operational risk, compliance and credit risk, distribution channel analytics and branch staffing models. Hale’s focus on the customer has led to innovative solutions, particularly in distribution transformation, micro-market strategy and new branch activity. In addition, Hale led the reorganization of several of the Bank’s back office functions, establishing the highest standards of efficacy in operations, group finance and first line of defense.

“Beth’s established track record of success here at Bank of the West made her the ideal candidate to lead our team in product and payment solutions,” said Bailey. “Her industry experience and the scope of her various roles, both within and outside of the Bank, make her an ideal leader of this team as we set our sights on the future growth and success of the retail banking and the Bank as a whole.” Along with leading and implementing overall strategy in her new role, Hale will be tasked with driving the implementation and delivery of the full breadth of products and services the Retail Banking Group has to offer.

Bank of the West’s Commercial Banking Group announced Andreas Bubenzer-Paim’s appointment as the new head of Technology Banking, leading a growing practice team that serves technology clients nationwide.

Bubenzer-Paim brings two decades of corporate and investment banking experience, as well as expertise across lending, capital markets, investments and treasury services.

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the cfa brief

He will be based at Bank of the West’s headquarters in San Francisco, responsible for growing the Bank’s relationships with technology companies and will report to Mark Glasky, executive vice president and head of Commercial Coverage.

“As our Commercial Banking Group expands, an important area of focus for us continues to be the technology sector. With Silicon Valley in our backyard, Bank of the West is committed to providing technology companies with the financial solutions they need to grow,” Glasky said. “Andreas has tremendous experience and a track record of success in working with technology companies, and we’re thrilled to add his leadership to our team.”

Along with growing the technology team within the Bank’s Commercial Banking Group, Bubenzer-Paim will also be focused on delivering the full suite of banking products and services of Bank of the West domestically, and the BNP Paribas Group globally, to clients across the technology sector. Together with parent company BNP Paribas, Bank of the West has been helping technology companies through various stages of growth over the past 30 years.

Bubenzer-Paim’s team of experts will span across the Bank’s capabilities in product, credit and risk management.

CIT Group Inc. announced two key appointments to their Equipment Finance division in support of industrial market segment growth. Mike Edwards has joined the business development team and will be responsible for new finance programs with manufacturers in the construction, agriculture, material handling, and transportation segments. He will report to Vince Mollica, senior vice president of business development.

“Edwards brings 20 years of experience and a strong track record of success in establishing new finance programs for manufacturers in the industrial market,” said Mollica.

“By leveraging CIT’s FlexAbility™ product that delivers industry-leading deal structuring and invoicing capabilities, Edwards will

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help manufacturers accelerate growth and enhance the customer experience.”

Jennifer Houck has also been hired to originate and manage dealer and distributor relationships in the Western territory. She will report to Harold Ray, industrial commercial leader.

“Houck’s decade of experience in the equipment finance space will enhance our team’s capability to structure commercial finance programs for both new and existing manufacturers and distributors,” said Ray. “The addition of Houck to the Western states team completes our current sales coverage nationally.”

Edwards joins CIT from EverBank Commercial Finance where he worked as a business development manager overseeing industrial and transportation vendor programs nationwide. Houck joins CIT from Xtreme Financial Services where she served as the executive finance manager and was responsible for a captive global finance operation for the fourth largest US equipment rental company.

CIT Group Inc. announced the expansion of its commercial aircraft lending business.

The new Aviation Lending team will be led by Jennifer Villa Tennity who rejoins CIT as president of the business, providing aircraft-backed loans to the commercial aviation industry. Villa Tennity will report to CIT’s president of Commercial Finance, Jim Hudak, who assumed the aerospace lending vertical with the sale of the commercial air operating lease business.

“CIT has deep expertise in asset-backed lending across commercial industries including aerospace,” said Hudak. “We are pleased to have Jennifer leading this business as she has a successful history of servicing and originating aircraft loans which will add to the strength of CIT’s aerospace finance capabilities.”

Villa Tennity is also joined by Ryan Jasinski as director of originations and Matthew Hughey as vice president, both former CIT colleagues who specialize in aviation lending.

“CIT has a proven track record of finding financing solutions for our commercial aviation clients,” said Villa Tennity. “We feel there is a real need for this product in the marketplace and I am excited to be leading the expansion of this area and growing the aviation loan portfolio along with Ryan and Matthew.”

The new aviation team complements CIT’s Aerospace, Defense and Government Services team, led by John Heskin, managing director, which is a leading provider of assetbacked revolving and term loans, acquisition financing and tailored capital market structures to the sector.

Villa Tennity has nearly 20 years of experience in the aviation leasing and lending space at CIT. During her tenure, she handled a myriad of duties including regulatory matters during CIT’s transition to a bank.

Villa Tennity was most recently senior vice president and chief risk officer of CIT’s aerospace business, maintaining an $11 billion portfolio of aircraft loans and leases.

She earned a bachelor degree in economics and a certificate in political economics from Princeton University.

Jasinski was previously a vice president and Hughey previously an assistant vice president, both within the Financial Institutions Group of CIT’s aerospace business. Jasinski earned a bachelor’s degree in economics from Saint Peter’s University and Hughey a bachelor degree with a double major in finance and risk management & insurance from Saint Joseph’s University.

CIT Group Inc. also announced that Nicholas Nunnari has joined the Commercial Services team as vice president and business development officer. In this position, Nunnari will advance the team’s strategic initiatives and facilitate the continuing expansion of CIT’s financial services throughout the region. He will report to CIT’s Western regional manager, Darrin Beer.

“Nunnari will play an integral part in developing and growing our West Coast portfolio,” said Beer. “He has a strong track record of success in establishing new credit,

trade and financing solutions for consumer product companies.”

“I’m excited to join CIT and work closely with Darrin and the team to support the new business growth objectives of the Western region,” said Nunnari.

Nunnari joins CIT from Merchant Factors Corporation where, he was a vice president, account executive and new business officer. In this position, Nick managed a large portfolio of accounts and was instrumental in contributing to the region’s new business growth. Prior to that, Nunnari held positions with the NFL Network and FOX Sports in Southern California.

CIT Group Inc. announced the appointment of Kenneth Caffrey and Michael Cavounis as managing directors of the Sponsor Finance Group. In these positions, Caffrey and Cavounis will facilitate the growth of the Sponsor Finance Group’s portfolio. They will report to CIT’s Sponsor Finance managing director and group head, Jeffrey Kilrea.

“Ken and Michael bring significant experience and have a long history of working with private equity sponsors on middlemarket executions,” said Kilrea. “They will be valuable resources to CIT as we work to grow our assets and expand our presence across the middle-market leveraged finance segment.”

Caffrey joins CIT from HSBC where he was a director for the Middle-market Financial Sponsors Group and helped establish the bank’s US middle-market leveraged credit platform. Caffrey has over 15 years of experience in leveraged and middle-market finance, and previously held positions at the Royal Bank of Scotland, Bear Stearns and Modern Bank. Cavounis joins CIT from American Capital, where he was a principal responsible for managing capital market activities and structuring and coordinating debt financings for the firm’s private equity buyouts. Cavounis has over 20 years of experience in middle-market leveraged finance and previously held positions with the Royal Bank of Scotland, Bank of America, JH Whitney and Heller Financial.

FSW Funding: Sanja Terziç was promoted to the position of underwriting manager. Terziç will oversee funding applications to review necessary credit and background checks, ensure proper documentation for files and manage new client accounts.

“Sanja has proven herself over the last three years, has more than a decade of experience in accounting and speaks three languages,” Robyn Barrett, founder and managing member of FSW Funding, said.

“She will be a great asset in her new role, as we continue to expand our reach and help finance more companies in the Southwest and throughout the U.S.” Terziç earned a bachelor of science in accountancy from Arizona State University’s W.P. Carey School of Business and is currently studying for her CPA. After graduating from ASU, she was offered a full time position in accounting at Redmond, Coy & Associates. Prior to joining FSW, Terziç worked for Development Services of America, Inc. as a property accountant, managing 30 properties with more than 50 tenant accounts.

Gibraltar Business Capital: Scott Shapiro has joined as senior vice president, business development officer West Region, further filling out its sales team with another veteran specialty finance lender. Shapiro joins the Gibraltar team to help keep up with market demand for quick access to working capital when banks and other funding sources are limited or too restrictive. Gibraltar continues to experience sustained growth, having funded nearly $60MM year-to-date and recently being named to the Inc. 5000 list by Inc. magazine.

With more than 15 years in commercial finance, Shapiro leverages his vast network and experience to find the best match between client needs and financing solutions.

He has held roles at both privately held and bank-owned commercial finance companies including, Crestmark Bank and Briar Capital.

Shapiro is active in the local chapters of the Risk Management Association and is a former board member of the Los Angeles

chapter.

“We welcome Scott to the team and believe his extensive background in factoring and asset-based lending will add depth to our ever-growing team,” said Gibraltar executive vice president, head of sales Anthony J. DiChiara. “He’s a clear match with our mission to provide our clients with fast, flexible and creative lending.”

Hilco Merchant Resources (HMR): Seth Marks was hired in the newly created role of senior vice president - chief merchandising officer for Hilco Merchant Resources and as the CEO of Hilco Wholesale Solutions. Marc Caplan will continue as president of Hilco Wholesale Solutions.

In these roles, Marks will be responsible for day-to-day management and growth of the company’s wholesale consumer inventory practice, further enabling HMR to provide retailers, consumer products manufacturers and their advisors with a single-source omni solution for all inventory disposition requirements. Marks will work closely with all retail teams within Hilco Global, seeking to optimize special inventory situations and build new revenue streams by leveraging his extensive experience in the retail, wholesale and off-price sectors.

In addition to his management role for Hilco Wholesale Solutions, Marks will also be responsible for expanding HMR’s growing digital platform called Deal Genius (www. dealgenius.com), while implementing new strategies including building a best-in-class off-price drop ship partner network.

Ben Nortman, executive vice president – Hilco Global and Co-managing partner at HMR, said “We’re excited to add Seth to our management team. He brings more than 24 years of experience to HMR with an impressive reputation as a dynamic retail turnaround executive for many highly recognized retail organizations in the US.” Marks joins HMR from Sears Holdings, where he has most recently been serving as the head of Strategic Merchandising, responsible for managing all off-price initiatives at

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Sears. Marks is well known in the industry and recognized as an innovator who has engineered unique strategic merchandising transformations at many of the retail organizations he has served. Marks also served as CEO of Liquidation World (formerly Big Lots Canada) where he worked from 2004 to 2011; chief merchandising officer at Tuesday Morning Stores from 2011 to 2013; and, as senior vice president of merchandising and strategic initiatives at Overstock.com from 2014 to 2016. Marks began his career at Hilco in 2000.

Marks said, “I look forward to leveraging the outstanding retail platform that currently exists at Hilco Merchant Resources. I plan to focus on growing the Hilco Wholesale Solutions practice which is well positioned to deliver truly innovative disposition services for retailers with underperforming and excess consumer products inventory.”

Hilco Merchant Resources LLC (www. hilcomerchantresources.com), provides a wide range of analytical, advisory, monetization, and capital investment services to help define and execute a retailer’s strategic initiatives and retail disposition needs. The firm’s activities fall into several principal categories including acquisitions; store closing sales and the disposition of underperforming stores; retail company or division wind downs; event sales to convert unwanted assets into working capital; interim company, division or store management teams; loss prevention; and the monetization of furniture, fixtures and equipment.

Hilco Merchant Resources is part of Northbrook, IL based Hilco Global (www. hilcoglobal.com), the world’s leading authority on maximizing the value of business assets by delivering valuation, monetization and advisory solutions to an international marketplace. Hilco Global operates more than twenty specialized business units offering services that include asset valuation and appraisal, retail and industrial inventory acquisition and disposition, real estate repositioning and renegotiation, strate-

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gic advisory, operational consulting and strategic capital equity investments.

Hilco Streambank: Richelle Kalnit was appointed as senior vice president at the market-leading intellectual property advisory firm. Kalnit will be based in New York City, and will focus on management of IP disposition engagements for Hilco Streambank’s extensive list of clients, while expanding the firms successful retail and brand IP business.

Kalnit joins Hilco Streambank with 12 years of legal experience at two of the nation’s top law firms. Most recently, Kalnit served as a senior associate attorney at the law firm Cooley LLP, where she focused on large retail transactions as well as litigation. During her tenure at the firm, Kalnit managed the sale, reorganization and liquidation of several of the most prominent retailers, hotels and restaurants in the country, including Orchard Brands, hhgregg, Golfsmith, City Sports, Edwin Watts Golf Shops, Baha Mar Hotels, Pizzeria Uno, Crabtree & Evelyn, Samsonite, SkyMall, Mervyn’s and many more.

“We feel very fortunate to have someone of Richelle’s caliber join the Hilco Streambank team,” said Jack Hazan. “Her legal knowledge and experience in the consumer products and retail sector is extensive and she brings a unique understanding of how to value, market, and sell intangible assets for businesses at all stages,” said Hazan.

Kalnit began her career at the law firm King & Spalding LLP in 2005, where she gained critical experience with distressed corporate financing and litigation.

Kalnit received her iuris doctorate from the Benjamin N. Cardozo School of Law at the Yeshiva University, following completion of her Bachelor degree at the University of Pennsylvania. Kalnit has been honored by New York Lawyer magazine as one of New York’s rising legal stars for four consecutive years beginning in 2013.

Hilco Streambank is a market-leading advisory firm specializing in intellectual property disposition and valuation. Hilco

Streambank has completed numerous sellside transactions including sales in publicly reported Chapter 11 bankruptcy cases, private transactions, and online sales through HilcoDomains.com and IPv4Auctions.com.

Hilco Streambank is part of Northbrook, ILbased Hilco Global (www.hilcoglobal.com), a worldwide financial services company and leader in helping companies maximize the value of their assets.

PNC Bank, N.A.: Brian Bucher was appointed regional president of a newly created Port Cities region, encompassing Jacksonville, Charleston, SC and Savannah, GA, effective Jan. 1, 2018.

The introduction of the company’s regional president delivery model will enhance its operations in the region, where it already has local employees in corporate banking, commercial banking, equipment finance and consumer lending. PNC’s regional headquarters will be located in Jacksonville.

“These three cities represent an attractive growth opportunity for PNC,” said Lou Cestello, head of PNC Regional Markets.

“PNC has for some time served corporate and commercial clients in the region through our contiguous markets in Florida, Georgia and the Carolinas. This expansion represents a deeper investment of our resources to build our presence.”

Prior to relocating to Alabama in 2012, Bucher served as regional president of PNC’s Northwest Ohio market. A 32-year veteran of PNC, his prior roles include several executive level positions in corporate finance, corporate banking and investment banking. Bucher is active in the community and currently serves on the boards of directors for Jones Valley Teaching Farm, the Birmingham Museum of Art, the Economic Development Partnership of Alabama, the Birmingham Business Alliance, Innovation Depot, and REV Birmingham along with the Alabama School Readiness Alliance PreK Task Force. He and his family will relocate to Jacksonville.

Sterling National Bank: Sean Umhafer has joined the bank as senior managing director and senior vice president. Umhafer will be based in Sterling’s Melville, NY office and report to Ed Blaskey, executive vice president and Long Island market president. Umhafer will focus on client relationship management and business development activities.

Umhafer was most recently vice president at M&T Bank Corporation, where he led the Long Island Middle-market Lending Team, driving loan portfolio growth. Prior to M&T Bank, Umhafer served as vice president at Washington Mutual Bank, where he managed the expansion of their middle-market commercial loan portfolio.

“We are truly excited to welcome Sean to our growing Long Island team,” said Blaskey.

“Sean has strong business acumen, strategic

50 YEARS

insight, and deep experience in serving bank clients as a trusted advisor. We look forward to working closely with Sean as we build on our business in the Long Island market.”

Kurt Fuoti has joined the bank as managing director and senior vice president in its Paramus, NJ office. Fuoti will be a key member of the New Jersey Commercial Banking team, led by Robert Koar, senior vice president and senior managing director at Sterling. Fuoti will be responsible for business development, establishing new client relationships and expanding existing business by leveraging Sterling’s single-point-ofcontact approach.

Fuoti was most recently senior vice president and senior lender at Fulton Bank of New Jersey, where he developed the

Northern New Jersey Middle-market Commercial & Industrial Lending group. Prior, Fuoti served a fifteen-plus-year tenure with TD/Commerce Bank, including a leadership role as senior vice president and team leader of the Central New Jersey Middle-market Lending Group.

“We are excited to welcome Kurt to join our growing New Jersey team,” said David S. Bagatelle, executive vice president and president of New York Metro Markets which includes the NJ Commercial Banking team.

“He brings over three decades of experience in the market to Sterling, as well as deep expertise in the areas of lending and portfolio management for middle-market clients. I look forward to working closely with Kurt as we continue to expand and grow our business across the market.”

OF SERVING LENDERS AND DOCUMENTING AND RECOVERING THEIR LOANS

SENIOR PARTNER, JEFF WURST, HAS BEEN APPOINTED TO THE AAA ROSTER OF ARBITRATORS, WHERE HE IS PLEASED TO BRING HIS KNOWLEDGE AND EXPERTISE OF COMMERCIAL FINANCE LAW TO THE ARENA OF ALTERNATIVE DISPUTE RESOLUTION

Jeff Wurst jwurst@rmfpc.com 516-663-6535

ABL FACTORING C&I DIP FINANCING

SYNDICATIONS LENDER FINANCING COMMERCIAL REAL ESTATE FINANCING

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Sterling National Bank announced that Daniel Liberty has joined the bank as senior managing director and senior vice president in its Melville, NY office. Liberty will report directly to Ed Blaskey, executive vice president and Long Island market president.

Liberty will focus on growing Sterling’s commercial banking activities in Long Island by establishing new client relationships and expanding the bank’s business activities.

Liberty was most recently regional vice president and group manager of Middlemarket Banking at M&T Bank. Previously, Liberty served as the first vice president and Long Island Commercial Market executive at Washington Mutual Bank. He has also held associate and leadership positions at other financial institutions on Long Island and New York City.

SunTrust Robinson Humphrey (STRH): Welles Fitzpatrick was hired as a managing director, responsible for coverage of the Energy Exploration & Production sector. Fitzpatrick has covered the sector for more than 11 years, and will help broaden the firm’s current coverage of the Energy sector.

“Welles’ extensive experience provides a nice fit with our other tenured and talented senior energy analysts at STRH. His hiring provides an opportunity for collaborative and differentiated fundamental research, and will bolster our overall energy research expertise, capability, and reputation,” said Scott McLaughlin, head of Equity Sales, Trading, and Research at STRH. Fitzpatrick will be based in Houston, TX and will work with the firm’s senior equity research analyst for Energy, Neal Dingmann, to broaden STRH’s current Exploration & Production coverage. He was most recently with Johnson and Rice where he was responsible for Small and Mid-cap coverage as well as macro analysis on gas. Fitzpatrick earned a BA in history and economics from Vanderbilt University and a MBA from Tulane University.

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SunTrust Robinson Humphrey® is the trade name for the corporate and investment banking services of SunTrust Banks, Inc. and its subsidiaries. Securities and strategic advisory services are provided by SunTrust Robinson Humphrey, Inc., member FINRA and SIPC. SunTrust Robinson Humphrey has extensive experience working with public and private companies of all sizes – from emerging growth to the Fortune 500. SunTrust Robinson Humphrey offers an array of solutions for companies across all industries while providing in-depth industry expertise and dedicated corporate and investment banking practices for certain core sectors, including business services, financial sponsors, building products, healthcare, consumer and retail, media and communications, energy, transportation, financial services and technology, and real estate.

Synovus: Sean Lelchuk has joined Synovus’ Large Corporate Bank Group, Asset-Based Lending team as ABL relationship manager.

Lelchuk will be responsible for originating, structuring, closing and ongoing management of ABL relationships. He is located at Synovus’ new Overton office in Atlanta, and reports to Brian Cuttic, senior director for ABL. “Sean has the right combination of experience in both business development and credit with his background in managing sales and risk teams to bring value to the bank,” said Cuttic. “As we expand our portfolio and provide our clients with real, human interaction to serve them, we are pleased to add Sean as he is dedicated to developing long-lasting, profitable connections with people.”

Prior to joining Synovus, Lelchuk served as vice president at Far West Capital, where he was responsible for the eastward expansion of the ABL and factoring footprint of the privately held Austin-based finance company. He also served as senior risk officer, and prior to that, head of sales for Bibby Financial Services, a multi-billion dollar, privately held, international trade finance

company with headquarters in the United Kingdom.

Lelchuk earned his undergraduate degrees in finance and management information systems at the Florida State University.

Lelchuk can be reached at: Synovus, 3400 Overton Park Drive SE, 5th Floor, Atlanta, GA 30339; Tel: (404) 364-2779; Mobile: (404) 7900274; E-mail: seanlelchuk@synovus.com.

Synovus Bank, a Georgia-chartered, FDIC-insured bank, provides commercial and retail banking, investment, and mortgage services together with its affiliates through 249 branches in Georgia, Alabama, South Carolina, Florida, and Tennessee. Synovus Bank was recognized as the “Most Reputable Bank” by American Banker and the Reputation Institute in 2017.

Wells Fargo & Co.: Mike Roemer was named chief compliance officer. Roemer, who joins from Barclays Plc, will take charge in January, the company said. He takes over from interim CCO Kevin Oden, who in June replaced Yvette Clark, who was Wells Fargo’s chief compliance officer since 2012.

Roemer, who joined Barclays in 2012, helped in reforming practices in the British bank’s markets division following its involvement in the Libor rate-rigging scandal and an ongoing investigation into the lender’s chief executive Jes Staley over attempts to unmask a whistleblower.

“Hiring a leader with Mike’s credentials is an important step in our commitment to building a stronger compliance function and a better Wells Fargo,” CEO Tim Sloan said.

Wells Fargo Middle-market Banking promoted three executives within its Illinois commercial lending operations. The company named 21-year banking veteran Chris Nay to lead six teams statewide as division manager, effective immediately. Reporting to Nay, Michael Bleecher now manages one of Wells Fargo’s three Middle-market Banking groups serving Chicago. Diana Williams now reports to Bleecher as loan team manager.

Based at Wells Fargo’s South Wacker

Drive hub in Chicago, Nay directs more than 70 experienced commercial lending professionals. His teams deliver Wells Fargo’s localized loan decision-making approach to privately held, middle-market companies with revenues of $20 million and higher.

Bleecher manages 11 team members, including Williams, who leads a team of five portfolio managers and financial analysts.

“With more than four decades of experience among them, Chris, Michael, and Diana are well-versed in the financial needs of our Illinois clients. They will have an immediate impact in their new roles,” said Monica Cole, executive vice president and North Region head for Wells Fargo Middle-market Banking. “Wells Fargo works hard to develop and maintain a deep bench that’s ready to take on key leadership roles.”

Illinois is a growing Wells Fargo commercial lending market, because the state is home to more than 6,500 middle-market businesses that generate nearly 20 percent of all business revenue, according to the National Center for the Middle-market. Wells Fargo’s Middle-market Banking offices in Chicago, Naperville, Highland Park, and Peoria provide more than 80 Wholesale Banking services to clients across industries, including agriculture, manufacturing, wholesale, retail, distribution, and technology.

Nay, Wells Fargo’s new Midwest commercial lending leader, brought 20 years of industry experience when he joined the bank in March 2016 as part of Wells Fargo’s acquisition of GE Capital. While at GE, Nay served as senior managing director for the food, beverage, and agribusiness group. He also oversaw more than 100 team members as managing director for commercial lending and leasing in the Central U.S. Nay graduated from the University of Kansas.

While there, he worked for Ernst and Young and earned his CPA license.

A 12-year Wells Fargo veteran, Bleecher has served in a variety of commercial banking roles, including relationship manager and, most recently, loan team manager.

Known for developing junior bankers,

Bleecher also has built strong relationships with clients and worked closely with the commercial business development team. A native of Chicago, he earned a bachelor degree in finance from the University of Illinois at Urbana-Champaign.

Williams brings more than 10 years of commercial lending experience to her new role. She started her Wells Fargo career in 2007 as a financial analyst. After completing Wells Fargo’s Commercial Management Training program in 2011, she served clients as a relationship manager until being promoted to portfolio manager two years later. Williams earned a bachelor degree in finance from University of Illinois at UrbanaChampaign.

The three new leaders are among nearly 5,000 Wells Fargo team members who live, work, and support customers in Illinois. In 2016, they volunteered 22,278 hours and donated nearly $1.7 million in communities statewide. Wells Fargo donated nearly $2.8 million to 353 Illinois nonprofits and schools that same year, including $736,750 for community development, financial literacy, housing, and small business projects. The bank has invested nearly $643.2 million in Community Reinvestment Act-qualified community development loans and investments for affordable housing, community services, and economic development.

Wells Fargo Middle Market Banking: Terri Bethel has been promoted to lead Wells Fargo Middle Market’s Southern Ohio teams as regional vice president.

The bank’s Middle Market Banking offices provide more than 80 Wholesale Banking services to clients in industries, such as agriculture, manufacturing, wholesale, retail, distribution, and technology.

“Terri excels at guiding Middle Market Banking teams with integrity, diligence, and commitment to helping companies grow,” said Marybeth Howe, Great Lakes division manager for Wells Fargo Middle Market Banking. “With a decade of Wells Fargo experience, Terri understands the financial needs

of our Southern Ohio clients and will help drive their continued business growth.”

Bethel launched Wells Fargo’s Daytonarea Middle Market Banking operations in 2007, leading the team to double-digit, yearover-year loan growth for the past 10 years.

Her new role expands her responsibility to include all Southern Ohio. Prior to banking, Bethel held sales and sales management roles in the consumer products industry.

White Oak Commercial Finance appoints furniture industry apecialist Cindy Skipper as Vice President of Underwriting.

White Oak Commercial Finance, LLC (WOCF) an affiliate of White Oak Global Advisors, LLC and its institutional clients, announced it has bolstered its North Carolina team with the appointment of Cindy Skipper as vice president of underwriting. Based in Charlotte, NC, Skipper will head the furniture credit department.

Before joining WOCF, Skipper managed the credit portfolios of companies operating within the furniture, apparel, carpet, and textile industries. She held vice president roles in the credit departments of Wells Fargo, SunTrust Bank and GE Capital.

“We are confident in Cindy’s ability to make informed, high-impact credit decisions to support our clients,” said Robert Grbic, president and chief executive officer, WOCF. “In addition, she is an exceptional leader who will add tremendous value to our team as we continue to expand our furniture portfolio.”

“WOCF holds more than three decades of experience in financing the furniture manufacturers, wholesalers and importers that sell to the country’s leading retailers,” said Ms. Skipper. “WOCF’s diverse product set, commitment to providing creative and fast financing solution and superior management team made for a very attractive combination.”

Skipper earned her bachelor of science in business from Gardner Webb University. She holds a Six Sigma Green Belt certification

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that is demonstrative of her keen ability to optimize productivity, and problem solve. In addition, Skipper holds certifications from Dun & Bradstreet and Moody’s Financial Analytics.

White Oak Commercial Finance, formerly Capital Business Credit, was acquired by White Oak Global Advisors, LLC on behalf of its institutional clients in late 2016. Today White Oak Commercial Finance has over $300 million of assets deployed with office locations in New York, Charlotte, Chicago, Fort Lauderdale, Los Angeles, Hong Kong and Shanghai.

White Oak Commercial Finance, LLC is a global financial products and services company providing credit facilities to middle-market companies between $1 -$30 million. WOCF’s solutions include asset-based lending, full-service factoring, invoice discounting, supply chain financing, inventory financing, U.S. import/export financing, trade credit risk management, account receivables management and credit and collections support. WOCF is an affiliate of White Oak Global Advisors, LLC, and its institutional clients. www.whiteoaksf.com White Oak Global Advisors, LLC is a leading global alternative asset manager specializing in originating and providing financing solutions to facilitate the growth, refinancing and recapitalization of small and medium enterprises. Typical transaction sizes range between $15-$100 million. Since its inception in 2007, White Oak Global Advisors, LLC’s disciplined investment process aims to deliver risk-adjusted investment returns for its investors while establishing long term partnerships with its borrowers. www.whiteoaksf.com White Oak Commercial Finance, LLC: Veronica Lubczenko was appointed as director, Risk Management, to its rapidly growing Asset-Based Lending (ABL) team.

Lubczenko will be responsible for underwriting ABL transactions and expanding WOCF’s ABL portfolio. Based in the company’s New York City office, Lubczenko

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will report directly to Gerard Hanabergh, managing director of Risk for ABL. “Veronica has decades of experience underwriting and managing ABL portfolios,” said Gerard Hanabergh, managing director of risk for Asset-Based Lending at WOCF. “As we continue to expand our underwriting capabilities to provide access to fast and flexible financing solutions to companies across a variety of industries, executives like Veronica will play a crucial role.”

Prior to joining WOCF, Lubczenko served as vice president of credit approval and Wholesale Credit Risk Management at HSBC Bank, N.A., where she was responsible for underwriting ABL transactions, monitoring portfolios and approving loans. She also served as senior vice president and team leader in the Special Assets Group at Textron, leading the stabilization, workout and monetization of a $1.5B portfolio comprised of domestic and international asset-based revolving credit, cash flow and real estate loans. In addition, she was senior vice president in the asset recovery group at The CIT Group and vice president at GE Capital.

“WOCF has built a powerhouse team and a unique platform to service the middle-market. I look forward to helping the Company advance its mission to provide debt financing solutions to businesses in need of growth and working capital,” said Lubczenko.

Robert Grbic, president and chief executive officer, WOCF, added, “WOCF has made significant investments in growing our ABL practice this year, including the recruitment of some of the best executives in the industry. Veronica is a prime example of the caliber of talent that WOCF seeks to retain.”

Lubczenko earned her undergraduate degree in architectural engineering at the New York Institute of Technology and received her master of business administration, with a concentration in finance and real estate, from the University of Pennsylvania’s Wharton School of Business.

WOCF, formerly Capital Business Credit, was acquired by White Oak Global Advisors,

LLC on behalf of its institutional clients in late 2016. Today WOCF has over $300 million of assets deployed with office locations in New York, Charlotte, Chicago, Fort Lauderdale, Los Angeles, Hong Kong and Shanghai.

White Oak Commercial Finance, LLC is a global financial products and services company providing credit facilities to middle-market companies between $1 -$30 million. WOCF’s solutions include asset-based lending, full-service factoring, invoice discounting, supply chain financing, inventory financing, U.S. import/export financing, trade credit risk management, account receivables management and credit and collections support. WOCF is an affiliate of White Oak Global Advisors, LLC, and its institutional clients. www.whiteoaksf.com White Oak Global Advisors, LLC is a leading global alternative asset manager, specializing in originating and providing financing solutions to facilitate the growth, refinancing and recapitalization of small and medium enterprises. Since its inception in 2007, White Oak Global Advisors, LLC’s disciplined investment process aims to deliver risk-adjusted investment returns for its investors while establishing long term partnerships with its borrowers.

CHAPTER NEWS California The Chapter held a Trends in The Debt and Equity Markets Joint Symposium with ACG and TMA at The Jonathan Club in Los Angeles on January 10. Stephen Krawchuk, managing director, LBC Credit Partners, provided opening comments while Natalie Marjancik, managing director, Lincoln International, served as moderator. Panelists included: Leland Jones, managing director, Endeavour Capital; James Pade, principal, Clearlake Capital Group; Brian Zaumeyer, principal, Odyssey Investment Partners; Bobby Bans, senior vice president, Bank of America Merrill Lynch and Stephen Krawchuk.

The Chapter has many events slated for 2018 including: Women of CFCC - Art Class at Paint Lab in Santa Monica on February 8; Presidents Panel at City Club in downtown Los Angeles on April 11; Summer Party at The Standard Rooftop on July 11; a Hot Topic Panel Discussion at the Luxe Summit Hotel on October 3; the Annual Fall Golf Classic at Coyote Hills Golf Course in October; A Women of CFCC event on October 18; a sponsor panel or networking event at Center Club – Orange County on November 15 and the Holiday Party at the Sheraton Universal on December 12.

For more information visit community.cfa.com/californiachapter Charlotte The Chapter held a Getting to Know the CFA and National Leadership event on January 23 at The Palm in Charlotte, with guests Michael Monk, the Commercial Finance Association’s 2018 President and Richard Gumbrecht, CEO of the Commercial Finance Association.

For more information, visit community.cfa.com/charlottechapter Europe The Chapter held its Winter Networking Party December 12 at The Aon Centre in The Leadenhall Building in London. This relaxed and informal evening event was designed to enable attendees to connect with their ABL peers and round off 2017 on a celebratory note.

For more information visit community.cfa.com/cfaeurope Houston The Chapter held a 2018 U.S. Economic Outlook Luncheon - presentation by Mark Vitner of Wells Fargo on January 16 at The Briar Club. The presentation covered a diverse range of economic topics, examining both national and local trends. It examined what has driven growth in this long-lasting recovery and what is believed to be sources of growth as we move forward into 2018. Attendees learned about: macroeconomic trends that are driving growth across the country; interest rates, bond yields, and federal policies and their economic impacts and regional commentary on Texas and Houston.

For more information visit community.cfa.com/houstonchapter Michigan The Chapter held its Annual Post-Holiday Party on January 25.

For more information visit community.cfa.com/michiganchapter MidSouth On January 25, the Chapter held an event in Birmingham, AL (venue location TBD at press time) featuring Joe Brusuelas, chief economist at RSM US LLP f/k/a McGladrey LLP, the nation’s leading provider of assurance, tax and consulting services focused on the middle market.

Brusuelas is responsible for delivering

macroeconomic insights to help middlemarket leaders succeed. Prior to joining RSM, Brusuelas served as a senior economist at Bloomberg LP. He is also a former director at Moody’s Analytics, and Chief Economist at Merk Investments and IDEAglobal.

For more information visit community.cfa.com/midsouthchapter Midwest The Chapter will hold a Midwest Member Appreciation & Networking Reception on February 1 at Pinstripes in Chicago. Save the dates for the Chapter’s 6th Annual Blackhawks Outing at United Center on February 15; the 24th Annual Cubs Outing on May 23 at the Wrigley Rooftop Deck and the 29th Annual Golf Invitational on July 19 at The Harborside International Golf Center.

For more information, visit community. cfa.com/midwestchapte Minnesota CFA’s Minnesota Chapter held a Lunch and Learn: The Current Landscape of Private Equity/Sponsor Finance on January 26 at Lindquist & Vennun in Minneapolis.

The Chapter held a Mixology event on February 6 at Copperwing Distillery in St Louis Park, MN. For more information, visit community.cfa.com/minnesotachapter New England The Chapter held its Post-Holiday Party on January 11 at the Boston Marriott Long Wharf - Harborview Ballroom in Boston. Hors d’oeuvres, a buffet dinner, and a cash bar were available.

For more information, visit community.cfa.com/newenglandchapter New Jersey The Chapter’s holiday party was held at the Highlawn Pavilion in West Orange, NJ on January 17.

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For more information, visit community.cfa.com/newjerseychapter Philadelphia Save the date for the Chapter’s 11th Annual Philadelphia Credit & Restructuring Summit, on March 22, a joint event with the ABF Journal, the New York Institute of Credit, and the Philadelphia Chapter of the Commercial Finance Association.

This half-day conference affords an exceptional opportunity to network with industry leaders including corporate restructuring and turnaround practitioners, lenders and other capital providers, attorneys, investment bankers and other intermediaries.

The event will kick-off with a Judicial Jeopardy special event — you don’t want to miss the interaction between an esteemed group of U.S. bankruptcy judge contestants as they compete in a unique version of the popular television game show.

The Chapter’s 24th Annual Golf Outing will be held at the Cedarbrook Country Club in Blue Bell, PA on May 14.

For more information, visit community.cfa.com/philadelphiachapter Raleigh-Durham The Chapter’s Carolina Hurricanes vs.

Montreal Canadiens outing was held on February 1 at the PNC Arena in Raleigh, NC. For more information visit community.cfa.com/raleighdurhamchapter For more information on CFA Chapters, please visit community.cfa.com/ch/ chaptersmain

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DON’T MISS CFA’S 2018 EVENTS! WWW.CFA.COM

CALENDAR February 15, 2018 CFA Midwest 6th Annual Blackhawks Outing Super Suites, United Center Chicago, IL March 13 – 14, 2018 CFA’s ABL & Factoring Basics Workshop Greenberg Traurig LLP Atlanta, GA March 13 – 16, 2018 CFA’s Field Examiner School Greenberg Traurig LLP Atlanta, GA March 22, 2018 CFA’s Philadelphia Chapter – 11th Annual Philadelphia Credit & Restructuring Summit Venue location TBD Philadelphia, PA April 3-19 2018 CFA’s Factoring Fundamentals Virtual Workshop April 5, 2018 CFA’s Philadelphia Chapter – Day One at the Master’s Event Venue location TBD Philadelphia, PA April 11, 2018 CFA’s California Presidents Panel City Club Downtown Los Angeles, CA April 24 – 26, 2018 CFA’s Spring Advanced Field Examiner School Venue location TBD Los Angeles, CA April 24 – 26, 2018 CFA’s Workouts & Bankruptcy Workshop Venue location TBD Los Angeles, CA

May 1 – 17, 2018 CFA’s Operations Fundamentals Virtual Workshop May 14, 2018 CFA’s Philadelphia Chapter 24th Annual Golf Outing Cedarbrook Country Club Blue Bell, PA May 15 – 17, 2018 CFA’s Spring Operations Fundamentals Virtual Workshops May 15 – 17, 2018 CFA’s Operations Bootcamp Venue location TBD Chicago, IL May 15 – 17, 2018 CFA’s 12th Annual International Lending Conference Mayer Brown Offices London May 15 – 18, 2018 CFA’s Summer Field Examiner School Venue Location TBD Chicago, IL May 16, 2018 CFA’s Minnesota Chapter Lunch and Learn Lake Monster Brewing St Paul, MN May 23 - 25, 2018 CFA’s Independent Finance and Factoring Roundtable Windsor Court Hotel New Orleans, LA May 23, 2018 CFA’s Midwest Chapter 24th Annual Cubs Outing Wrigley Rooftop Deck Chicago, IL June 5 – 7, 2018 CFA’s ABL & Factoring Basics Workshop Hahn & Hessen LLP New York, NY

June 5 – 7, 2018 CFA’s Summer Loan Documentation Workshop Hahn & Hessen LLP New York, NY June 19 - 20, 2018 CFA’s Spring Foundations of Account Management Holland & Knight LLP Dallas, TX June 19 - 21, 2018 CFA’s Spring What’s it Worth?

All You Need to Know About Inventory Holland & Knight LLP Dallas, TX July 10 – 26, 2018 CFA’s Summer Underwriting Fundamentals Virtual workshops July 11, 2018 CFA’s California Chapter - Summer Party The Standard Rooftop Los Angeles, CA July 19, 2018 CFA’s Midwest Chapter 29th Annual Golf Invitational Harborside International Golf Center Chicago, IL September 5 – 7, 2018 CFA’s Fall Advanced Field Examiner School Greenberg Traurig LLP Atlanta, GA September 5 – 7, 2018 CFA’s Operations Bootcamp Greenberg Traurig LLP Atlanta, GA November 7-9, 2018 CFA’s 74th Annual Convention Marriott Marquis San Diego Marina San Diego, CA

November 15, 2018 CFA’s California - Orange County Event Sponsor Panel or Networking Event (TBD) Center Club - Orange County Costa Mesa, CA

THE SECURED LENDER JAN/FEB 2018 63

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TSL OPINION COLUMN

ennifer St. John Yount of Paul Hastings discusses Emerging Structures in Asset-Based Lending: The Tension Between Innovation and Risk.

Innovation is a popular buzzword with a wealth of meanings. Some believe the word is in danger of becoming overused, while others believe that the word can motivate teams to achieve results as long as each business defines the word in the context of its industry and unique goals.

One goal of asset-based lending is to provide liquidity to customers, particularly businesses focused on growth. This value proposition has resulted in the emergence of innovative loan structures designed to increase availability for a borrower. Understanding the risks of these structures gives asset-based lenders the opportunity to mitigate risk, while at the same time offering their customers the product they desire to achieve their projected business goals.

One structure that has emerged as a means of providing more liquidity to borrowers is cash in the borrowing base. The potential pitfalls with this structure are abundant and derive mainly from an asset-based lender not having access or visibility to the cash. (These issues are compounded in crossborder deals, which are beyond the scope of this article.) Cash in deposit accounts that should be excluded from the borrowing base are ones that (i) are restricted in favor of third parties, such as escrow accounts, or (ii) are subject to control agreements in favor of other lenders. Secured lenders also should be wary of cash that derives from assets on which the lender does not have a perfected security interest (or on which the asset-based lender has a second priority security interest). Other issues include a lack of control or access to the cash and a lack of visibility to

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changes in cash balances. Some lenders include (whether intentionally or inadvertently) securities accounts in the borrowing base, which may fluctuate in value. Bankruptcy challenges, such as use of cash collateral in the borrowing base, pose additional risks that a lender would want to explore.

Possible mitigants to many of these risks are equally abundant and focus mainly on narrowly defining the cash that is eligible to be included in the borrowing base. For an asset-based lender that is a bank, consider holding the eligible cash at a deposit account at your banking institution. Through this, perfection, control, and visibility can all be easily achieved. If that is not possible, consider requiring a control agreement on eligible cash and require frequent reporting of cash balances. Be sure that the collateral description in the security agreement is broad enough to include all cash in the deposit accounts in the borrowing base, not just proceeds of inventory and accounts receivable. Another commonly missed issue is “double counting” borrowing base cash when calculating availability tests for the purpose of determining whether the borrower may prepay other debt or make an investment or dividend.

With the emergence of asset-based lending in the technology sector, an innovative structure that has engendered discussion is intellectual property in the borrowing base.

The retail industry, in select deals, has derived availability from trademarks. Why not from copyrights and patents too? In addition to certain perfection issues that derive from the tension between federal and state law, the risk of including these types of intellectual property in the borrowing base arises from valuation challenges. Diligence is another concern, as sometimes a secured lender believes that its borrower owns a trademark or copyright when making a loan, only to find out later that another party actually owns the intellectual property. Compounding this issue is that the rules governing ownership of intellectual property are often misunderstood. Of course, intellectual property in the borrowing base can be particularly challenging in split collateral deals, and bankruptcy issues should be evaluated (including executory contract issues with IP licenses).

A discussion about innovative structures in asset-based lending would not be complete without mentioning unitranches and multitranche. These structures have piqued the curiosity of many asset-based lenders that have not (yet) developed this type of product. One could write an entire article (and then some) about these structures.

Because asset-based lending unitranches and multitranches are (for the most part) borrowed from the cash-flow industry we will focus on the key features that are unique to an asset based lending unitranche or multitranche.

A unitranche/multitranche negotiation would not be complete without defining a “triggering event.” The triggering event may trigger the waterfall provision, in which the first-out loan is generally paid before the lastout loan. The triggering event might also trigger a right to exercise remedies or perhaps a right to vote. In asset-based lending deals, one should consider including as triggering events those events of default related to the borrowing base, overadvances, and borrowing base certificate reporting. Whether the first out revolving lender should obtain the consent of the last out term loan lender in order to implement reserves should also be considered. Any standstill period on the revolving lender’s right to exercise remedies may need to be shorter than in a cash-flow loan, particularly for certain types of industries and businesses. Similarly, one should consider an appropriate time period for the standstill on the last-out lender, particularly if the business has a large volume of inventory in many locations.

Asset-based lenders looking to offer creative structures and/or provide liquidity to their customers might consider one or more of the ones discussed in this article. An understanding of the risks associated with these structures gives asset-based lenders the opportunity to mitigate those risks while at the same time offering their customers the product they desire in order to achieve their goals. TSL Jennifer St. John Yount is the chair of the Paul Hastings Finance and Restructuring practice and is based in the firm’s New York office.

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An examination of Hilco Global today illuminates the unparalleled depth and breadth of our integrated services. Our team has a unique understanding of tangible and intangible assets built upon decades of experience in providing both healthy and distressed companies with creative solutions. We often support our recommendations with capital, sharing both risk and reward. As principal or agent, we have completed billions of dollars of transactions, and are truly vested in your success. Please contact Gary Epstein at +1 847 418 2712 or gepstein@hilcoglobal.com.

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