TSL January 2019 by Secured Finance Network

Representing the Asset-Based Financing, Factoring & Supply Chain Finance Industries Worldwide Jan/Feb 19

THE

YEAR

AHEAD

KEY PLAYERS IN THE INDUSTRY DISCUSS 2018 AND THE YEAR AHEAD P14

TSL INTERVIEW

RICH GUMBRECHT HONORING THE PAST WHILE CELEBRATING THE FUTURE P36 ALSO IN THIS ISSUE

FACTS MATTER

WHAT IS THE SIZE OF THE ABL INDUSTRY? A GENERATION HAS ASKED AND NOW THE CFA HAS THE ANSWER P24

RUN UP TO 2018 YEAR-END HIGHLIGHTS P10 MARKET SIZING & IMPACT STUDY RESULTS P20 OPPORTUNITY FOR INCREASED FOREIGN SUBSIDIARY CREDIT SUPPORT P30 BLOCKCHAIN PRIMER P34 BUYER SUPPLIER GAP P40 ENDURANCE ATHLETES IN OUR MIDST P44 DEPARTMENTS

COLLATERAL // THE CFA BRIEF // REVOLVER // WHAT WOULD YOU DO? // PROFILE

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Recognizing extraordinary leadership and teamwork

It takes hard work, trust, discipline, and collaboration to achieve great heights in any endeavor. Wells Fargo salutes John Foley, keynote speaker at the CFA’s Asset-Based Capital Conference. John is a former Blue Angels Lead Solo Pilot and leader who challenges us to improve performance, trust our teammates, and deliver winning results. John, we appreciate your generous contributions to charitable organizations around the globe through your Glad To Be Here® Foundation. We offer our thanks to John, and all active military service members, veterans, and their families, for demonstrating extraordinary leadership and teamwork.

Wells Fargo is committed to supporting military service members, veterans, and their families through housing initiatives, career transition, and financial education. • Donated more than 350 homes, valued at more than $55 million, to veterans in all the 50 states and sponsored the donation of more than 15 vehicles to veterans since 2012 • Hired more than 8,400 veterans and participated in more than 1,200 job fairs since 2012. More than 200 team members are on active duty at any given time • Launched Hands on Banking® for Military, a financial education program that has been shared online, in print, through in-person group and one-on-one sessions with more than 1 million military service members, veterans, and their families since July 2013 • Donated more than $79 million to military- and veteran-related nonprofits since 2012, including John Foley’s Glad To Be Here® Foundation

Women in Commercial Finance Conference 2019 Mar 13-14, 2019 | New York, NY

The CFA Women in Commercial Finance Committee is proud to present an in-depth conference offering a dynamic of necombination tworking and professional development. This half-day conference, taking place the day after CFA’s FinTech Conference and on the day of the National Jewish Health Financial Industries Dinner, will bring together some of our industry’s leading female executives and other professionals to offer their insights and tips on navigating issues faced in today’s work environment. Registration includes a special reception the evening of March 13 at the offices of Paul Hastings in NYC. Space is limited – sign-up today!

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

Volume 75, Issue 1

January/February 19

FEATURES 24 Facts Matter: Q&A With Industry Data Specialists

On February 5, at CFA’s Asset-Based Capital Conference in Las Vegas, a panel of data specialists will discuss the dimensions and characteristics of the asset-based loan market using the available data, and also discuss the analytical challenges the third parties face in their analysis. Get a sneak peek of the conversation here.

30 Opportunity for Increased Foreign Subsidiary Credit Support

10 10 Run Up to 2018 Year-End Highlights Loan-Market Softness and Hints of Unease Maria Dikeos of Refinitiv-LPC reports on the US syndicated market results for 2018. Market sources noted that while issuance was respectable year over year, deal count was down and competition for assets was intense. Lender commitments and hold levels increased among deals that were, on average, slightly larger. However, even with the uptick in new loan assets, lender demand for assets fell far short of supply. By Maria Dikeos

One of the main obstacles to cross-border lending ironically is Section 956 of the US Tax Code --- which often treats guarantees and collateral provided by foreign subsidiaries to support loans to U.S. borrowers as deemed taxable dividends. The IRS recently announced a proposed regulation that, if finalized, could substantially eliminate such obstacle and enable lenders to significantly expand their cross-border lending activities and improve their collateral positions. By Jonathan Cooper and Stephen Legatzke

34 Blockchain Primer

Jay Schulman, RSM’s national leader-Blockchain Services, offers a high-level explanation of blockchain and how lenders can use it to their advantage. By Jay Schulman

36 Honoring the Past while Celebrating the Future: Interview with CFA’s CEO, Rich 14 2018: A Year of Growth Despite Competition Gumbrecht Key players in the industry discuss 2018 and the year ahead. By Myra Thomas

20 CFA Education Foundation Market Sizing & Impact Study Results How big is our market? What impact does secured lending have on the economy? The CFA Education Foundation commission Ernst & Young LLP to conduct the first-ever Market Sizing & Impact in order to answer these important questions. By Matthew Noll

40 Buyer Supplier Gap – Mid-market Phenomenon Ripe for Change?

24 Facts Matter: Q&A With Industry Data Specialists

2018 was an historic year for CFA, with its announcement of a rebranding as well as inviting industry service providers as members. Here, TSL catches up with CFA’s CEO to discuss these changes as well as the year ahead. By Michele Ocejo

The chairman of Vayana Network provides information on how factors/ABL might plan to grow their supply chain finance portfolio. By Kannan Ramasamy

44 Endurance Athletes in our Midst

Navigating the fields of the commercial finance world is challenging on a daily basis. Tying to also incorporate endurance sports with commercial finance might initially read like the definition of counter productivity; however, for a number of our colleagues, this combination is a daily and successful business practice. The Secured Lender looked across the industry to gain a bit more understanding about the “how and why” commercial finance professionals partake in endurance-related sports while also staying fit in the world of commercial finance. By Brian Resutek

DEPARTMENTS 6

Letter From Richard D. Gumbrecht, CEO of the Commercial Finance Association, discusses the year ahead.

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

Revolver Jacob Bobrow of PNC explains that Millennials are more motivated than you think.

TSL Profi le Founded by Gerald Smith, Magnolia Financial has been serving the Southeast since 1999, with branches reaching South Carolina, North Carolina, Georgia and Tennessee. A well-capitalized relationship lender that specializes in innovative alternative financing, Magnolia has been helping companies’ bridge the gap between capital and growth for over 15 years. By Eileen Wubbe

What Would You Do? In this edition of What Would You Do?, the Chief Credit Officer of Overadvance Bank considers the Bank’s recovery prospects on a loan to a staffing company borrower which has notified the Bank that it intends to discontinue its staffing business. By Dan Fiorillo and Jim Cretella

The CFA Brief 50 60 64

Among CFA Members CFA Chapter News CFA Chapter Spotlight: Midwest Chapter

Advertisers Index

STAFF & OFFICES Michele Ocejo Editor-in-Chief and 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 assetbased financial services industry (ISSN 0888255X), is published 8 times per year (Jan/Feb, March, April, May, June, 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.

letter from

THOUGHTS FROM CFA AND TSL STAFF

elcome to 2019, the Commercial Finance Association’s 75th anniversary year. I couldn’t be more optimistic about what lies ahead: a new brand, valuable resources delivered through a revamped website, key industry data, and more are on the horizon. As announced at the Annual Convention this past November, we’ll soon be known as the Secured Finance Network. Our new name and visual identity respect our heritage, while at the same time, better reflect the dynamic and diverse community we are today. Inclusive and relevant, our Association anticipates and responds to the needs of our multifaceted community: international, regional, and community banks; entrepreneurial firms; allied service providers and influencers; and the varied individuals––from young professionals to seasoned executives—who move our industry forward. Our strength is directly drawn from the talent, commitment, and energy of our members. For more on this topic, turn to page 36. In 2018, we gathered valuable data on the secured finance industry to inform our Market Sizing & Impact Study. The CFA Education Foundation, in conjunction with Ernst & Young, is putting the finishing touches on this groundbreaking report. Members get an early preview, so keep

an eye out for it. And please consider contributing to our ongoing Westat quarterly data studies. This issue features plenty of content focused on data efforts: On page 24, you’ll find an in-depth Q&A with industry data experts and on page 20, Matt Noll of Ernst & Young provides some key data results from the Market Sizing & Impact Study. The Association has also significantly invested in education programming. We’re updating the curriculum and exploring different formats and delivery options that better align with our members’ busy lives. If you are interested in teaching a class, or would like to be involved in developing course content, please reach out to Nora Walls at nwalls@cfa.com. Some insight-rich events are right around the corner that provide great venues to connect with your peers and set the stage for new opportunities. We’ll be holding two events in March is in New York City: The FinTech & Innovation Summit on March 13 and the Women in Commercial Finance Conference on March 14 ( the same day as the National Jewish Health Financial Industries Dinner). We’ve reformatted our FinTech agenda to focus on what we can expect our industry to look like in the next three to five years and added a prominent futurist as our speaker. Speaking of the future, on page 14 of this issue, Myra Thomas speaks with key industry players about the year ahead as well as their experiences in 2018. On page 10, Maria Dikeos of RefinitivLPC reports on the U.S. syndicated market results for 2018. Market sources noted that, while

issuance was respectable in 2018, deal count was down and competition for assets was intense. Lender commitments and hold levels increased among deals that were, on average, slightly larger. However, even with the uptick in new loan assets, lender demand for assets fell far short of supply. In considering cross-border lending, one of the main obstacles, ironically, is Section 956 of the US Tax Code --- which often treats guarantees and collateral provided by foreign subsidiaries to support loans to U.S. borrowers as deemed taxable dividends. The IRS recently announced a proposed regulation that, if finalized, could substantially eliminate such an obstacle and enable lenders to significantly expand their cross-border lending activities and improve their collateral positions. Jonathan Cooper and Stephen Legatzke of Goldberg Kohn discuss the regulation on page 30. On page 34, Jay Schulman, RSM’s national leader-Blockchain Services, offers a high-level explanation of blockchain and how lenders can use it to their advantage. Finally, navigating the field of commercial finance day in and day out is often compared to a marathon vs a sprint. On page 44, Brian Resutek of Rosenthal & Rosenthal speaks with several endurance athletes in our industry who have taken this quite literally to gain a bit more understanding about their passion for endurance-related sports as a successful business practice. Wishing you a very happy, healthy and prosperous New Year!

“The CFA Education Foundation, in conjunction with Ernst & Young, is putting the finishing touches on this groundbreaking report. Members get an early preview, so

keep an eye out for it. And please consider contributing to

Warm regards,

our ongoing Westat quarterly data studies.”

Richard D. Gumbrecht CFA CEO

DON’T MISS CFA’S NYC EVENTS MARCH 13-14, 2019 WWW.CFA.COM

collateral THE INDUSTRY IN BRIEF

During its 74th Annual Convention in San Diego, the Commercial Finance Association announced it will rebrand in 2019 as Secured Finance Network. “In June, the Commercial Finance Association announced its intention to rebrand over an 18-month period. The decision to re-envision the CFA name and logo, including our messaging and approach to visual expression between now and the Association’s 75th Annual Convention in New York City in 2019, reflects the board’s objective to make the CFA brand more relevant to our members and to reinforce our strategic direction,” said Richard D. Gumbrecht, CEO. Gumbrecht announced the new name during the 74th CFA Annual Convention’s General Session in November 2018. According to David Grende, CFA’s president and CEO & president of Siena Lending Group, “Over the past six months, the CFA has taken a very thoughtful approach to the rebranding initiative. The organization has retained a top branding firm, conducted research, surveyed our membership, and held focus groups to inform our direction. ‘Secured Finance Network’ is descriptive and memorable, builds on our legacy and is highly relevant to our members and target constituents. I’m very excited about the new brand.” The Commercial Finance Association will continue to operate as CFA while it effects an orderly transition in conjunction with an associated expansion of offerings including a complete website redesign over the coming year. Founded in 1944, the Commercial Finance Association is the international trade organization representing the asset-based lending, factoring, trade and supply chain finance

industries, with 250 member organizations throughout the U.S., Canada and around the world. CFA provides education, networking opportunities and industry advocacy to the global commercial finance community. (Editor’s Note: For more on the rebranding see page 36)

CIT Names Robert Rubino as President of CIT Bank, N.A. and Head of Commercial Banking CIT Group Inc. (NYSE: CIT) announced that Robert Rubino has been named president of CIT Bank, N.A., the banking subsidiary of CIT, and head of Commercial Banking, effective Feb. 25. Rubino will join the company’s Executive Management Committee and report to chairwoman and chief executive officer Ellen R. Alemany. “Bob is a proven leader with nearly 30 years of banking expertise,” said Alemany. “His strategic and resultsdriven approach will support our efforts to further strengthen our business, as well as grow and drive synergies across the commercial divisions.” Alemany continued, “CIT has made tremendous progress in transforming the company, refocusing on our core strengths and delivering for our customers. Bob’s experience will further complement these efforts as we advance our strategic plan and build on our leading market positions.” Rubino will have responsibility for the oversight and growth of the commercial banking divisions, including commercial financing, real estate financing, equipment financing, commercial services and railcar financing. Rubino joins CIT from Santander where he was the co-president of Santander Bank, N.A., and head of Commercial Banking. In that role, he transformed the business into a na-

tional commercial banking enterprise producing top performing commercial and industrial growth rates. He developed and executed a new commercial strategy that included launching specialty businesses, opening new offices, and bringing new products and capabilities to market, while enhancing business processes and controls and strengthening client satisfaction. Prior to that, he served as the executive vice president of Commercial Banking at Citizens Financial Group. During his 10 years with the company, he led Corporate Finance & Capital Markets and was instrumental in building the commercial bank. Prior to Citizens, Rubino served in a variety of executive roles at Bank of America, including within the Business Capital division. He earned a master degree in economics from the London School of Economics and a bachelor degree in economics from Providence College. CIT is a leading national bank focused on empowering businesses and personal savers with the financial agility to navigate their goals. CIT Group Inc. (NYSE: CIT) is a financial holding company with over a century of experience, approximately $50 billion in assets as of Sept. 30, 2018, and operates a principal bank subsidiary, CIT Bank, N.A. (Member FDIC, Equal Housing Lender). The company’s commercial banking segment includes commercial financing, real estate financing, equipment financing, factoring and railcar financing. CIT’s consumer banking segment includes its national online bank, CIT Bank, and a Southern California branch bank, OneWest Bank.

INDUSTRY NEWS

Commercial Finance Association Announces Name Change; Seventy-Four-Year-Old Trade Association Rebranding as Secured Finance Network

THE SECURED LENDER JANUARY/FEBRUARY 2019 7

INDUSTRY NEWS

collateral

Eastern Bank Expands Asset-based Lending Team With Senior Hire Donald B. Lewis has joined the Commercial Lending Division as senior vice president, head of asset-based lending. Prior to joining Eastern, Lewis spent 27 years at Citizens Bank, N.A., most recently as senior vice president and national head of underwriting and execution where he led and managed a team of nine underwriters who underwrote and executed all asset-based loans at Citizens Bank. “We’re excited to welcome Don to Eastern Bank,” said Jan Miller, vice chair and chief commercial banking officer of Eastern Bank. “His practical knowledge and extensive experience with asset-based lending builds upon our already strong commitment to offer customers sound lending solutions that best meet their needs.” Lewis has spent his entire professional career in the asset-based lending industry, starting as a field examiner with subsequent roles in underwriting, portfolio and relationship management. Before his national oversight of the entire asset-based loan portfolio at Citizens Bank, N.A., Lewis held regional management positions including Northeast regional portfolio manager and portfolio team leader. He is a member of the Commercial Finance Association and sits on the Regulatory Advocacy Committee. Lewis earned his MBA degree from Bentley University and BS degree in business administration from the University of New Hampshire.

Mitsubishi UFJ Lease & Finance to Acquire ENGS Holdings, Inc. ENGS Commercial Finance Co. (”ENGS”), an industry-leading commercial finance company, is pleased to announce that its shareholders, led by

Aquiline Capital Partners, a New Yorkbased private equity firm investing in financial services, has entered into an agreement to sell all shares of ENGS to Mitsubishi UFJ Lease & Finance Company Limited (“MUL”). MUL is a prominent global leasing company headquartered in Tokyo and its principal shareholders include Mitsubishi Corporation, a leading Japanese trading and investment company, and Mitsubishi UFJ Financial Group, Inc., one of the world’s leading financial institutions. In Japan, MUL has consistently delivered leading vendor-based financing products to customers and is a leading equipment lender. In 2015, MUL expanded its vendor financing capabilities outside of Japan by launching a dedicated business in Thailand. Through its acquisition of ENGS, MUL is now extending its global reach of vendor finance to the United States of America (“U.S.”), the largest equipment finance market in the world. Since Aquiline became the majority investor in ENGS in February 2015, Aquiline and ENGS have worked to expand ENGS’ footprint and diversify ENGS’ offerings, expanding into the industrial, construction, factoring and insurance sectors. With this transaction, ENGS will continue to expand its existing relationships and markets with its U.S.-based vendors. ENGS will also be the U.S. vendor-based platform for MUL’s international clients doing business in the U.S. “We are extremely excited to become part of the MUL family,” commented Craig Weinewuth, president and CEO of ENGS. “The strength and power of the MUL brand worldwide is unrivaled. Becoming the U.S.-based vendor finance platform to carry out MUL’s vision will provide great benefits to our employees, vendors and customers. Together with MUL’s exist-

DON’T MISS CFA’S NYC EVENTS MARCH 13-14, 2019 WWW.CFA.COM

ing U.S. businesses, we will be able to offer our vendor and customer clients products and services that very few in the U.S. can match.” Mr. Weinewuth continued, “MUL will be a great fit for ENGS. MUL and ENGS share the same vision to become the leading commercial finance company in the U.S. We will achieve this by providing the best-in-class products and services to our vendors and customers. This will enable them to grow their businesses most efficiently.” The transaction is subject to approval under the Hart-Scott-Rodino Act and is expected to close in the fourth quarter of 2018. J.P. Morgan Securities LLC served as exclusive financial advisor and Latham & Watkins LLP served as legal counsel to ENGS. MUL is a publicly traded company on the Tokyo Stock Exchange under 8593 and reported 2018 revenues of ¥869.9 billion. MUL was founded in 1971. The U.S. is a high priority region for MUL. MUL, through its whollyowned subsidiary Mitsubishi UFJ Lease & Finance (U.S.A.) Inc (“MULUSA”), has supported capital investment of Japanese companies in the U.S. since 1985. In recent years, MULUSA has expanded its capital investment to U.S.-based companies through its Corporate Asset Finance Division based in San Diego. It has grown its global asset business in the U.S. through its acquisitions of Jackson Square Aviation, LLC, a leading aircraft leasing company, Beacon Intermodal Leasing, LLC, a marine container leasing company and full entry into freight car leasing through an alliance with Greenbrier Leasing Company. ENGS Commercial Finance Company (ENGS) is a U.S.-based industry-leading, full-service commercial finance company. ENGS specializes in Equipment Finance, Working Capital Finance, and Insurance. ENGS offers industry-spe-

Santander Bank Names David Harnisch Head of Commercial Banking Santander Bank announced that it has named David Harnisch head of commercial banking. Harnisch joined Santander in 2017 as the head of underwriting, portfolio management and commercial strategy, and will now be responsible for leading and growing its commercial banking division. Harnisch succeeds Robert Rubino, who recently left the bank. “David has been instrumental in shaping our commercial banking strategy and in leading the transformation within the division that is now translating into sustainable growth and client impact,” said Duke Dayal, president and CEO of Santander Bank. “His broad experience in client management, execution, underwriting and building and leading high-performing teams will help us continue to meet the needs of our clients and grow this

business. I look forward to him leading the ongoing transformation and momentum in the Commercial Bank.” Prior to joining Santander, Harnisch held a variety of leadership roles in the banking and finance industry, and was executive vice president and head of commercial banking underwriting and portfolio management at Citizens Financial Group. He holds a BA in political science from Boston College and an MBA from NYU Stern School of Business. In 2018, Santander has expanded its commercial banking coverage in the U.S. with new bankers in the southeast, midwest and southwest regions of the country. Santander Bank has also added specialized banking, foreign corporate banking, technology, media and telecommunications (TMT) banking, and a family office practice to better serve the unique needs of its clients. Santander Bank, N.A. is one of the country’s largest retail and commercial banks and an active provider of capital, treasury management, risk management and international solutions to thousands of corporate and institutional clients across a wide variety of industries and geographies in the United States. Offering specialty groups of experienced bankers in asset-based lending, government banking, auto finance, commercial real estate banking, commercial equipment & vehicle financing, technology, media & telecommunications (TMT), healthcare, transportation & logistics, food & beverage and consumer retail, along with experts in middlemarket and corporate & investment banking, Santander earns the loyalty of its commercial banking clients by offering services that help them manage their operating needs, maximize their working capital and grow their business domestically and internationally. The Bank is a wholly-owned subsidiary of Madrid-based Banco Santander, S.A. (NYSE: SAN), - one of the most respected

banking groups in the world with more than 125 million customers in the U.S., Europe, and Latin America. It is overseen by Santander Holdings USA, Inc., Banco Santander’s intermediate holding company in the U.S.

IN MEMORIAM: CFA’s Longtime Executive Director, Leonard Machlis

INDUSTRY NEWS

cific vendor finance programs with a commitment to service, speed and simplicity. Since 1952, ENGS has been consistently lending and helping its customers expand their businesses. ENGS is recognized as a leading independent finance company in the U.S. by The Monitor. For more information about ENGS Commercial Finance Company, please contact mediarelations@engsfinance. com or visit at www.engsfinance.com. Aquiline Capital Partners, founded in 2005, is a private equity firm, based in New York investing in businesses across the financial services sector in banking and credit, insurance, investment management, and financial technology and services. For more information about Aquiline, its investment professionals, and its portfolio companies, please visit: www.aquiline-llc.com.

It is with great sadness that we share the passing of the Commercial Finance Association’s former Executive Director, Leonard Machlis. Our heartfelt condolences go out to Len’s family, including his wife Harriet, sons Steven, Brian and Roger, and his daughters-in-law and grandchildren. Len joined CFA in 1955, after serving in the U.S. Army during the Korean War. He was the Executive Director for 38 years, retiring in 2002. After retiring, Len and Harriet moved from New Jersey to New York City and enjoyed all of the cultural events NYC has to offer, especially the theater. If one person can make a difference, Len made that difference. Under his leadership and vision the CFA grew from a small regional finance association into an international trade association representing the full gamut of financial institutions. He lived and breathed CFA during his career and traveled the country unceasingly in furtherance of CFA’s goals. Along the way, he touched the lives of so many of our members and staff. Len was one of a kind, and will be greatly missed.

THE SECURED LENDER JANUARY/FEBRUARY 2019 9

Run Up to 2018 Year-End Highlights Loan-Market Softness and Hints of Unease BY MARIA DIKEOS Maria Dikeos of Refinitiv-LPC reports on the US syndicated market results for 2018.

DON’T MISS CFA’S NYC EVENTS MARCH 13-14, 2019 WWW.CFA.COM

For the better part of 2018, the US loan market was adept at shrugging off geopolitical headlines while embracing the strong economic results reflected in corporate earnings and the robust equity market. In fact, at over US$2.5Tr, completed US syndicated loan volume through the middle of December 2018 is on track to set a new record, outpacing the prior 2017 high. But for all the market bullishness that brushed aside tensions with North Korea, uncertainty around the practical execution of the UK’s exit from the European Union (Brexit) and a daily stream of political jockeying via tweets out of Washington, DC earlier in the year, post-Labor Day, the broader capital markets turned. The loan market – especially in the context of leveraged financing – was not immune to the broader market unease, as it confronted outflows in retail loan funds as well as plunging secondary loan bids. By mid-December US retail loan funds had recorded four straight weeks of outflows totaling over US$6.6bn and average secondary market bids among the one hundred most widely held leveraged loans had tumbled to 96.06, down from over 98.04 in midNovember. While the scope and depth of any market reset is still unclear, quite abruptly issuers and lenders sensed that something had changed. Although corporate America and its financiers remain fairly bullish in general, volatility suggested that things weren’t functioning quite as they were only a few short weeks earlier when no one was talking about market softening or recessions. In this context, US ABL arrangers syndicated nearly US$90bn by mid-December 2018, on par with 2017 results, to mark the third highest total on record (Fig 1). More noteworthy, amid increasing market unease, the asset-based loan market, has traditionally been most resilient in the face of downgrades and restructuring risk and is, therefore, arguably well positioned to serve as lender of last resort should chatter around deteriorating credit quality increase. What is less clear, however, is whether asset-based lenders are able to step into restructuring roles in the same way in a post2008 credit environment where leveraged

FIG. 1: 2018 ABL LOAN VOLUME APPROACHES US$90BN: DEAL SIZE INCREASES

lending guidance has (in theory) tempered appetite for non-pass credits and, for many institutions, asset-based lending no longer represents a standalone bank business, but rather one of several product offerings. “In 2007, if someone asked: are you a business or a product, you would have said business,” explains one lender. “Now [we are] a product. I don’t know if banks are going to do ABL restructurings. It has to line up with what the rest of [our bank] is doing. A lot of people might say they are not going to do it. I think you will get a different answer than ten years ago.” To dig into this a bit more, it is helpful to begin by looking at the mechanizations of the 2018 asset-based loan market.

Supply/Demand Imbalance Add Stress to Lending System At the outset, unparalleled capacity and the ongoing view that ABL structures represent “money good” transactions continued to fuel lender demand for asset-based loan assets. Market sources noted that, while issuance was respectable year over year, deal count was down and competition for assets was intense. If the size of the total ABL pie remained fairly reasonable, there were nonetheless fewer pieces to be shared, as lender commitments and hold levels increased among deals that were, on average, slightly larger.

“This dynamic [is] a real factor [in the market]”, explains one arranger. “More so today. When I started, we would do a US$200-300m ABL deal, and it was mindboggling – how would we sell it? How much would we hold? But today we see banks holding larger and larger amounts. If we like a client for US$50m, we can take US$200m. We are seeing regional banks commit US$150-250m per deal — far more than three years ago.” At over US$30bn, new asset-based loan assets through mid-December represented the highest total since 2007 (US$33bn) and nearly 35% of total syndicated ABL volume (Fig 2). Of this total, nearly 60% represented lending in support of M&A activity, the highest pro rata share of new ABL loan assets since 2007. An additional 18% of new loan assets backed DIP and Exit financing for restructured credits, the highest proportion of total new ABL loan volume since 2010, but far below the nearly 31% share of the market garnered at that time (Fig 3). That was the good news. The bad news was that, even with the uptick in new loan assets, lender demand for assets fell far short of supply. For higher quality corporate credits approaching investment-grade status – issuers like Albertson’s/Rite Aid, who saw their deal ultimately terminated due to opposition to the merger itself – capacity was staggering. Lucrative buyout financings often bypassed the syndicated

THE SECURED LENDER JANUARY/FEBRUARY 2019 11

FIG. 2: NEW ABL LOAN ASSETS MAKE UP 35% OF TOTAL ABL VOLUME; HIGHEST PRO RATA SHARE IN 10 YEARS

market in favor of three-to-five-handed lender groups. The dearth of larger deals to which they could secure allocations forced several

liquidity platform to issuers typically won the deal. This, in turn, had many lenders pointing out that “companies are less resilient to downturns [as a result of struc-

FIG. 3: NEARLY 60% OF NEW ABL ASSETS BACKED M&A TRANSACTIONS, HIGHEST PRO RATA SHARE SINCE 2007

lenders to redirect their attention toward the smaller end of the market with a number of commercial banks looking at deals as small as US$5m to US$50m when only a few years ago they would not have considered any credit of less than US$20m. Unsurprisingly, the heightened demand for assets did not come in a vacuum. Bank financings that came to market were aggressively bid, with sources noting that arrangers offering the tightest or deepest

tures] and we are setting up [the market] for higher default rates”. And this becomes a concern as discussions around restructurings and refinancings become more relevant and specific to near-term market conditions. “To do a new money DIP, some meat has to be left on the bone,” explains one lender. Given where deals are getting done today in terms of issuer leverage levels and free cash flow, in many cases, there is a very narrow path

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for borrowers to exit bankruptcy according to several lenders. “What I recall from the last recession,” says one arranger, “is that, when companies exited [bankruptcy], they had a modest amount of leverage. Now you see leverage at five, six or seven times. You see a lot of debt come out on the ABL piece ahead of the exit. Does this make sense? Will that be a pass credit? In the past, it would have been a pass credit at three times. [Today, it] feels like [depending on the name] a Chapter 11 is going to be a 22.” With debt structures heavily weighted toward senior secured debt in today’s leveraged loan market, the risk of a second bankruptcy becomes all the more real and weighty. It also becomes more complex as term loan B lenders, who have access to assets after ABL lenders have been paid out, increasingly refuse to be compromised in bankruptcy. So, the restructuring and bankruptcy dynamic has changed and this may ultimately have an impact on the size of ABL restructurings and the circumstances under which they can get completed going forward. TSL Maria Dikeos is a director of analytics and global head of loans contributions at RefinitivLPC in New York. Maria oversees a team of analysts in the Americas, Europe, Middle East Africa and Asia-Pacific regions who cover collection and analysis of the regional loan markets. Maria’s focus is primary market analytics including the production of league tables, time series and industry analysis, as well as the enhancement of data collection and expansion of product offerings. Maria is a contributor to a number of LPC’s publications, including the Gold Sheets. She is a co-moderator on Refinitiv LPC’s roundtables covering a range of loan market issues including investment grade and leveraged lending. Maria also contributes features and analysis on the ABL market for The Secured lender in addition to hosting an annual roundtable on the ABL market. Maria has been with Refinitiv-LPC since 2001; prior to that, she worked at a major investment bank. She has a B.A. from Wellesley College and a masters in International Affairs from Columbia University and the University of Geneva.

2019 FinTech & Innovation Forum CFAâ&#x20AC;&#x2122;S DIGITALLY ENABLED LENDING EVENT To keep ahead of the tech curve, you need to know what is coming. Join us on March 13th at the Jones Day NYC Offices to hear Futurist Deborah Reuben lay out her expectations for the FinTech world over the next 3-5 years. Speakers at our 2019 FinTech & Innovation Forum will also address: - Emerging technologies and trends - Women in FinTech - The state of the market and what our industry will look like in 5 years - How to put the newest tech into practice Join us on March 13th for this powerhouse event!

Richard Palmieri, Managing Partner, ANR Partners, LLC

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A year of growth despite competition BY MYRA THOMAS Key players in the industry discuss 2018 and the year ahead.

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TSL PARTICIPANTS

Seth Benefield

Paul Cronin

Edward Gately

Bank of America

KeyBank Business Capital

MUFG

Randi M. Hershgordon

Wade Kennedy

Robert Meyers

Context Business Lending

McGuire Woods

Republic Business Credit

Business Capital

Jennifer Sheasgreen CNH Finance

imply put, 2018 was a pretty good year for most secured lenders. Big or small, bankbased or independent, many of the players in the industry reported modest to strong gains, even in the face of growing competition. Private equity increased its appetite for asset-based lending, adding to the mounting pressures in the space. The consistent returns in the industry continue to be a big draw, not surprisingly, especially for PE looking for a home for record levels of dry powder. Across the board, secured lenders are reporting an increasing number of players coming into the space, leaving many to question the ultimate impact on terms and structures moving ahead into 2019. For now, the smart ABL and factoring players are using discipline to head off the industry pressures. But some do say that 2019 might be the real test, especially with a protracted borrower-friendly environment. Banking players, in particular, spent 2018 working hard to

THE SECURED LENDER JANUARY/FEBRUARY 2019 15

“Total relationship returns continue to be a key focus for lenders, which heightens the competition to lead deals. Like most good businesses that have produced consistent returns, we expect the market to remain competitive.” Seth Benefield

service the “entire” client, to head off the competition. The results seem to have paid off. Seth Benefield, senior vice president, Bank of America Business Capital, Bank of America Merrill Lynch, notes that the ABL side of the financial institution experienced solid growth in 2018. Asset quality remained strong, and he expects the year ahead to serve up more of the same. “Deal flow picked up post-Labor Day, and we have a deep pipeline heading into the New Year,” Benefield added. “Given our liquidity levels and overall balance sheet strength, we believe we are well-positioned in this regard.” He credits the bank’s strong credit and compliance culture for “driving responsible growth” no matter up or down economic cycles. A Lay of the Land But the fierce competition can certainly present a hurdle for a secured lender of any size. “Banks are highly liquid and focused on growth, which leads to intense competition,” says Benefield. “Total relationship returns continue to be a key focus for lenders, which heightens the competition to lead deals. Like most good businesses that have produced consistent returns, we expect the market to remain competitive.” And while Benefield says that Bank of America Business Capital does not compete directly with private equity debt funds or other alternative lenders, he sees a significant amount of capital attracted to the spaces. “We expect this to continue as long as the credit environment remains relatively benign,” he adds. Returns are strong in debt funds and provide private equity

firms an opportunity to diversify away from traditional PE strategies. Additionally, the core middle market remains a hot spot, with continuing pressure from non-bank lenders in the space. Competition means more aggressive terms on structure and traditional ABL controls, such as availability triggers, borrowing base eligibility monitoring and appraisal requirements. It’s not surprising, given that borrowers continue to enjoy the ability to move terms favorably when marketing loan facilities to an asset-hungry market. For non-bank lenders, says Jennifer Sheasgreen, managing director, head of healthcare finance at CNH Finance, it pays to find a niche. It’s the value-added feedback to the client that can show results, she adds. Plus, traditionally, healthcare has operated as a business driven by relationships. So, having a concentrated focus on the industry is giving CNH Finance an advantage, Sheasgreen notes. The healthcare industry represented approximately 18% of GDP in 2017, and it should make up about 20% by 2025. Sheasgreen is optimistic, noting that the third and fourth quarter of 2018 were busy for CNH Finance, and she is expecting more of the same for 2019. “There’s a ton of capital to invest in the healthcare space, and there’s a level of expertise needed to lend to it,” she adds. Their specialized expertise may have helped to stay in front of the competition headwinds, but challenges remain. Larger lenders are dipping down to consider smaller clients. “Our underwriting practices haven’t changed,” Sheasgreen notes. “The use of new tech to create efficiency is certainly helping us grow while efficiently managing operating overhead.” But she adds that it still takes the right people and not mere tech to keep a handle on the ever-shifting sands in the economy and in any industry. Understanding Tariffs The dynamic changes in the healthcare industry can present opportunities and challenges. An uptick in healthcare M&A is creating opportunities for lenders across the board, but there’s also a need

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to better understand the financial models for hospitals and physicians. “There’s a huge reimbursement change coming in the industry, moving the focus from volume to value-based reimbursement,” says Sheasgreen. Healthcare providers, large and small, will be required to focus more and more on outcome, and that will require a specialized secured lender to get into the weeds to understand the impact the changes will have on hospitals, physician practices, skilled nursing providers and more. The political climate is also serving to make the healthcare space a bit of a moving target, at least for the near term. With the Democrats taking control of the House and the Republicans maintaining a majority in the Senate, there may be a battle afoot for changes to the Affordable Care Act. For now, new tariffs are weighing heavily on the minds of secured lenders and their clients. Benefield notes, “Some of our clients and prospects have been impacted by the recently implemented tariffs. Multinational companies are dealing with rising prices for imports and working through potential global supply chain issues.” That means secured lenders are keeping a watchful eye on retailers and the many players in the auto industry. Secured lenders are also focusing their attention on energy clients and prospects, especially with the significant volatility in prices. The tariffs will always have winners and losers, of course. But fears of additional tariffs can drive businesses to delay growth, capital expenditures and strategic initiatives. Brexit and slowing growth in China hasn’t helped the situation. “Counterbalancing this was generally very positive domestic economic performance and corporate profits,” says Wade Kennedy, partner and head of asset-based lending at McGuire Woods. “There’s been considerable restraint on corporate capital expenditures and M&A activity, given economic uncertainty— labor shortages and a perceived end of the recovery, as well as the tariff regime implemented by the Trump Administration.” Client selectivity will continue to be essential to deal with the changes afoot.

But even for those businesses feeling the brunt of tariff increases, the news isn’t all bad. Edward Gately, managing director, head of asset-based finance at MUFG, notes, “It doesn’t appear that tariffs and the political environment have had any material impact in 2018. Many borrowers impacted by tariffs have had the ability to pass those increased costs on to their customers.” However, if the tariff and trade discussions continue to drag on, the uncertainty can cause the likelihood of an economic downturn to accelerate. In addition, the market instability could result in companies pulling back on expansion and capital investments. The Regulatory Front Fortunately, regulatory concerns seem to be lessening somewhat for bank ABL players. The impact of regulation seems to have plateaued, with banks normalizing their compliance efforts. The political environment also points to a softening of regulation. Despite the turn of events, Gately does note that smart lenders are staying ahead of the regulation front. One area that regulators may still take interest in during 2019 could be leveraged lending. “While leveraged lending may be slightly less of a focus for regulators recently, we expect that this will remain an issue until we see how leveraged buyouts over the past few years play out through the next downturn,” says Gately. He also predicts continued scrutiny on certain segments, like O&G, where most of the larger lenders have significant concentrations. In general, industry concentrations will always get the attention from regulators. According to Robert Meyers, president of Republic Business Credit, secured lenders aren’t too worried about short-term changes in regulation. 2018 was a very good year for Republic Business Credit, for instance. However, state-focused bills do give Meyers some cause for concern. California’s recently passed SB 1235 requires consumer-like disclosures on a number of commercial finance products, including merchant cash advances. The new law is not expected to take effect

until late 2019 or 2020. “New Jersey may have an early stage model of this in the works,” he adds. “Government is never very good at using a scalpel and is much more likely to use a broad brush.” Plus, regulation does tend to be a slippery slope. It’s About Relationships, Talent & Restraint Despite the challenges, Paul Cronin, national director, KeyBank Business Capital, is optimistic about 2019. “2018 was good for us in the middle market,” he notes. “It’s our bread and butter, and it’s been strong. We primarily focus on the middle market, but also do some larger syndicated deals.” To be successful, secured lenders need to be relationship-oriented, he says. The customer is looking for “predictability and transparency” when it comes to liquidity, and asset-based lenders who can offer treasury and advisory functions provide a value-added service. Plus, customers are requiring a range of solutions, and they can get it given the many secured lenders out there. “We go in and it’s not an off the shelf product,” says Cronin. But even with the borrower in charge, he notes that secured lenders have to be disciplined. Ask most secured lenders, and they do believe pricing has dipped down as far as it’s going to go. But it’s still a borrower-friendly environment. “It takes good underwriting to pull apart financials,” Cronin notes. Borrowers are looking for the best possible deal, and there might be 10+ banks bidding on the same financing, he says. “It can be a long and drawn-out process.” Origination or identifying opportunities and the upfront data gathering might be facilitated by technology. However, what really counts is still often manual, especially when it comes to dealing with current customers. “You have to do more data analysis and monitoring, especially when you’re doing many more transactions,” says Cronin. In this highly competitive lending environment, some secured lenders have loosened their underwriting standards

“There’s a huge reimbursement change coming in the industry, moving the focus from volume to value-based reimbursement.” Jennifer Sheasgreen

in an attempt to beat out their competition and win deals, observes Randi M. Hershgordon, chief credit officer of Context Business Lending. “We view this as a short-term approach fraught with increased credit risk that could prove costly to those lenders in the long run,” she says. “Conversely, if we really like a particular loan opportunity, including the ownership/management team, we will consider giving up some yield, rather than compromising credit quality so as to best protect investor capital from potential loss.” The end run of 2018: it takes more effort to produce results. A Look at Structure and Pricing Hershgordon says banks remain aggressive as portfolios continue to demonstrate solid performance. “We are also seeing regional and community banks go after ABL loan opportunities usually served by non-bank ABL lenders. They are pursuing these relationships in an attempt to gain market share or access to other business from the borrower and its affiliates,” she adds. Many new entrants in the non-bank ABL space have contributed to the intense competition as private-equity firms get into lending to deploy excess capital, and new specialty finance companies are being formed as they seek to earn higher returns that their investors cannot earn elsewhere. Lower LGDs, coupled with close monitoring and tight structures, make asset-based facilities more attractive from a return perspective. Gately reports

THE SECURED LENDER JANUARY/FEBRUARY 2019 17

MUFG’s fourth-quarter activity was more robust with an uptick in sponsor activity. “We are also seeing an increase in cash flow to ABL conversions and would expect that trend to continue in 2019, as we have likely hit the peak of this economic cycle.” MUFG also saw a very busy 2018 in the middle market and mid- and largecorporate segments. Gately expects competition to remain fierce in 2019. Small regional banks, for instance, institutions traditionally comfortable with “ABL-lite” structures, now want full ABL capabilities and expertise so they can retain their clients through full economic cycles. Given the dynamics, he notes that most lenders would like to “see a little more discipline with FILOs and trigger levels for covenants given expected economic cycles”. A recurring theme is the use of FILO tranches with little or no amortization, which traditionally is a component of a stretch piece. Predictions for 2019 On a positive note, it appears that pricing has leveled off, albeit lower than it should be, given the aggressive structures. “We believe that 2018 could be summed up as “as good as it gets to be an ABL borrower,” says Gately. Secured lenders note that pricing has simply leveled out and hit bottom. “But that’s not to say that it will improve in 2019,” he adds. Of course, predictions are just that—predictions. Smart secured lenders will keep a watchful eye on the market and be ready for opportunities down the road. One thing to watch, says Gately, is the globalization of ABL. “As more countries implement and adopt more debtor-friendly lien perfection systems, it will be interesting to see if ABL outside of the US becomes more popular,” he adds. “Today, the most popular form of secured lending in Europe is receivable finance or discounting. However, that is limited to one asset class, accounts receivable.” Although there are global ABL facilities, with advances in certain jurisdictions which include inventory, it is a mere fraction of the domestic US ABL market. And while Gately doesn’t believe that ABL outside of the US will grow

rapidly, he does note it is something to watch. Benefield points out that strong domestic economic growth in 2018, supported by corporate tax cuts, is something that secured lenders can take comfort in at the moment. “This was a net positive for our clients and prospects, which overall experienced revenue and profit growth,” he says. “There are potential 2019 headwinds around growth as the stimulus impact of tax cuts abates and the Fed continues to hike rates to curb inflation. U.S. companies continue to raise prices and the unemployment rates are at historical low levels.” But an uptick in M&A deals is certainly keeping secured lenders optimistic about 2019. According to Deloitte & Touche’s report titled “The State of the Deal: M&A Trends 2019”, corporate and private equity executives, focused on mergers and acquisitions, anticipated a “further acceleration of deal flow in 2019—both in the number of transactions and in their size”. M&A activity continued at record levels through the first three quarters in 2018, with private equity firms sitting on record levels of dry powder. Given the importance of the leveraged buyout market to new ABL volume, secured lenders are very interested to see how this plays out in 2019 and beyond. Of course, a downturn in the economy can change the stakes. Borrower nonperformance may require the need for special accommodations, such as overadvances. Hershgordon notes, “We are prepared to work with borrowers who may need some additional support as long as they are transparent in communicating with us and are proactive in making the necessary changes to their businesses to help them stabilize during the challenging times. This will require a careful review of their weekly cash flow projections to ensure that they are taking the necessary steps to support their business plan—reducing overhead costs, improving margins, or eliminating unprofitable product lines, to name a few. Ultimately, we understand the need to be patient while we closely monitor our collateral.”

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As interest rates continue to rise, the cost of capital increases and businesses face operating challenges and disruption. That’s when they will likely violate their bank financial covenants, resulting in loan downgrades, says Hershgordon. “We believe these loan downgrades will bring back an increase in bank workouts and the need for borrowers to find more flexible non-bank lending solutions.” Meyers concludes that, while 2019 does look good for secured lenders, competition ultimately means that it can take much more work to bring in new business. Prospective clients are receiving more term sheets than ever before, and both asset-based lenders and factors need to remain disciplined with their credit standards and not follow the competition’s urge to get business on the books. “While yields are up a bit as you would expect with rising interest rates, we certainly issued more term sheets and reviewed more potential deals than ever before to achieve our goals,” he says. This is the prime time for lenders to invest in their staff. “Your staff will be your front line of defense,” Meyers notes. “Time is the scarcest resource in our business.” He suggests running a post-mortem at the end of the year and figuring out what the secured lender might be overlooking. By staying ahead of the game, investing in underwriting teams and doing the due diligence before trouble hits, secured lenders have proven to stand the test of time. TSL Myra Thomas is an award-winning editor and journalist with 19 years’ experience covering the banking and finance sector.

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How big is the commercial finance market? What impact does secured lending have on the economy? The CFA Education Foundation commissioned Ernst & Young LLP to conduct the first-ever Market Sizing & Impact Study in order to answer these important questions.

BY MATTHEW NOLL

CFA Education Foundation Market Sizing & Impact Study Results

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Ask a CEO, a chief lending officer or business unit head: What is the size of your market? Will they know? What about their competing and complementary markets? And how about the effect they have on the overall economy? Good answers to these questions are points that most lenders understand they should know, but they often don’t. And who can blame them – putting a fine point on any market with exhaustive terminology, disparate sources and countless frames of reference leaves many to hazard “guesstimates” that can be misleading – or just plain wrong. Size and impact matter for all sorts

of reasons: A market’s growth can’t be determined without knowing its size. Market share and market position are each gauged by the size of the overall market. Knowing the impact and the business economics of an addressable market is important not only for business strategy, but also for attracting talent, benchmarking, investment, and for setting effective regulation. It is a remarkable fact that U.S. bank regulatory reporting defines over 16,000 unique data elements across nearly 200 regulatory reporting forms (many of which are publicly available), but determining the level of assetbased loans on a lender’s balance sheet is a measure that more or less still has to be forensically determined.

For measures such as syndicated loan originations and league table standings there are data vendors covering that aspect of the market. But the balance-sheet levels of ABL, or the factoring volumes of factors, seemingly easily obtainable measures of the lending market, are challenging measures to determine, as many business heads are already well aware. With the premise that lending methods are evolving, interrelated and modernizing, and recognizing the value of a comprehensive depiction of the commercial finance ecosystem that it serves, the CFA Education Foundation engaged Ernst & Young LLP (EY) in 2018 to size and gauge the impact of several of the most important sub-

US commercial ﬁnance market dimensions ($b) 2018 Growth Asset-Based Lending

Structured, mostly revolving loans on eligible receivables and inventory

Supply Chain Finance

Arrangements commonly led by buyers that provide payment flexibility to suppliers

Factoring

Purchases of receivables

Equipment Finance

Loans and leases secured by equipment

Securitization

Securities sold in tranches by credit strength, collateralized by assets

Cash Flow Lending

Unsecured loans generally to investment-grade borrowers

Leveraged Lending

Secured, cash-flow based loans to non-investment-grade borrowers

Sources: CFA Market Sizing and Impact Survey, Refinitiv, Westat, SIFMA, S&P Global Market Intelligence, Federal Reserve Board, BIS

THE SECURED LENDER JANUARY/FEBRUARY 2019 21

categories of the commercial finance market in the United States. The methods for the study included surveys, interviews with industry participants, and analyzing available market information that could help triangulate on the important measures that size up the U.S. commercial lending market. In line with the CFA’s mission, the study has a particular emphasis on ABL, factoring and supply chain finance, but also analyzes related asset classes and service providers who enable and complement secured lending. The CFA study findings will be released in February. In general, the commercial finance market is large and growing – directly and indirectly employing tens of thousands of individuals who help provide over two trillion dollars of capital to hundreds of thousands of companies, many of which are small and middle-market firms. We are pleased to provide a glimpse of several of its findings here. How large is the ABL market in the U.S.? The study estimates that the ABL market in the U.S. has $465 billion of loan commitments at the end of 2018 and is growing at nearly a 7% rate. The non-syndicated ABL market is the far less-tracked area of the ABL universe and industry watchers have more than a passing interest in it because this is territory where many non-banks play. Using a combination of “top down” and “bottom’s up” approaches, the study determined that non-banks are likely contributing around $38 billion of commitments – or about 8% of overall ABL commitment levels. The study highlights how many ABL loans may be labeled such, but fall short of meeting the traditional expectations of an ABL loan. The term “ABL light” is now common lexicon among ABL participants when referring to loans that use aspects of ABL structuring, but are not meeting the “traditional” ABL terms. Such transformations both aid in the product’s evolution, but can also create issues for expectations and risk managers.

How large is the factoring market in the U.S.? The study estimates that factored purchase volumes in the U.S. are $101 billion at the end of 2018 and is growing in the range of 4%-5%. One of the study’s important contributions is recognizing and sizing the number of factors in the U.S., which the study concludes is around 900. The factoring market is highly fragmented and is uniquely positioned to serve micro and small business clients, and survey results permit reasonable estimations of where these clients tend to be located by state. Surveyed U.S. factoring participants cited favorable economic conditions, funding flexibility and the rise of e-commerce platforms as growth drivers for the market. How large is the supply chain finance (SCF) market in the U.S.? The study estimates that the annual flow supply chain financings in the U.S. is $416 billion at the end of 2018 and is growing in the range of about 6%. SCF is an area where intermediaries and traditional participants often feel that the rules are being rewritten. The study defines three sub-categories of SCF: first, “purchase order finance”, a second group that collectively falls under the labels of “reverse factoring”, “trade payable finance”, or “supplier finance”, and finally, “inventory finance”. The market for SCF is probably the hardest of all sub-categories to define, but the study will be an important contribution to providing members with a frame of reference that can help the observers of this dynamic area understand its sizable opportunities.. TSL Editor’s note: CFA members and Foundation donors will receive free access to the full report along with supplementary insights for survey participants. Most recognizable of these forms are ‘Y9-C’ for bank holding companies and the ‘call report’ for depository institutions.

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Matt Noll is a senior manager in the Ernst & Young LLP Financial Services Advisory practice helping banks and lenders on credit risk, performance and regulatory matters. His specialties are in credit risk rating approaches, portfolio risk management and stress testing, risk governance, organizational/policy design, and integrated approaches to financial and capital management. Prior to EY, Noll served as the lead credit advisory banker at Morgan Stanley and held lead analyst roles covering the asset management, insurance and banking sectors at Moody’s and Fitch for 10 years. Experience also includes leveraged lending at Credit-Suisse and asset-based lending at Citi. Noll holds an MBA from NYU Stern and BS from the University of Notre Dame.

No matter how we say it, weâ&#x20AC;&#x2122;re happy to have you CFA 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

How large is the asset-based lending market? How do asset-based loans compare to other asset classes in terms of defaults and losses?

Facts Matter Q&A With Industry Data Specialists While these seem like straightforward questions, the answers present very challenging data issues. The answers, however, are of great interest to current and potential market participants. The asset-based market is challenging to analyze due to the private nature of most of the borrowers and the highly structured transactions underlying the data. Thomson Reuters has been publishing data on the syndicated asset-based market since 2003. The CFA has also been approaching market data through two different studies: an ongoing quarterly survey being conducted by Westat, and a market sizing study being conducted by the CFA Education Foundation, which was recently completed.

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TSL PARTICIPANTS

Maria Dikeos

Matthew Noll

Peter York

Refinitiv

Ernst & Young LLP

J.P. Morgan Securities, LLC

O n February 5, at CFAâ&#x20AC;&#x2122;s Asset-Based Capital Conference in Las Vegas, a panel of data specialists will discuss the dimensions and characteristics of the asset-based loan market while also providing a look at the data sources and surveys available to track ABL lending activity in the US. Here, the moderator of the panel, Peter York, Managing Director, Asset-Based Lending, J.P. Morgan Securities, LLC, discusses these topics with two of the panelists: Maria Dikeos, Head of Global Loans Contributions, Refinitiv;

and Jonathan Wivagg, Senior Study Director, Westat, Inc., along with Matthew Noll, a Senior Manager in Ernst & Youngâ&#x20AC;&#x2122;s Financial Services Advisory practice. YORK: Jon, what is the CFA Quarterly Asset-Based Lending Index and why should CFA members contribute to it? WIVAGG: The purpose of the CFA Quarterly Asset-Based Lending Index is to provide numerical data primarily to track the performance of asset-based lending over time. We have about 45 participants, which are CFA members, both bank-owned and independent. We distribute the survey to the participants in a fillable PDF form to make it as user-friendly as possible. Some of the key numbers that we look at are total and new commit-

THE SECURED LENDER

JANUARY/FEBRUARY 2019

ments, total and new outstandings, total and new runoff. We evaluate the type of collateral used to support the loan; for example, accounts receivable, inventory, etc. The quarterly survey also tracks some special types of loans such as special mention and criticized loans. We report numbers for charge offs as well. One obstacle we face is we’re not currently able to survey the entire industry, so there’s some limitations in generalizing the data to the broader market. But the survey is a really good way to track trends in the market from

YORK: How are the results made public? WIVAGG: There are two versions of the Quarterly Index, one for participants and one for nonparticipants. It’s important to note that only Westat knows the actual individuallevel responses to ensure complete confidentiality. In the participant report, we list all of the institutions which participated, but we don’t list any of their specific data. The report is divided into two groups by large and medium-size lenders and small and entrepreneurial lenders.

quarter to quarter. As I mentioned, we don’t have a perfectly representative sample of the overall market, but we have a large enough sample with some of the big players in it and it provides very reliable information about the changes and trends over time. It’s important for CFA members to participate in order to make the Index as robust and reliable as possible. Also, participants have access to more detailed data than nonparticipants. We recently launched the CFA Education Foundation Secured Lending Confidence Index (SLCI), which asks qualitative questions of the respondents. We ask them to estimate the direction they think their market is going and if they see things growing or declining over the next quarter. We get a snapshot of it every quarter. It provides a forward-looking expectation of the next three months.

e recently launched the CFA Education Foundation Secured Lending Confidence Index (SLCI), which asks qualitative questions of the respondents. We ask them to estimate the direction they think their market is going and if they see things growing or declining over the next quarter.

The report also includes analysis written by members of CFA’s Data Committee, but it withholds a lot of the key trend information that’s available in the full report that goes just to participating lenders. There are definite advantages to being a participant. CFA members should understand this is the only place you’re going to get trending data and analysis on what the market looks like. YORK: Maria, you’ve been tracking the publicly reported syndicated market since 2004. What is your perspective on the size and scale of the syndicated ABL market? Also, how many players do you see and how do you describe the ABL market from your perspective? DIKEOS: In the syndicated loan market, arrangers cleared nearly $98 billion in asset-based loans in 2018, which represents the second highest

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total on record (second only to the $101 billion raised in 2011). Almost $4 billion of large corporate, clubbed issuance also worked its way through the market. What is more significant for transactors is that nearly 33% of total syndicated loan volume represented new assets for the market – although we do want to point out that a chunk of this came in the form of issuers upsizing existing credits, many of which were already large facilities. So there were opportunities to be had. I think that it is also important to note that despite occasional rumblings

across the broader capital markets, and certainly at year end, the ABL market was very resilient. 4Q18 specifically generated the largest quarterly volume of ABL deal flow on record. The second highest quarterly total was in 2Q18, so again there are opportunities for growth. And we can compare this to overall loan market activity and even the high- yield bond market. At over $725 billion, 2018 institutional loan volume in the leveraged space was down year over year, while overall pro rata loan volume increased by about $40 billion to $514 billion. During this same time period, the high-yield bond market struggled and issuance hit an eight-year low of $16 billion. In terms of players in the ABL space, it is interesting, the number of players has also grown. In 2018 we identified 83 lenders who received title in ABL financings and these ran the gamut from the large money-center banks to regionals, direct lenders and buyside participants, who

are less likely to be driving deal terms. Still, if these lenders secure a title, I would say that it suggests that they have a committed ABL book and business. Taking this one step further, I would argue that there are probably another 30-40 institutions who are committing to assetbased loans, but may not hold top-tier titles or hit our syndicated numbers. YORK: Matt, what is an example of an ABL topic covered in the CFA Education Foundation Market Sizing and Impact Study? NOLL: ABL loans are commonly understood to be structured with a high

1) Secured loan; 2) Formula lending with a periodic borrowing base; 3) Asset-level diligence to support advance rates; and 4) Ability to monetize collateral based on a dominion concept (springing or in-place). However, you’re finding that the full, strictest interpretation of some of these criteria isn’t being used at institutions which think of themselves as being an ABL player. NOLL: Yes.

W degree of protection for lenders. However, there are no bright-line tests for meeting a particular level of structure quality. The study illuminates that there are different gradations of ABL strengths. This point is reinforced by the growing use of the term ‘ABLlight’ in the market, which is a structure found more so in the growing non-syndicated space. Because not all ABL deals are structured to the same level of rigor, this has the potential to create some challenges for expectations. Two deals may be called ABL, but they may perform very differently through a downturn. YORK: That’s interesting that you find that there is still a little bit of nuance and ambiguity around defining ABL, because it strikes me that longtime ABL players would conclude an ABL deal has to meet a minimum of four defined criteria:

based on their ABL agent activity, their C&I balances, the surveys and whatever other information that could be gleaned from the market. An educated guess was taken that there were another 31 lenders out there who were not appearing on the agent credit list, and a reasonable distribution of ABL profiles were assigned to that group as well – as you could imagine, these would mostly be mid-tier and smaller ABL players. So, when you tally up all the commitments from the 114 lenders, you’re almost at $400 billion right there.

e estimate the aggregate commitments for the ABL market to be $465 billion. Roughly 92% is comprised of bank-regulated activity; about 8% is nonbank; roughly 61% is syndicated credits and 39% is non-syndicated. The syndicated market is about $284 billion...

YORK: Matt, what is the size of the asset-based lending market? NOLL: The Study estimates the aggregate commitments for the ABL market to be $465 billion. Roughly 92% is comprised of bank-regulated activity; about 8% is nonbank; roughly 61% is syndicated credits and 39% is nonsyndicated. The syndicated market is about $284 billion; the non-syndicated market is roughly $182 billion, of which roughly $152 billion/83% is bank-regulated and $30 billion/17% is non-bank regulated. York: How did the Study get to that number? NOLL: Starting with a list of of 83 banks that had agented ABL deals over the last several years, the Study had survey data showing commitments and funded amounts on almost half of them. Essentially, the Study made it possible to construct profiles of all 83

Only nine of the profiled entities were non-banks, and they accounted for just under $10 billion of ABL credit. The Study addresses two significant additional questions — how much ABL is sitting at the roughly 4,900 banks that weren’t profiled and how much additional ABL is sitting with other non-banks. The Study attributes about $6 billion in ABL commitments from the group of banks below the largest 200 banks in the US, which is this group of about 4,900. For context, about 4,650 or 94% of these banks have less than $1.5 billion in total assets and of that group, the average C&I loan portfolio is $15 million. The Study estimated that of around $350 billion of revolving C&I commitments is attributable to the group of 4,900, no more than $70 billion or 20% could be true ABL. The $6 billion ultimately attributed is 9% of the $70 billion. For non-banks, the same sort of top-down

THE SECURED LENDER JANUARY/FEBRUARY 2019 27

approach was used that was applied to small and mid-sized banks that weren’t profiled. A Fed report called the G20 was used, which tracks nonbank lending. This report notes there is $84 billion of funded financings involving accounts receivables and a host of other items. It was assumed that 25% of the $84 billion was ABL ($21 billion-funded ABL), and a 55% drawn rate was applied to conclude there is an additional potential of $38 billion in ABL commitments. $9 billion of that was already profiled. So, when the Study tallied a) the profiled banks and non-banks, b) the remaining bank

O universe, and c) the other non-banks that were found through the G20, the total sums to $465 billion. Refinitv data was then used to estimate the portion of the $465 billion that was syndicated, which, as noted, was about $283 billion. $465 billion minus the $283 billion leaves you with a non-syndicated market of $182 billion. As exhaustive as that was, a host of sanity checks were run along with other models to evolve ABL commitments. The annual ABL growth rates were examined relative to C&I growth rates for reasonableness. Overall, the Study Committee believes they have as complete a picture as one could obtain.

YORK: We have a high degree of confi dence the syndicated-market players confirm the activity and that the four basic criteria are met. In fact, we feel

virtually all of the bank-regulated, non-syndicated market also conforms. So, the potential for “off-label” characterization of ABL may be only $20-40 billion. NOLL: That’s right. It could be roughly 5-10% of the total market. YORK: So maybe there are some ABL players that don’t fully adapt to the defined criteria. What do you think about this and counting them in the industry survey? NOLL: Yes. I think these definitional issues and well-defined bright-line tests are very important to all constituents

DIKEOS: Sure, so the retail loan market pushed over $2.6 trillion of issuance through retail syndication in 2018. An additional $170 billion in clubbed issuance was also completed. Breaking the numbers out a bit further, new loan assets made up about 32% of total syndicated volume for the year. Non-leverage loan volume which includes investment-grade lending as well as cross-over credits totaled $1.4 trillion. If we think about asset-based lending in the context of total leveraged loan volume, it is only a small component. But if we think about it in the context of pro rata or non-insti-

ur number from the most recent quarter is $239 billion. So, obviously, it’s at least $239 billion. If we’re capturing maybe 50 percent of the market, then $465 billion is consistent with our data.

involved in the market. Having looked at many spaces in the financial services sector, a big challenge for risk managers is risk classification and being able to define a particular type of risk. An ABL needs to fit within that context or it can be a real headache for a risk manager. It can be a problem for the overall ABL market. YORK: Jon, we know that Westat is not capturing 100% of the market participants in the quarterly surveys. However, what do you think about E&Y’s conclusions? WIVAGG: Our number from the most recent quarter is $239 billion. So, obviously, it’s at least $239 billion. If we’re capturing maybe 50 percent of the market, then $465 billion is consistent with our data. YORK: Maria, what are your thoughts about this sizing? Does that seem reasonable to you?

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tutional loan volume, the value of the ABL structure is clear. ABL made up almost 20% of non-institutional leveraged loan volume in 2018. YORK: Matt, what’s your perspective on the size of the ABL market in context of the total lending universe? NOLL: When talking about the size of the ABL market, putting it in perspective relative to what is truly known, is in my view, helpful. The C&I market for United States commercial banks and federal savings banks is $2.1 trillion funded. And so that’s a helpful frame of reference. The Fed G20 reports that there’s just a shade under $400 billion of funded commercial loans on the balance sheets of the nonbanks. And so, when you add the $400 billion with the $2.1 trillion, that’s about $2.5 trillion of total funded commercial loans. That

can be put next to our $465 billion committed ABL portfolio. YORK: I think what’s important about the context is that it doesn’t feel like asset-based lending; secured lending based on formula, has reached maturity in terms of applicability into this wider lending universe. With ABL portfolios roughly 50% funded or about $230 billion, then it seems like there is a lot of potential growth opportunity for formula-structured asset-based lending when looking at $2.5 trillion of funded C&I loan, regulated and nonregulated. That indicates ABL is roughly 9% of the total C&I book. NOLL: That is correct. The penetration of ABL lending as a percent of overall funded bank and non-bank C&I is around 9%. Among banks, the average penetration is higher for large banks, but is much lower--roughly 3%, for banks with less than $5 billion in total assets. YORK: Jon, how would you characterize performance of ABL portfolios over the last 6, 8, or 12 quarters, specifically growth in commitments? What is the headline about chargeoffs and portfolio quality as you’ve been looking at the reported data? WIVAGG: Since the first quarter of 2016 through the third quarter of 2018, there’s been an almost uninterrupted slight upward trend in commitments. There was just maybe one or two quarters throughout the last 11 quarters where that dipped slightly, but overall it’s a pretty strong trend. From where we were back in Q1 of 2016, commitments have increased a little bit under 20%. For outstandings, there’s been a little bit more fluctuation, but we’ve moved from just under $87 billion in Q1 2016 to about $107 billion in Q3 of 2018. So that’s been a pretty consistent increase with just a little bit of quarterto-quarter fluctuation along the way. The trend for entrepreneurial lenders is very similar with growth in almost every quarter and overall growth

from about $1.8 billion in Q1 of 2016 to just under $2.6 billion in Q3 of 2018. These numbers are from entrepreneurial lenders who have responded to the survey for all 11 quarters. YORK: Maria, how do you feel about ABL relative to the performance of other markets? What do you see in the syndicated market? DIKEOS: We don’t do a lot of portfolio comparisons, but on the whole, I think that the ABL issues have performed well. We see more cracks now occasionally on some of the leveraged-issues credits that have come to market and they’ve missed certain targets and they’ve been bid down and all of that. But I don’t have any apples-to-apples comparisons. YORK: Matt, what does the data from the Market Sizing Survey suggest about the next few years of ABL? NOLL: If you look at the patterns of growth since emerging from the financial crisis, C&I has grown very, very strong, and ABL also has grown strong, but maybe not quite as much. And if you look at the year-by-year trajectory of how C&I has progressed and our estimations of how ABL has progressed, C&I was really helped in 2011 and 2012 when it had extremely high growth and then that growth slowed in the ’15-16 period, very much because of oil and gas market issues, and has reestablished strong growth with the fourth quarter of 2018, the strongest quarter in the last several years. The Study found that ABL growth follows closely with C&I growth, but somewhat lags in steady state conditions. If we were to go into a downturn over the coming few years, I think both ABL and C&I have a slowdown, but the ABL slowdown would be, in all likelihood, lesser than the cash-flow, more traditional, C&I. I would note that the C&I growth that we discussed here includes not only cash-flow based loans but also secured loans including ABL.

DIKEOS: If there’s a cyclical downturn and the C&I leveraged loan market volume deteriorates, I think that one could make the case that there is opportunity for ABL. Because, during the prior credit crisis, ABL actually increased before it went down, in 2008, for example. I think that’s because of the structural opportunities that ABL brings to borrowing I think that one can make the case that, with proper understanding, with the regulatory pullback that seems to be in place, if the market turns, I think cash-flow C&I loans are more likely to struggle to get done than an ABL deal. YORK: Thank you, all. It seems the industry has come a long way recently in providing reliable and informative data. I look forward to our panel in Las Vegas at the Asset-Based Capital Conference. TSL This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. (Editor’s Note: If your organization is interested in participating in CFA’s Quarterly Asset-Based Lending Index or Annual Factoring Index, please contact Michele Ocejo, mocejo@cfa.com.)

THE SECURED LENDER JANUARY/FEBRUARY 2019

BY JONATHAN COOPER AND STEPHEN LEGATZKE

Opportunity for Increased Foreign Subsidiary Credit Support: New IRS Proposed Tax Regulation Limiting “956 Deemed Dividend” Tax Impact

One of the main obstacles to cross-border lending ironically is Section 956 of the US Tax Code — which often treats guarantees and collateral provided by foreign subsidiaries to support loans to U.S. borrowers as deemed taxable dividends. The IRS recently announced a proposed regulation that, if finalized, could substantially eliminate such obstacle and enable lenders to significantly expand their cross-border lending activities and improve their collateral positions. 30

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On October 31, the IRS announced a proposed regulation (the “Proposed Regulation”) which, if finalized, would substantially diminish (and potentially eliminate) the adverse tax impact of “956 Deemed Dividends” triggered when a foreign subsidiary provides a guarantee or collateral to support a loan made to its U.S. parent (or other U.S. affiliate).1 If finalized, the Proposed Regulation would remove a major obstacle to lenders receiving foreign subsidiary credit support, and, in certain situations, would enable lenders to significantly improve their collateral positions and provide increased opportunities to lend against the value of foreign subsidiaries. Currently under the U.S. tax code, any of the following types of foreign subsidiary credit support could trigger a material taxable 956 Deemed Dividend for a U.S. borrower: (1) a guaranty by the foreign subsidiary, (2) a lien on any of the assets of the foreign subsidiary, or (3) a pledge of 66-2/3% or more of the voting stock of the foreign subsidiary, in each case, to secure a loan made to the U.S. borrower. The amount of the taxable 956 Deemed Dividend is the lesser of (i) the total principal amount of the loan that is supported by the foreign subsidiary credit support, and (ii) the amount of such foreign subsidiary’s earnings and profits that previously have not been taxed in the U.S. For example, if such foreign subsidiary guarantees a $100-million loan made to its U.S. parent, all of such foreign subsidiary’s previously untaxed earnings and profits up to $100 million (i.e., up to the amount of the loan made to its U.S. parent) could be taxed in the U.S. as a 956 Deemed Dividend.2 Because of the potential material tax impact of 956 Deemed Dividends, U.S. borrowers often are unwilling to even entertain allowing their foreign subsidiaries to provide any credit support in respect of their loans, other than a 65% equity pledge (which 65% pledge would only have limited collateral value because, among other things, it would rank behind all of the secured and unsecured creditors of the foreign subsidiary, and then would only entitle the lender to

65% of whatever is left over after all of such creditors have been paid in full). As noted above, if finalized, the Proposed Regulation would substantially diminish (and potentially eliminate) the above-noted 956 Deemed Dividend adverse tax impacts and could result in lenders receiving valuable guarantees and collateral from foreign subsidiaries, and 100% equity pledges (instead of just 65% equity pledges) in respect of foreign subsidiaries, in each case to support loans to U.S. borrowers. However, equity sponsors and U.S. borrowers may still object to providing such foreign subsidiary credit support due to increased transaction costs to effectuate such support (such as foreign counsel fees and expenses), and due to concerns with triggering issues under applicable foreign law (such as corporate benefit laws that are common throughout the world and restrict foreign subsidiaries from guaranteeing the debt of others, and financial assistance laws which limit the ability of foreign subsidiaries to provide credit support for leveraged acquisitions). Additionally, in certain instances, even if the Proposed Regulation becomes fully effective, 956 Deemed Dividend taxes may still apply with respect to U.S. shareholders that are not corporations.3 That said, in the right situations, lenders may now be able to obtain valuable foreign subsidiary credit support which previously was off-limits. Even though the Proposed Regulation is not yet final, the Proposed Regulation provides, subject to certain exceptions, that it may be relied on now by U.S. taxpayers with respect to tax years post-2017--- so at least in theory, the Proposed Regulation may allow lenders immediately to seek additional foreign subsidiary credit support without triggering taxable 956 Deemed Dividends even prior to the Proposed Regulation being finalized.4 That said, U.S. borrowers/equity sponsors may be reluctant to rely on the Proposed Regulation until it is final.5 As a result of the Proposed Regulation, lenders should consider the following:

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◗ Updating Form Loan Documents/ Form Term Sheets to Require Increased Foreign Subsidiary Credit Support: To the extent 956 Deemed Dividend taxes are no longer applicable (which hopefully will be the majority of situations after giving effect to the Proposed Regulation), lenders should update their form loan documents to require the belownoted expanded foreign subsidiary credit support. While borrowers/ equity sponsors may object to such expanded foreign subsidiary credit support requirements due to concerns about the Proposed Regulation not yet being final or that 956 Deemed Dividend taxes may continue to apply in limited situations even after the Proposed Regulation is final, those concerns could be addressed by providing that the expanded support would only be required to the extent it would not trigger a material Deemed Dividend tax. - 100% Equity Pledges of First-Tier Foreign Subsidiaries (rather than 65% equity pledges): Note, simply increasing the percentage of the equity pledge should not result in incremental transaction expense and is unlikely to cause issues under applicable foreign law. - Guarantees from Foreign Subsidiaries: Note, it may be possible to effectuate the foreign subsidiary guarantee simply by having the foreign subsidiary become a signatory to an existing U.S. Subsidiary Guaranty, which arguably should not involve significant incremental transaction expense. However, the borrower/ equity sponsor may still push back because of concerns that the foreign subsidiary guarantee could trigger issues under applicable foreign law (such as foreign corporate governance laws or financial assistance laws referred to above). A middleground provision would be that the foreign subsidiary guarantee would be required only to the extent that it does not trigger such issues. - Direct Liens on Assets of Foreign

Subsidiaries: Note, such liens generally would need to be granted under applicable foreign-law governed collateral documents, and generally would need to be drafted and reviewed by foreign counsel. So, while such foreign collateral may no longer trigger a 956 Deemed Dividend tax, the borrower/equity sponsor may still object due to the increased transaction expenses to effectuate such foreign collateral. Additionally, the same foreign law issues noted above with respect to foreign subsidiary guarantees likely also apply to foreign collateral grants. A middle-ground provision would be that the foreign collateral would only be required to the extent it does not cause issues under applicable foreign law, and is cost-justified. ◗ Reviewing/Revising Loan Document Provisions re “Loan Party” Permitted Intercompany Transactions. Credit Agreements often allow Borrowers and Subsidiary Guarantors to freely make intercompany loans, investments and other asset transfers among each other since they are all obligated under the Credit Facility. As a result of the Proposed Regulation, it is likely that “Foreign Subsidiary” Guarantors (as opposed to just “Domestic Subsidiary” Guarantors) will be more common. While this change is generally good news for lenders, it could result in issues for lenders under their existing loan documents. Hopefully, the lender’s existing loan documents only allow such intercompany free-flow of money and other assets to “Domestic” Subsidiary Guarantors and not to “Foreign” Subsidiary Guarantors --- this is because even if the Foreign Subsidiary is a Guarantor, the applicable foreign laws and foreign courts often are not sufficiently reliable for the lender to recover against the Foreign Subsidiary Guarantor. Unfortunately, many Credit Agreements are drafted such that Loan Parties are permitted to freely transfer cash and other assets to any Subsidiary Guarantor, and do

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not make a distinction between a “Foreign” or “Domestic” Subsidiary Guarantor (possibly because the parties thought, due to 956 Deemed Dividend issues, there would never be a Foreign Subsidiary Guarantor). As Foreign Subsidiary Guarantors now are more likely to exist, these provisions should be revisited and tightened. ◗ “Shoring-Up” Foreign Collateral/ Guarantees” in a Work-Out: With respect to loans that are now in default or otherwise in distress, when available, lenders should consider insisting on foreign subsidiary credit support being added to help improve their collateral positions. Because of long-held 956 Deemed Dividend concerns, foreign subsidiary guarantees and collateral often are excluded from guarantee/collateral packages delivered at the loan closing. Especially after giving effect to the easing of taxable 956 Deemed Dividends resulting from the Proposed Regulation and from last year’s tax reforms, if the loan later becomes distressed, the lender, should reconsider such exclusion. Given applicable “bankruptcy preference periods” and other insolvency concerns, and given that it often takes prolonged periods of time to implement foreign guarantees/ collateral, if the lender determines that additional foreign credit support should be required, the lender should move swiftly to obtain such support. ◗ Lending Against the Value of Foreign Subsidiaries: Going forward, if lenders are able to obtain increased foreign subsidiary credit support, they may be able to provide more credit to their borrowers based on the value of such foreign subsidiaries. Given the increasingly global nature of businesses, this could have significant positive effects for both lenders and borrowers. Please feel free to contact us if you would like to further discuss any of the issues noted above. TSL

Jonathan Cooper is principal at Goldberg Kohn. He has represented both institutional lenders and borrowers in all facets of commercial finance transactions, including senior secured asset-based and cashflow transactions, first lien, second lien, unitranche, and mezzanine positions, as well as in workouts and restructurings. Jonathan has significant experience conducting international commercial finance transactions for a wide range of clients, primarily focusing on Europe and the Americas. He frequently gives presentations regarding international finance and has written several articles on the subject. Jonathan has worked with UNCITRAL (the trade division of the United Nations) in connection with numerous cross-border finance projects and he is a past Chair of the American Bar Association Subcommittee on Cross Border and Trade Finance. Stephen Legatzke is a principal in Goldberg Kohn’s Corporate, Securities & Tax Group. Steve has extensive experience with tax matters pertaining to finance transactions, including cross-border financing, as well as corporate acquisitions, dispositions, and joint ventures. Steve has provided advice and assistance to a host of lenders and borrowers with respect to the tax issues arising from debt workouts, modifications, debt-equity swaps, foreclosure and cancellation of debt tax reporting responsibilities, trust fund tax penalties, and federal tax liens.

Currently, under Section 956 of the Internal Revenue Code (the “Code”), if a controlled foreign corporation (a “CFC”) makes an investment in “United States property,” the U.S. shareholders of such CFC generally are deemed to receive a taxable dividend from the CFC. In lending transactions, currently a guaranty by, or the grant of a lien on the assets of, a foreign subsidiary that is a CFC to support a loan made to its U.S. affiliate, or a pledge of 66-2/3% or more of the voting stock of such foreign subsidiary to secure such a loan, each are treated as an investment in United States property, and each may trigger significant taxable 956 Deemed 1

Dividends. The Proposed Regulation allows for 956 Deemed Dividends to be excluded from the federal taxable income of the CFC’s corporate U.S. shareholders to the same extent as an actual dividend from the CFC is excluded under new Code Section 245A, which was enacted as part of the Tax Act in December 2017. Code Section 245A permits a new dividends received deduction for domestic corporations owning at least 10% of the stock of a CFC, pursuant to which the domestic corporation could deduct from its gross income for US federal income tax purposes the foreign source portion of the dividend derived from the CFC’s previous untaxed foreign earnings and profits. In other words, such domestic corporation shareholders are generally not subject to US federal income taxes on actual foreign earning dividends when paid from their CFCs. 2 To make matters even worse, the taxable 956 Deemed Dividend is triggered not only with respect to the earnings and profits of such foreign subsidiary as of the time the loan is first made to its U.S. parent, but is also triggered with respect to earnings and profits generated by the foreign subsidiary from time to time thereafter while its guaranty remains in effect (capped only by the amount of the outstanding loan to its U.S. parent). 3 Code Section 245A does not apply to certain types of dividends called hybrid dividends (generally dividends that the CFC could deduct in determining its own foreign tax liability) and only applies if the domestic corporation held the stock and was at least a 10% shareholder at all times more than 365 days prior to the date the share went ex-dividend. As the Proposed Regulation permits the domestic U.S. shareholder corporation to deduct from the amounts that otherwise would be includible in income under Code Section 956, those amounts that would have been excludible under Section 245A if the 956 Deemed Dividend had been an actual dividend, the corporate shareholder will have to meet the one-year holding period requirements prior to the last day of the taxable year of the CFC, when the 956 Deemed Dividend arises, for the

956 Deemed Dividend to be excluded. Further, as noted above, the Proposed Regulation does not protect other U.S. shareholders of the CFC who are individuals, LLCs, partnerships or trusts (i.e., who are not corporations) from having 956 Deemed Dividend inclusions. Moreover, depending on how a State determines taxable income of a corporate shareholder, the Proposed Regulation may not eliminate state income taxes on the 956 Deemed Dividends. Most States compute taxable income by starting with federal taxable income and then have specific additions or subtractions, but each State will need to determine for itself how to apply Section 245A and the Proposed Regulation. 4 The Proposed Regulation is stated to be effective generally with respect to taxable years of a CFC beginning after the date the Proposed Regulation is final; however, subject to certain limitations, taxpayers are entitled to rely on the Proposed Regulation for taxable years of a CFC beginning after December 31, 2017. 5 The IRS spent much of the Proposed Regulation’s preamble justifying its authority to issue the Proposed Regulation, suggesting to many that, although the Proposed Regulation should not be controversial (it generally results in exempting from U.S. federal income taxation a “956 Deemed Dividend,” in much the same way as last year’s tax reform exempts “actual dividends” from CFCs), the IRS is aware that the Proposed Regulation may not be fully supportable by applicable law.

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Blockchain Primer

BY JAY SCHULMAN Jay Schulman, RSM’s national leader-Blockchain Services, offers a high-level explanation of blockchain and how lenders can use it to their advantage.

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A significant disconnect has been noticed between large corporations and their small suppliers and vendors, particularly when it comes to financing their businesses. There is no one to blame, for the two operate in completely different environments. Perhaps one of the most significant developments affecting the future of financial services is blockchain technology. Let’s set aside bitcoin and other cryptocurrencies. While they are built on blockchain technology and there has been a lot of attention paid to them, the focus should be elsewhere. A number of major companies have launched blockchain (also called distributed ledger) initiatives to track shipments of cargo from manufacturer to distributor to retailer, trace food products to their source in times of contamination, and create smart contracts that execute provisions automatically, using workflow and scanning technology. A blockchain is as simple as a spreadsheet, but the technology allows for the information only to be written once and never edited. Tracking food or shipments on a blockchain looks like simple line-item transactions recording key pieces of information. In the case of food, the blockchain should record the time, temperature if it’s in a refrigerated truck, as well as other pertinent information. For tracking cargo, the transaction might contain GPS coordinates of the cargo, weight and other information that is meaningful. Blockchain allows all participants, including potentially the lender or the insurer, to see this data in real-time as the product moves through the supply chain. Walmart, along with others, representing as much as 60% of the grocery market, has embraced IBM’s Food Trust platform for tracking fresh food from farm to shelf, providing a much faster way to perform a food recall. While much of the conversation has been around food recall, once the data is on a blockchain, you can enable additional capabilities. Blockchain is a shared ledger at its simplest. Instead of each participant in a supply chain maintaining their own set of books and records, all of the participants agree to a set of rules, called consensus, that allow them to utilize the same ledger. Today, maintaining multiple records leads to vendors arguing about differences in

their own set of books. (“My system says we shipped you 10 boxes. You need to recount how many boxes you took off the truck.”) In the lending arena, all of this tracking data will enable new services, potentially lower costs and optimize capital. Let’s use our farmer as an example. (Note: as long as all of the participants agree to use the blockchain, this can apply to any type of item.) A farmer today would seek out an operating loan to buy seed to grow their commodity. The repayment would likely be based upon “when the commodities sell.” Today, the lender has no real-time visibility into the status of commodity and when the farmer has been paid for their harvest. On a blockchain, access can be granted to the lender to see the commodity harvest, loaded into the truck, and delivered to the next participant in the supply chain. The lender can then reach out to the farmer when they know the farmer has been paid or, in an optimized version of the process, the grocery could pay the loan directly to the lender. Given the increased transparency, the lender has much greater assurance on whether the loan will be satisfied — they can see the success of the harvest and that there is a buyer — and can call in the loan with greater accuracy. While the food supply chain is the first business process where this is gaining adoption, expect to see other industries where tracking of items — whether for loans, recall, or other use case — add true business value. The use case above overlays lending on top of an existing process (food supply). How can a blockchain facilitate a core lending process? There are two use cases to facilitate this on a blockchain. First, BBVA, along with two other lenders, recently completed a syndicated loan on a blockchain. If the core value of a blockchain is a secure shared ledger, the process of syndicating a loan — sharing the core information across multiple parties — is easy to apply to blockchain technology. There is a lot of effort today to utilize blockchain to house the Anti-Money Laundering (AML) data so that information can be shared across all syndicators or the loan. In 2019, lenders will continue to pilot and experiment with syndicated loans on a blockchain in this manner. This is standard business process reengineering except that blockchain provides a secure shared

database, which hasn’t existed in the past. Lenders should think about the challenges of sharing information across multiple parties and how the efficiencies can be improved by putting the information on a blockchain. Likewise, the success of blockchain is on the network, not the technology. If a lender wanted to syndicate a loan on a blockchain, but one of the other lenders did not want to participate, the blockchain wouldn’t work. Additionally, in the farmer example, if the trucking company didn’t record information on moving the commodity from the farmer to the grocer, the blockchain wouldn’t be successful either. Second, instead of using the blockchain to record the loan, lenders — specifically in commercial real estate today — are tokenizing the asset. This is where cryptocurrency applies to commercial finance. For that same BBVA loan in the first example, they could create a token, like bitcoin, where each token represents a 1% stake in the loan. Instead of a classic syndication, BBVA and the two other banks would hold the tokens representing the interest they have in the loan. The reason this is an ideal method of lending is it allows lenders to sell their share or partial share of the loan in a streamlined fashion. If BBVA owned 40% of the loan and held 40 tokens, they can easily transfer 10% or 10 tokens to another lender interested in getting a share of that loan. While a company can tokenize cars, printing presses and other large capital goods, likely the first industry which will adopt this method is commercial real estate. Lenders who rethink how loans can be granted using the data on a blockchain will have an advantage as industries and, more specifically, supply chains adopt this tracking technology. TSL Jay Schulman, principal, RSM US LLP Jay leads Cryptocurrency and Blockchain practice for RSM. He has helped a major commodities exchange roll out an initial coin offering, consulted multiple trading firms on the security of their cryptocurrency trading strategies, developed strategies for adopting blockchain and taught numerous classes on the basics of blockchain and cryptocurrencies.

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Honoring the Past While Celebrating the Future: An Interview with CFA’s CEO, Rich Gumbrecht 2018 was an historic year for CFA, with its announcement of a rebranding as well as inviting industry service providers as members. Here, TSL catches up with CFA's CEO to discuss these changes as well as the year ahead.

Rich Gumbrecht introducing the new SFNet logo at the CFA’s 74th Annual Convention, November 2018 San Diego, California

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Ben Franklin said, “When you’re finished changing, you’re finished.” CFA’s CEO, Rich Gumbrecht, clearly adheres to this belief. Under his leadership, the Commercial Finance Association will be rebranding in 2019 and will be known as the Secured Finance Network. The change is the latest in a series of ambitious endeavors by the Association since Gumbrecht took the helm, first as interim CEO in January 2017 and then officially taking over in October 2017. “Trade associations, in general, need to stay relevant to the next generation of leaders and CFA is no exception. We’ve made great strides in the past two years in improving our financial health, increasing member engagement, deliver-

whether enabled locally, nationally, globally, in person or through CFA’s redesigned Website, which will launch in the summer. “Our new name and brand system will help us own the attributes people value—and will enable us to be thought of in ways we’d like to be known,” Gumbrecht said. He went on to explain the reasoning behind the new name choice. “The name is simple, explicit and contemporary. It’s more specific than ‘Commercial Finance’ and reinforces our breadth and interconnectedness to the entire ‘Secured Finance’ universe. It’s also a clear departure from the more dated ‘association’ tag.” Gumbrecht pointed out that the 2018 decision to include

rade associations, in general, need to stay relevant to the next generation of leaders and CFA is no exception. We’ve made great strides in the past two years in improving our financial health, increasing member engagement, delivering increased value and creating a more inclusive environment to perpetuate the vitality of the organization...”

ing increased value and creating a more inclusive environment to perpetuate the vitality of the organization,” Gumbrecht explained. “Rebranding is a natural next step in our evolution. Our new name and visual identity respect our heritage, while at the same time better reflect the dynamic and diverse community we are today. It’s so much more than just a name change. It’s about what we do, how we do it and the positive impact we have on our members,” he continued. This includes networking and connected communities to drive business, generate opportunities and foster long-term relationships,

service providers as members also played a role in the rebranding. “Changing from ‘association’ to ‘network’ better describes our value proposition. It’s inclusive of factors, service providers, asset-based lenders, our chapters and other important members of our ecosystem. As our world evolves, this word is a better fit.” The new moniker also leverages the goodwill in the Association’s highly regarded magazine, The Secured Lender. Gumbrecht describes the new symbol and typography as “fresh, re-invigorating.” “They communicate that our organization is on the move,

THE SECURED LENDER JANUARY/FEBRUARY 2019

working to better serve our community,” he said. “But, as I pointed out at the Annual Convention, nothing is changing right now. We’ll continue to grow awareness and excitement until we officially change our name and launch our new brand later this year, leading up to our 75th Annual Convention in New York,” he explained. According to Gumbrecht, “The reimagined CFA places an emphasis on quantifiable outcomes. We want to ensure we are delivering measurable value to our community.”

I 38

table guest speakers. “To complement the event, the June edition of TSL will feature ‘Difference Makers’ and will also celebrate these rising stars in our ‘Where Are They Now?’ feature,” said Gumbrecht. “Dave (CFA’s 2019 President Dave Grende) and I are excited about where we are headed, as an association and as an industry. Our success is a testament to the depth and breadth of talent and entrepreneurial spirit of our community of volunteers and professionals.” said Gumbrecht. “I’m honored to work with such an inspiring group of people.” TSL

I am excited about where we are headed, as an association and as an industry. The success of both is a testament to the depth and breadth of talent and entrepreneurial spirit of our community of volunteers and professionals. I’m honored to work with such an inspiring group of people.”

2018 was a busy year from the start and the CFA Education Foundation played a significant role. “We will continue the evolution of the Foundation as a complement to the Association. Over this past year, the Foundation was repositioned around the core pillars of Education, Next Generation and Community and just published, with assistance from Ernst & Young, its first comprehensive Market Sizing & Impact Study of the secured finance universe. This Study shows the impact our industry has on our economy and will be a valuable tool for attracting capital, as well as planning and expanding our advocacy efforts,” said Gumbrecht. The Foundation’s big plans for 2019 include further expansion of information resources and the launch of a scholarship and internship program for disadvantaged college students. CFA has also significantly invested in its education programming. “We’re updating the curriculum and explor-

ing different formats and delivery options that better align with our members’ busy lives,” said Gumbrecht. “We’ve also been ramping up our advocacy efforts to support our member interests on impactful issues including proposed federal legislation on bankruptcy reform and customer/client disclosure requirements at the state level.” Both Gumbrecht and CFA’s 2018 president, Michael Monk, made CFA’s chapter network a priority in the past year. “Our chapters are thriving, thanks to the dedicated chapter leaders. We were excited to see the

launch of a new chapter in Washington, D.C. this past fall,” Gumbrecht said. On the event front, CFA announced in December it will be deferring its 40 Under 40 Awards to June 2020. “We listened to our community members and decided that June 2020 would be the best timing for the next 40 Under 40 awards, which have been an ideal way to celebrate our future leaders.” Building on the success of this highly celebrated program, CFA will be hosting its inaugural 40 Under 40 Future Leaders Roundtable, to be held in conjunction with an all-new “IdeaCon” Roundtables event, on June 18, 2019 in New York City, Gumbrecht explained. This much-anticipated and impactful gathering will bring together past 40 Under 40 winners (and select other groups) to be part of interactive discussions on critical business issues with senior executives in our industry while gaining essential leadership insights from no-

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Michele Ocejo is editor-in-chief of The Secured Lender and CFA’s communications director.

revolver

TSL OPINION COLUMN

acob Bobrow of PNC explains that Millennials are more motivated than you think. As a Millennial, I am aware of the reputation we have for being impulsive, entitled and idealistic. But when these negative stereotypes are stripped away, we have many of the same career goals and motivations as did prior generations. Acquiring and retaining Millennial employees in the financial services industry is all about the fundamentals. Attracting Millennials may come down to dollars and cents. When choosing between financial services firms, compensation is a distinct motivator. Millennials are graduating college with larger debt levels than prior generations. In 2017, the average college student graduated with student loan debts of $37,000 (sba.gov). According to the Northwestern Mutual Planning and Progress Study, the average debt for Millennials ages 25-34 is $42,000. For many, the choice between job opportunities comes down to which compensation package enables them to get the best start on paying off debt. Assuming the position level and lines of business are comparable, the choice will be simple – Millennials are likely to choose the job that enables them to take care of their personal financial responsibilities. Technology makes job searching

easier for young professionals and retaining talent harder for potential employers. LinkedIn and Glassdoor, for example, have created visibility in job searching and an open forum for communication. Technology has created an accessible and efficient medium for networking. As a result, Millennials are confident in their ability to change jobs. In addition, Millennials are less likely to stay in a job that does not meet professional or compensation expectations. Retaining and motivating Millennials requires a strong focus on fundamental HR and management such as performance feedback and development plans. Performance feedback is important to all employees, but especially to Millennials. We have grown up with an abundance of real-time feedback, and we value it in the workplace. Unlike previous generations, Millennials prefer qualitative feedback to numerical ratings. Taking time for frequent, quality and constructive discussions about performance will go a long way toward motivating and retaining the members of this generation. In addition to regular feedback, a defined timeline for career development opportunities is crucial to retaining Millennials in the workplace. Similar to prior generations, Millennials have high expectations, are dynamic goal-setters and have an inclination to plan ahead. Employers who are aware of these characteristics can foster professional growth by outlining objective performance goals for their employees. Actively supporting the career development of employees is likely to increase retention of Millennials. Corporate culture plays an important role in attracting and retaining young talent. A corporate culture that is appealing to Millennials is one that aligns with their personal

values. Some of these values include integrity, inclusivity, teamwork, and customer service. Millennials refer to an organization’s value statement as an indicator of the commitment to these values. As a result, employers should be attuned to the importance of a positive corporate culture. Let’s set aside the stereotypes. Generational differences between Millennials and other generations are often overstated. The professional goals of Millennials are consistent with those of our employers. We are looking for a supportive corporate culture – one that provides the development tools and opportunities necessary to contribute to organizations in meaningful ways. Best practices for employers should include an emphasis on fundamental management and HR practices, a strategy that has not changed throughout generations. In the financial services industry, acquiring and retaining Millennials is all about the basics. Jacob Bobrow is a field examiner at PNC Business Credit based in Pittsburgh, PA. He graduated from the College of Charleston in 2017 with a BA in Business Administration. Jacob can be contacted at jacob.bobrow@pnc.com.

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BY KANNAN RAMASAMY

Buyer Supplier Gap: A Mid-Market Phenomenon Ripe For Change? The chairman of Vayana Network provides information on how factors/ ABL might plan to grow their supply chain finance portfolio.

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A significant disconnect has been noticed between large corporations and their small suppliers and vendors; particularly when it comes to financing their businesses. There is no one to blame for the two operate in completely different environments. The fact is that most large corporations have no trouble receiving financing from banks even when they are in trouble. We have all seen large banks and Wall Street finance institutions syndicate large credit facilities to rescue failing Fortune 500 companies and there are multiple reasons for this, but that story is for another time. This very

behavior is driven by the fear that their customers will drop them for a competitor and the irony is that the competitor is in the exact same situation. The buyer just doesn’t know it. To remedy this challenge, many small businesses resort to one toxic loan after another to Band-Aid their situation until they are left with zero profit or negative equity; and unfortunately, many times go out of business. One could argue that this is a drain on the economy, weakens the supply chain, and the buyers lose the capability and capacity of the supplier that goes out of business. It does not have to end this way.

dizing product quality, timely deliveries, goodwill and the benefits of having a loyal and capable vendor network that can grow with the buyer. Supplier’s Dilemma Supplier’s behavior is often guided in ensuring that they, on their own, deal with their internal issues including cash flow to support the orders from the buyer. This poses a continuing challenge causing a sense of anxiety leaving little mind space to handle KRAs such as quality and timeliness with innovation getting short shrift. Suppliers need to be educated on their vital role in the buyer’s supply

t comes down to risk vs. return, the ticket sizes, and cost of acquisition and servicing; the costs structure of big banks make it a no-play zone. Recent statistics show that 82% of small business application were declined by banks across the country, making it easier to become a Navy Seal than for an SME to obtain adequate financing from their financial institution!”

crucial and time-critical safety net is completely foreign and out of reach for small- to-medium enterprises (SMEs). Most banks are reluctant to finance even some of the most promising and profitable businesses in the SME category. It comes down to risk vs. return, the ticket sizes, and cost of acquisition and servicing; the costs structure of big banks make it a no-play zone. Recent statistics show that 82% of small business application were declined by banks across the country making it easier to become a Navy Seal than for an SME to obtain adequate financing from their financial institution! Over the years I have worked with many of these innovative entrepreneurs who will do anything within their power to establish supplier relationships with a financially strong, large corporation as a buyer. The bottom line is that they do not want to look weak to the buyer. This

Buyer’s Missed Opportunity A supply chain is only as strong as its weakest link. When suppliers do not have adequate cash flow due to a slow payment cycle, it can affect product quality, deliveries and cause unnecessary friction between the two parties, ultimately ruining what could have been a great business relationship. This leaves the buying organization in a position where they are continually spending capital and company resources seeking out new suppliers that will do things the ‘buyers’ way’. But, as mentioned before, most suppliers may do and say everything a buyer wants to hear at the onset just to get a buyer’s business. Unfortunately, there is no magic formula and the odds are high that this new supplier is faced with the same challenges as the former and the cycle continues, ultimately resulting in continuous cash restraints and jeopar-

chain. They should be encouraged to have the confidence to collaborate with the buyer on finding solutions that strengthen their link to the supply chain. The supplier’s dilemma remains on how they bring up the issue of cash flow without impacting their flow of orders. This is further exacerbated in an environment where the buyers are pushing suppliers for extended terms, impacting supplier working capital. Then there is the additional pressure of seeking price reduction which impacts the supplier’s ability to innovate and their margins unless they can gain efficiencies from their downstream suppliers by providing cashflow support. There has to be a better way. The Fortune 500 Way Walmart is an excellent example of a global organization that uses Supplierrelationship management to increase profitability. With a business mantra of ‘Everyday Low Prices,’ the retailer lever-

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ages on healthy supplier relationships to negotiate prices and hence pass the benefits to customers in the form of low product prices. In 2015, Walmart introduced a supply chain finance program. Initially, some long-time suppliers were uncomfortable or even upset with the program. However, the benefits of improved cash flow soon won these suppliers over. The legacy suppliers recognized that their business with Walmart was evolving and there were advantages to the new program.

Supply Chain Finance - A Pathway to Addressing the Gap Supply chain finance (SCF) is a form of trade credit historically only available to Fortune 500 companies until very recently. You can structure an SCF program as an “off balance sheet” inventory procurement and vendor payment line that allows a Buyer to purchase product from vendors around the globe while increasing working capital for growth and expansion. Now the buyer can utilize the same strategy that CFOs at Walmart, Raytheon, Home Depot and the like are using. SCF can enable buying organizations to extend their payment terms,

Some Thought Starters The best way that buyers can build quality relationships with their suppliers is by offering them tools to manage their working capital. Supply chain finance is one of the best tools buyers can use to ensure supplier working capital needs have been met and improve their bottom line. Banks, non-bank finance companies, factors and fintechs can play a valuable role in facilitating this collaboration through making financing and transaction platforms available and investing

he goal of developing better supplier relations through SCF is not only to minimize business risks and reduce costs, but also to ensure that high-quality goods are delivered. When a buyer has the supplier’s best interest at heart, the kindness is likely to be reciprocated through high-quality products. Every supplier dreams of selling to an established, long-term buyer.

The success of Walmart’s program has enabled them to keep overall costs low, which they pass onto their retail customers. Walmart remains the dream buyer for many small and medium enterprises. The company attracts a considerable number of suppliers and is known to retain its best for long periods of time.

increase credit limits and reduce cost of goods while their suppliers can accelerate cash flow through early payments. Supply chain finance refers to a program that aims to build supplier-buyer relationships by offering and participating in a mutually beneficial early payment plan. In SCF, a buyer offers early payment on invoices, in exchange for a discount from the supplier. Buyers often use a third-party financing organization to manage the payments. This allows the buyers to optimize their working capital while paying the suppliers faster. Suppli-

ers are very eager to accelerate their cash flow, and participation in SCF programs is generally high. The result is better working capital, improved relationships between parties, and a stronger supply chain. The goal of developing better supplier relations through SCF is not only to minimize business risks and reduce costs, but also to ensure that highquality goods are delivered. When a buyer has the supplier’s best interest at heart, the kindness is likely to be reciprocated through high-quality products. Every supplier dreams of selling to an established, long-term buyer. When the opportunity comes, no Supplier will risk destroying it through poor quality products or service. If suppliers have consistent, dependable working capital, they can focus more on improving service or the quality of their products. That’s the power of supply chain finance.

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in enablement of buyers and suppliers in their journey into SCF. TSL Kannan Ramasamy is an executive chairman – US with Vayana Network and provides leadership in the US market. He has been in senior business and operational roles with Fortune 500 companies including various GE divisions. He loves to build and invest in businesses. Ramasamy likes working out, reading and enjoying his time with his family. An IIT & IIM graduate, he lives in Andover, MA.

tsl profile

ounded by Gerald Smith, Magnolia Financial has been serving the Southeast since 1999, with branches reaching South Carolina, North Carolina, Georgia and Tennessee. A wellcapitalized relationship lender that specializes in innovative alternative financing, Magnolia has been helping companies bridge the gap between capital and growth for over 15 years. A small business owner his entire career, Gerald Smith recognized that there were plenty of good businesses that, for one reason or another, did not qualify for traditional bank financing. He founded Magnolia Financial to help small businesses bridge the gap to a traditional bank line of credit. The name is derived from one of Gerald’s previous businesses located on Magnolia Street in Spartanburg, SC, and just stuck. “Magnolia Financial prides itself on being a relationship lender. That mission guides everything that we do at Magnolia,” explained Marc Smith, president. “We are not in the business of simply purchasing or buying our customers’ accounts receivable. We take time to meet with our clients and discuss their needs with them. This

MAGNOLIA FINANCIAL

allows us to customize a credit facility that works for them and helps them achieve their objectives. Sometimes that means stepping ‘outside of the box’ of traditional factoring or A/R financing. Because we understand the business, it helps us get more comfortable making those tough decisions that a transactional lender may not be able to do. “We take time to visit with all our customers at their offices, and can get to know them and their business. This allows us to step outside of the traditional credit box to offer some additional financing that would be hard to do when just looking at the numbers. To another lender that may just be looking at the numbers, it may appear to be too big a risk; however, we are willing to take the extra risk because we really know our customers.” Magnolia offers accounts receivable financing, factoring and asset-based lending to a variety of industries where the company generates a business-tobusiness accounts receivable. Magnolia Financial’s management team consists of seasoned professionals with diverse industry experience who create a wellrounded organization dedicated to developing successful client relationships, including: Gerald Smith, chairman; Marc Smith, president; James McArthur, executive vice president; Chris Wilkins, VP finance; and Jessica O’Bryant, operations manager. Charlie Johnson, the CFA’s Education Foundation Chairman, serves on Magnolia’s Board of Directors. “Our flexibility and willingness to work with our prospective client to find the right solution is what really sets us apart,” Smith continued. “Whether it’s an invoice-by-invoice solution that is similar to factoring or a true assetbased line of credit, we tailor our credit facility to our prospects’ needs and don’t try to fit them into a box. Our clients have direct access to all our

senior management, so when they have unique requests that may fall outside of their normal borrowing parameters, they know they can reach out and we will work with them to accommodate their request. Our senior management team has a variety of experience in commercial finance, turnaround management, as well as entrepreneurs owning their own business. This allows us to approach an opportunity from a variety of perspectives, including that of the borrower, which helps put them at ease.” A CFA member company since 2001, Smith credits the Association’s networking opportunities in aiding Magnolia’s growth over the years. “Learning from other CFA members has helped our team become better lenders and that has helped grow our business,” Smith said. “It’s refreshing to realize that we’re not alone with concerns and issues we see in our day-today business. While those of us in the commercial finance business may all be a little bit different in what we do, we all have a good many things in common and that wasn’t something I knew or thought much about before joining the CFA. We also have team members who have been involved on CFA Committees such as the Independent Finance and Factoring Roundtable Planning Committee that helps serve independent finance companies like Magnolia.” Magnolia welcomed James McArthur to the team in late 2018. “We were thrilled to have James join,” Smith added. “His reputation and knowledge of the commercial finance industry is second to none. He has hit the ground running in growing our presence in Florida.” Eileen Wubbe is senior editor of The Secured Lender.

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ENDURANCE ATHLETES IN OUR MIDST BY BRIAN RESUTEK Navigating the fields of the commercial finance world is challenging on a daily basis. Trying to also incorporate endurance sports with commercial finance might initially read like the definition of counter-productivity; however, for a number of our colleagues, this combination is a daily and successful business practice. The Secured Lender looked across the industry to gain a bit more understanding about the â&#x20AC;&#x153;how and whyâ&#x20AC;? commercial finance professionals partake in endurance-related sports while also staying fit in the world of commercial finance.

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Structure. Balance. Confidence. These words dominated the conversations and summarized the overall theme that, while the amount of work and balance in endurance-related sports is immense, it is a major enhancement to their primary jobs. Peter York, managing director of Asset-Based Lending for J.P. Morgan, found this balance in his late 20s by running at lunchtime, something he continues to do today. A Boston Marathon qualifier and recent age-group Team USA World triathlon qualifier, Peter stated, “Running became a way to organize my thoughts and a way for me to prioritize.” As Peter moved into the lengthy Ironman triathlon circuits where setbacks and misfortunes are common throughout a long day, he learned that he can only focus on what he can ultimately control, similar to complicated business deals. When asked about his preparation tactics for an endurance event, he responded, “I focus on the variables that I can control and those that will lead to a positive outcome, which is the same as a business deal.” Focusing on the goal is something Ryan Jaskiewicz has been doing throughout his career. The CEO of 12Five Capital, Ryan’s personal and company model is, “Simple is Beautiful.” When probed to elaborate further, Ryan explained, “Life is made up of a lot of little choices; reducing time inefficiencies is needed to simplify my life.” The father of three stated he simplifies his life through only three areas: Family, business, and running. In the running area, Ryan has achieved a 2:27 personal best at the Indianapolis Marathon (that’s a 5:38/mile pace average over 26.2 miles) and is training to hopefully line up at the U.S. Olympic Trials. Ryan indicates that he loves the process of training, while understanding that nothing is perfect. Or, as Ryan summed up, “Some days, you don’t hit the goal. This is the same with business, even though you did everything right.” Understanding that setbacks do occur and having the confidence and strength to keep moving forward comes naturally to Robyn Barrett, managing member of FSW Funding. Robyn competed in competitive rodeo growing up and has “settled down” into daily cross-fit, ultra-trail marathons

and hikes across the Andes Mountains in Peru as well as the famous Rim-to-Rim crossing of the Grand Canyon, which she has accomplished four times. While Robyn is a self- described, Type-A personality and believes in pushing herself to the ultimate limit, she has found value in the stress relief and other benefits that endurance events provide to her business. Robyn stated, “The character of an endurance event pushes perseverance, which can be found in employees through their approach on strategy, success and overall discipline.” Robyn cited her own example of determination when she badly twisted an ankle early on during a Rim-to-Rim crossing and was forced to grind it out while leading a group crossing. While she was far from any time record that day, experiencing and working through the pain illustrates the mentality that runs common across these athletes and in their respective workplaces. Finding a bit of discipline is exactly what Eric Bader, senior vice president and director of finance at Rosenthal & Rosenthal, was seeking just three years ago when he signed up for his first triathlon after finishing the CFA exams. Despite his limited experience with the three elements of the sport, Eric dove headfirst into the triathlon circuit and has completed multiple races including three full Ironman races, with a fourth planned for next year, along with breaking the finisher line tape in under 11 hours (Ironman has a 17-hour time cutoff) and is ranked in the top 5% of his age group globally. Eric stated, “Training for these races is not only challenging physically, but challenging in terms of time.” As a husband and father, time management is his top priority. Similar to other colleagues, Eric indicated that the cost of ineffectiveness in training and in business really adds up. The sport has also taught him the value of being flexible and having to change courses when faced with adversity, something that translates directly into the office. Ken Lubin found value in adaptation shortly after the banking crash when the executive recruiter was required to shift focus and disrupt the recruiting process. The managing director at ZRG Partners and

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Peter York, managing director of Asset-Based Lending for J.P. Morgan, and a Boston Marathon qualifier and recent age-group Team USA World triathlon qualifier

founder of the popular LinkedIn group, Executive Athletes, has competed and won some of the most intense endurance challenges. Ken finds there is something that is “very cerebral in racing and having to navigate through the challenges,” which has made him a stronger individual. As a competitive skier and skilled mountain

Ryan Jaskiewicz, CEO 12Five Capital, Ryan’s personal and company model is, “Simple is Beautiful.”

Robyn Barrett, managing member of FSW Funding. Robyn does daily cross-fit, ultra-trail marathons and hikes across the Andes Mountains in Peru as well as the famous Rim-to-Rim crossing of the Grand Canyon.

biker growing up, he continued to push for longer events and quickly found himself in the endurance circuit while managing his working career. Ken has won (as a 3-way tie for first) the famous Death Race (signup at youmaydie.com), along with an array of other adventure races that literally take days to complete where the course is unknown at the start. The married father of two girls stated, “I feel the only limitations we have are the ones we set ourselves.” Jennifer Kavak, an associate in the Corporate Finance Originations group at Wells Fargo, once pledged that she would never run a marathon again after battling through multiple ailments in the NYC 2015 marathon. Her pledge was quickly broken as she has now completed three of the six Abbot World Major Marathons, her ultimate goal. Through distance running, Jennifer has been able to improve her time-

Ken Lubin, managing director at ZRG Partners and founder of the popular LinkedIn group, Executive Athletes.

management skills, prioritize work, and manage her personal schedule to ensure she adheres to her running schedule. “Running has become a way for me to manage stress and I’ve learned that running can calm my nerves and anxiety that may arise from work or personal life,” Kavak said when asked about the positive effects of her sport on the business side. The phrase, “emotional control,” coined by Jason Lippman, CEO at nFusion Capital, perhaps best sums up the benefits that are leveraged into business from endurance experiences. A marathoner and triathlete, Jason took endurance even further and has run (and finished) the famous Leadville Colorado 100-mile trail race five times along with finishing in two of the more grueling 100-plus mile ultra runs in Mont Blanc, France (33 hours) and the Hardrock 100 in Silverton, CO (37 hours), placing in the top quartile in both races. “You have to learn how to manage the highs and lows over a 100 miles. It is much like winning and losing deals and understanding how to grind it out over the process,” Jason concluded when asked about the mental and physical elements over the course of a race. Even the CEO of the Commercial Finance Association, Rich Gumbrecht, has active involvement in the endurance sports arena. After admitting that his athletic abilities went to the sidelines post-college, Rich explained he returned to running and biking and entered his first triathlon at the young age of 52. As he is currently planning on doing a half-Ironman in the near future, Rich mentioned: “The common denominator is that I love the sense of accomplishment, the natural high, camaraderie and clarity that I get from these endeavors.” Rich went on to describe his mid-life conversion, which also includes surfing, mountain climbing and skydiving, as having the major benefit of increased productivity and an improved work cycle. Similar to others, Rich added that that he has solved a lot of the world’s problems over a 1.5-mile swim, 10-mile run or 100-kilometer bike ride. Although he refuses to brag about any of his accomplishments, you will likely find Rich towards the front of the pack at one of the many charity races he supports.

Jason Lippman, CEO at nFusion Capital, has completed the famous Leadville Colorado 100-mile trail race five times

While we should not anticipate future loan documentation to require Ironman training or a CFA panel on the proper nutri-

CEO of the Commercial Finance Association, Rich Gumbrecht, entered his first triathlon at 52.

tion plan in a 100-mile race, take a quick scan at your next gathering and you are likely to find an endurance athlete nearby. If you find them passing on your golf and lunch invites, perhaps now you know where to find them. TSL Brian Resutek is an account executive and SVP at Rosenthal & Rosenthal in Atlanta, GA. He can be reached at bresutek@ rosenthalinc.com.

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what

WOULD YOU DO?

n this edition of What Would You Do?, the Chief Credit Officer of Overadvance Bank considers the Bank’s recovery prospects on a loan to a staffing company borrower which has notified the Bank that it intends to discontinue its staffing business. Keep The Balls in the Air! A few years ago, Overadvance Bank extended a $30,000,000 senior secured revolving credit facility to Juggling Staff LLC, a temporary staffing company. At the time the facility closed, Juggling Staff had just completed a management transition from its founder, Patty Platespinner, to her son, Paul Platespinner. Patty, a serial entrepreneur with several other successful business ventures to her name, grew the Juggling Staff business from the ground up. Unfortunately for Juggling Staff, the apple fell very far from the tree when it came to Paul. Paul did not inherit his mother’s business acumen or entrepreneurial spirit. Under Paul’s leadership, Juggling Staff’s business slowed to a crawl. Several long-time customers left for new staffing providers, and profit margins began to shrink considerably after Paul lowered his prices in an unsuccessful attempt to

attract new business. Faced with declining profit margins and a shrinking customer base, Paul informs Overadvance Bank that he has decided to discontinue operations. As with the Bank’s collateral package in other credit facilities with staffing company borrowers, the Bank’s collateral package in the Juggling Staff credit facility consists primarily of accounts receivable. Naturally, the Chief Credit Officer hopes that the winddown of Juggling Staff’s business and collection of the outstanding accounts receivable will generate sufficient cash proceeds to repay in full the Bank’s outstanding loan balance. Paul Platespinner advises the Bank’s Chief Credit Officer that he plans to discontinue operations in two weeks, and that he intends to notify the company’s customers of the shutdown within the next day or so. Noting that the most recent borrowingbase certificate provided by Juggling Staff showed excess availability of more than 15%, and that, historically, Juggling Staff has experienced very little dilution in its accounts receivable, Paul tells the Chief Credit Officer that the Bank will be paid out in full over the next 60-90 days as collections roll in. Of course, the Chief Credit Officer knows all too well that, even in the most orderly of wind-downs, collateral values can quickly deteriorate, and receivable dilution can far exceed historical levels once customers become aware of the situation. As such, he questions whether Paul’s “sit back and wait” strategy is more likely to hurt, rather than help, the Bank’s prospects for a full recovery. If you were the Chief Credit Officer, what would you do? To frame the issue, let’s look at the nature of a staffing company. A staffing company generates receivables

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by providing temporary labor. The staffing company bills its client on a periodic basis for temporary labor provided during the billing period. However, the client often depends on continued availability of the temporary labor provided by the staffing company. As such, if for any reason the staffing company is unable to supply the required labor, whether due to cessation of business or otherwise, the client may seek to offset for any resulting loss or damage. For example, if the client is forced to seek out an alternative staffing provider at a higher cost or the client loses (or is unable to complete) a job due to labor shortages, the client might seek to recover any loss by withholding or offsetting payment of receivables otherwise due to the staffing company. Here, Juggling Staff is the sole staffing provider for several of its largest customers and provides its largest client with over 30 percent of that client’s total workforce. As such, if Juggling Staff suddenly stops servicing those customers, or forces those customers to find alternative service providers on short notice, there is a very good chance that those customers will seek to recover any resulting incremental cost or damage they incur by offsetting against receivables they otherwise owe to Juggling Staff. Obviously, the Chief Credit Officer wishes to avoid that outcome. From past experience, he knows that one way to maximize the recovery of the receivables in a wind-down or liquidation of a staffing company is to transition the customer contracts to another staffing provider. The feasibility of this option depends in large part on the pricing under the contract. If the pricing is too thin, which might be the case where a staffing company sacrifices profitability in order to attract new customers, it may be difficult to

find another staffing company willing to take over the contract at that pricing. Of course, to the extent the contract requires customer consent to assignment, the customer would also need to approve any assignment. In this case, Juggling Staff underpriced many of its contracts in order to attract new customers to replace those it lost. As such, it will likely be very difficult to find another staffing company to take over the contracts with Juggling Staff’s customers without a significant increase in the servicing cost. The Chief Credit Officer is very concerned that this approach might lead to significant dilution in the receivables as the customers are likely to seek to offset the additional servicing cost against the Bank’s receivables. However, the Chief Credit Officer has another potential approach. In order to maximize the recovery of the receivables, he decides to ask Juggling Staff’s collection team to reach out directly to the customers to see if they can negotiate a deal whereby the Bank would agree to continue funding Juggling Staff for a short period of time in exchange for the customers’ agreement not to offset against existing receivables. This would allow the customers time to shop around for a replacement staffing provider. While the customers may not be thrilled with this proposal, especially if the replacement staffing provider will not match the rates charged by Juggling Staff, the Chief Credit Officer will remind the customer that the alternative to his proposal is an immediate shut down of Juggling Staff and disruption in the customer’s business. We hope you enjoyed the column and, of course, are always interested in your feedback. As such, if you have any scenarios you would like to see discussed in a future column, please

let us know at Dfiorillo@otterbourg. com or Jcretella@otterbourg.com.. TSL Dan Fiorillo and Jim Cretella are Members of the law firm Otterbourg P.C.

“In this case, Juggling Staff underpriced many of its contracts in order to attract new customers to replace those it lost. As such, it will likely be very difficult to find another staffing company to take over the contracts with Juggling Staff’s customers without a significant increase in the servicing cost. The Chief Credit Officer is very concerned that this approach might lead to significant dilution in the receivables as the customers are likely to seek to offset the additional servicing cost against the Bank’s receivables.”

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the cfa brief AMONG CFA MEMBERS

CFA NEWS IN PRINT

36th Street Capital Partners LLC: Richard Bollinger was appointed as vice president of originations. The addition of Bollinger increases 36th Street Capital’s originations capabilities and expands its sales coverage model. He will be based in San Diego, CA and report to Mark Horan, chief growth officer for the company. Bollinger brings over 16 years of originations experience in the equipment finance sector, having previously served as managing director at CapX Partners, where he was responsible for indirect originations for the western half of the United States. Before joining CapX Partners, he spent four years with KPMG in the audit and attestation practice area. “We are very excited to have Richard join our originations team” stated Mark Horan, chief growth officer. “He is an experienced equipment financing professional who has had success managing and developing a robust network of thirdparty referral sources. Having Richard on board further enhances our indirect originations capabilities. We look forward to working with him” 36th Street Capital Partners, LLC is an independent provider of alternative funding solutions for the equipment financing industry. With offices in New Jersey, Utah and California, the firm provides growth capital or liquidity options to middlemarket companies nationwide through loan and lease transactions. 36th Street Capital Partners, LLC is a joint venture

affiliate of BlackRock TCP Capital Corp (NASDAQ: TCPC). Asset Based Lending Consultants: Adam Galea has joined in Sydney, Australia. Galea will head all field examinations in Australia, Hong Kong and the Pacific Rim. Galea is an ex-General Electric Capital field examiner and is also a Chartered Accountant. Donald Clarke, ABLC’s President, explained that the addition of Adam in this crucial region allows ABLC to better service its expanding global clientele. ABLC has experienced strong growth globally including its reach into South and Latin America through its South Florida hub. ABLC has remained contemporary by expanding its specialization into emerging ABL menu entrees such as block chain and supply credit finance field examinations. Avidbank Holdings, Inc.: Geoff Butner has been promoted to executive vice president and chief credit officer. Butner replaces Ron Oliveira, who is pursuing other opportunities outside the bank. Butner joined the bank in 2016 as senior vice president and deputy chief credit officer. “Over the past two years, we have seen the benefit from Geoff’s depth of knowledge, communication and leadership capabilities, and I am confident he can assist the team in taking us to the next level,” stated Mark D. Mordell, chairman and CEO of Avidbank. Butner has 30 years of experience in the banking and financial services industry, most recently eight years at Square 1 Bank as a risk manager and five years at Silicon Valley Bank as a senior credit officer. Prior to that, Butner was the chief operating officer of a venture-backed technology startup called eFinance, where he led the engineering, product development, customer service, and sales efforts. Butner holds a B.A. in business economics from the University of California at Santa Barbara.

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Austin Financial Services, Inc.: Todd Waldrip has joined as regional senior vice president, business development officer for the Southeast Division. Waldrip is based in Austin’s Alabama office and will be responsible for helping grow the company’s domestic footprint. Waldrip brings his extensive experience in the commercial finance industry to Austin, which includes banking, factoring and asset-based lending. Waldrip specializes in providing working capital solutions for lower middle-market companies. In his role, Waldrip will focus on building relationships and sourcing new deal opportunities while helping to execute Austin’s strategic business plans throughout the southeastern region. Jason Anish, CEO of Austin, said, “Austin Financial Services has an ongoing commitment to providing capital solutions nationwide, and the southeastern U.S. represents an area of continued opportunity. Waldrip is a well-respected leader in his market and has many years of experience working with referral sources and businesses in his region. We are excited to have him on our team and look forward to his contributions as we execute our plans to enter new markets and grow our customer and referral source relationships throughout the country.” BankUnited: Jennifer Rabinowitz was hired as senior vice president, business development officer in New York City. With nearly two decades of industry experience, Rabinowitz will be responsible for developing new commercial clients for the bank, with a focus on depository relationships. Most recently, she served as vice president, business development officer at Wells Fargo in New York. A New York City resident, Rabinowitz has been active regionally in the middlemarket space. She serves on the board of Trellis Consulting LLC, and is a member of the Turnaround Management Association and Commercial Finance Association.

She also volunteers her time on behalf of New York Cares. Rabinowitz earned her bachelor degree from Emory University in Atlanta. Rabinowitz is based at BankUnited’s banking center at 136 East 57th Street, New York. Capital One: Jennifer Elliott has joined the company as North Louisiana market president and commercial relationship manager. In her new role, Elliott is responsible for the design, development and implementation of an integrated community strategy for Capital One Bank in North Louisiana. She is based in Shreveport and will report to David Mullens, senior vice president, relationship manager and Baton Rouge market president. “Our market presidents leverage their internal and external networks and

hands-on knowledge to connect Capital One’s resources with community needs to strengthen each community in our footprint and, as a result, bolster our business,” said Chris Haskew, Louisiana state market president. Elliott was part of Capital One Commercial Banking from 2006-2017, most recently as a senior underwriter. She is returning to Capital One after spending the past year as a senior risk manager at Ag Resource Management, LLC. Elliott’s areas of expertise include risk management, strategic modeling, credit underwriting and relationship development. She received her B.S. in business administration, with an emphasis in finance, from Northwestern State University. Capital One Financial Corporation (www.capitalone.com) is a financial hold-

ing company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N.A., had $248.2 billion in deposits and $364.0 billion in total assets as of June 30, 2018. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, Louisiana, Texas, Maryland, Virginia, New Jersey and the District of Columbia. A Fortune 500 company, Capital One trades on the New York Stock Exchange under the symbol “COF” and is included in the S&P 100 index. CIT Group Inc.: Alla Whitston has joined the company as the chief technology officer reporting to Denise Menelly, execu-

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tive vice president and head of technology and operations. In this role, Whitston will lead the technology planning and development for enterprise functions and all lines of business, including its award-winning business point-of-sale platform and its proprietary digital applications. “Alla brings deep technology expertise in banking and financial services, and we are pleased to welcome her to the CIT team as we continue to digitize our operations and invest in our business platforms to drive a leading customer experience,” said Menelly. Whitston joins CIT from Bank of America where she was most recently the managing director and chief technology officer for enterprise functions. Previously, she also led end-user technology services and wholesale banking technology infrastructure. Prior to joining Bank of America, Whitston served as the managing director in the Investment Banking division at JP Morgan and was responsible for application and infrastructure management. She also held key technology positions at Bear Stearns, Goldman Sachs and Bankers Trust. Founded in 1908, CIT (NYSE: CIT) is a financial holding company with approximately $50 billion in assets as of Sept. 30, 2018. 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. ENGS Commercial Finance Co. (ENGS): Thomas J. Harris has joined ENGS Commercial Capital (ECC) as senior vice

president, business development. In this role, Harris will be responsible for managing the sales and business development efforts across the Midwest. Harris joins ECC after a successful 20-plus years of commercial lending and financial service experience with extensive involvement in sales and marketing, relationship management, credit and operations. As a former regional sales executive, Harris has possessed front line and leadership capacities within the vertical markets of working capital, asset-based lending, commercial banking, equipment leasing, as well as loan mediation and consulting. Andrew Osborn, EVP, director of sales of ECC, commented, “We are pleased to welcome Tom to the ENGS team. He knows the working capital market and brings an extensive amount of industry knowledge with him that will translate very well to our continued expansion of the company’s product offerings,” Osborn continued, “Tom has a proven track record of success in this space and will prove to be instrumental in increasing sales revenues across all divisions of ENGS Commercial Capital.” ECC is a working capital finance company that specializes in helping its clients with their cash flow needs. ECC provides factoring, supply chain financing, and asset-based lending solutions, along with equipment finance and insurance options. ECC is a subsidiary of ENGS Commercial Finance Co. Great Rock Capital: Jim Clifton has joined the firm as managing director of originations. Clifton will be based in Chicago, IL, and will be responsible for building relationships and sourcing investment opportunities in the Midwest. “We are thrilled to welcome Jim to the team as we continue to grow Great Rock,” said Stuart Armstrong, CEO of Great Rock Capital. “Jim’s strong background, experience, and relationships in the Midwest

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will enhance our presence and allow us to capitalize on the extensive middlemarket opportunities in this region.” Clifton joins Great Rock Capital with over 15 years of experience, most recently as a senior vice president at PNC Bank, N.A., where he focused on originating asset-based and cash flow credit facilities within the PNC Business Credit division. He previously held positions with NXT Capital and GE Capital, where he focused on originating both asset-based and cash flow lending transactions with middlemarket companies. Clifton earned his M.B.A. with honors from the University of Chicago and his B.A. with a major in finance from Marquette University. Gulf Coast Business Credit (GCBC) is pleased to announce and welcome Aaron Renaud as underwriter in their Austin, TX location. “We are excited and feel fortunate to add Mr. Renaud to the GCBC team. Aaron will play a key role to support recent portfolio acquisition and continued organic growth,” said Meg Roberson, GCBC’s national sales manager. Aaron Renaud is a graduate of The University of Texas at Austin with a bachelor degree in finance. Prior to coming on board full time with GCBC, Renaud was a GCBC underwriting intern, where his hard work helped GCBC to achieve recordbreaking months for new deals funded. When asked how he hopes to contribute to GCBC, Aaron said, “With this being my first job out of college, I want to learn how to be an excellent workplace teammate, communicator, and leader. I want to soak up as much information as I can from my knowledgeable peers on the banking, factoring, and ABL industries. I have already learned so much in my time here but know there is still something new to learn each and every day.” Vincent (Vince) Miller has also joined GCBC as a credit analyst/underwriter for its Austin, TX location. Miller is a graduate

of The University of Texas with a bachelor degree in finance. Prior to joining GCBC, he worked as a bank financial analyst for an oil/gas-focused bank out of San Antonio, TX. Miller looks forward to diversifying his experience through individual deal analysis. His passion in finance has already shown-through over his short three-month tenure at GCBC by reducing the time of the underwriting process. Miller stated, “I am really looking forward to working for GCBC to gain exposure in a niche banking product (factoring/asset-based lending) and being a part of an experienced team to continue the growth and success of a great community bank.” Gulf Coast Business Credit is recognized as a leading provider of working capital finance throughout the United States. GCBC has production offices located in Arizona, Florida, Colorado, Georgia, Louisiana and Texas. GCBC is a division of Gulf Coast Bank & Trust, one of the largest community banks headquartered in Louisiana. Hilco Global: Sarah Baker joins as vice president and assistant general counsel. Baker takes over the responsibilities previously held by Ryan Lawlor, who will be transitioning into the newly created position of senior vice president at Hilco Real Estate, where he will play a critical role in the continued growth and expansion of the restructuring and dispositions practices within the real estate group. Baker will be responsible for handling in-house corporate legal matters, as well as specific business transactions and deals that require the usage of counsel at any of the 20+ operating companies within the Hilco Global portfolio. The assistant general counsel position reports directly to Eric Kaup, executive vice president – general counsel. As a highly accomplished lawyer with over 12 years of experience, Baker has

represented parties on all sides of the legal spectrum, including debtors, secured creditors, unsecured creditors, creditors’ committees, trustees, defendants in adversary actions filed in bankruptcy court, and purchasers of assets from troubled companies, including through sales under section 363 of the Bankruptcy Code. She joins Hilco Global from her most recent position at Rewards Network Establishment Services Inc. where she served as in-house counsel for the past two years. Previously, Baker worked at the law firms of Skadden, Arps, Slate, Meagher & Flom LLP, and Quarles & Brady LLP, having begun her legal career in 2006. Baker earned her B.A. from the University of Illinois – Chicago, and her Juris Doctorate from the College of William & Mary. Additionally, she completed a two-year federal court clerkship for the Honorable Bruce I. Fox of the United States Bankruptcy Court for the Eastern District of Pennsylvania. Sarah is an accomplished author of numerous articles and presentations and has been a recipient of several awards and honors including being named by the National LGBT Bar Association as one of its 2015 40 Under 40. North Mill Capital: Stephen Metivier has joined as managing director of originations and resides in upstate New York. Metivier has been in the asset-based lending industry for over 27 years. Prior to joining North Mill, he was managing director and head of retail originations at a large regional bank. Metivier is a long-standing member of the Commercial Finance Association (CFA) and the Turnaround Management Association (TMA). “We look forward to having Stephen join our team”, said Dan Tortoriello, EVP of North Mill Capital.” His region has been an important part of our growth and having someone of Stephen’s experience will help North Mill continue that process.”

Karen Marino was recently promoted to vice president. Marino has been with North Mill Capital since December 2015 when she started in her role as account executive. She has been working in the commercial finance industry for 13 years. Most recently, Marino was selected as a 2018 40 Under 40 Recipient by the Commercial Finance Association. Betty Hernandez, EVP and chief credit officer, stated, “Karen is an integral part of our team. We are excited to support Karen as she progresses in her professional career.” Marino can be reached at (609) 9176226 or Kmarino@northmillcapital.com. North Mill Equipment Finance: Paul Cheslock was hired as vice president of customer relations. Cheslock brings 27 years of experience leading customer relations and sales teams in various sectors of the financial industry with an emphasis on the equipment finance space. He’s worked with international corporations like GE Leasing Solutions as sales manager, as vice president of Indirect Markets for Boston-based fintech, Time Payment, and most recently as vice president of sales for Lease Q, an online lending start-up. “I’m thrilled that Paul has joined us to help introduce a level of service for our referral source partners in the small ticket segment,” said David C. Lee, North Mill CEO. “We rely exclusively on our referral source partners to promote our solutions and Paul’s experience fits perfectly into our strategy.” Cheslock will be responsible for managing, servicing, and growing the company’s broker relationships. He’ll play a significant role in establishing new technologies and new products designed to enhance the broker experience from the submission of a transaction through to its approval and funding. Additionally, he’ll monitor satisfaction levels and gauge progress by establishing KPIs as

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well as service level agreements and standard operating procedures. Headquartered in Norwalk, CT, North Mill Equipment is a national, independent equipment finance company that originates and services small-ticket equipment leases and loans, ranging from $15,000 to $250,000 in value and is majority-owned by an affiliate of Wafra Capital Partners Inc. (WCP). Opus Bank: Robin Israel has joined as managing director, senior client manager – Commercial Banking. Israel, a 29-year banking veteran, is responsible for expanding Opus’ commercial and corporate client base in the West Valley area of Los Angeles and the coastal markets of Ventura and Santa Barbara counties. Jim Haney, executive vice president, head of Commercial Banking, stated,

“Robin is a highly respected and experienced banker with a long history of success in the San Fernando Valley and the coastal markets from Malibu to Santa Barbara. Robin brings a wealth of experience in structuring, originating, and underwriting asset-based, working capital, and commercial real estate transactions, as well as developing treasury management solutions for middle-market companies, entrepreneurs, and business owners.” Haney added, “I look forward to having the additional banker coverage in these vibrant markets and anticipate that Robin will add to the productivity and success of our Commercial Banking division as we look to grow the division’s client base in the major metropolitan markets on the West Coast.” Israel joins Opus Bank most recently from Bank of America, where from 2016

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he served as senior vice president, senior relationship manager and was focused on building client relationships with, and providing depository, lending, and treasury management solutions to, small businesses and lower middle-market companies in the coastal areas of Los Angeles County. Israel ranked among the bank’s top producers nationally for 2017 and for the first six months of 2018. From 2010 to 2016, Israel served as vice president, senior relationship manager at JPMorgan Chase Bank, where he focused on managing and growing a portfolio of asset-based, senior term, commercial real estate, working capital, and SBA loans, as well as developing depository and treasury management opportunities in the San Fernando Valley and coastal areas of Ventura and Santa Barbara Counties. From 2008 to 2009, Israel served as senior vice president, business development officer at California Republic Bank, where he was responsible for managing and growing a portfolio of middle-market commercial clients in the Beverly Hills and West LA markets. From 2006 to 2007, Israel served with Santa Barbara Bank & Trust as vice president. From 2003 to 2006, Israel served with City National Bank, as senior vice president. Israel began his banking career at Wells Fargo Bank in retail operations and in 1999 joined the bank’s middle-market commercial banking group in Beverly Hills, where he served as vice president, business development officer. Israel holds a bachelor of science degree from the University of Redlands. Santander Bank announced that it has expanded its commercial banking presence in the Southeast region and has named Fred Aldin as market director for Southeast commercial banking to lead the expansion. Santander also named Alex Terzi as head of Southeast foreign direct investment banking. The Commercial Banking Southeast office is based in

Miami and serves clients and prospects in the surrounding states. This investment underscores Santander Bank’s ongoing commitment to adding resources in markets that align with its unique and distinct value proposition in the U.S., Europe and Latin America. In 2018, Santander Bank expanded its commercial banking presence in the southeast, northeast, midwest and southwest United States. Santander Private Banking International, a subsidiary of Banco Santander S.A., is also based in Miami. Fred Aldin has more than 20 years of commercial banking experience. He relocated to expand Santander Bank’s mid-corporate banking capabilities in the southeast region after three years in New York where he onboarded the Bank’s U.S. corporate clients with a presence in Latin America and Europe. Prior to joining Santander, Fred worked in the sponsor finance group at CIT where he increased the firm’s private equity client base. He also held several senior roles at WestLB, where he was instrumental in building out the bank’s leveraged finance and structured finance capabilities. Alex Terzi is responsible for working with U.S. subsidiaries of foreign-owned companies that plan to expand their business operations in the southeast region. Alex has 20 years of extensive experience in all aspects of corporate and investment banking in multiple sectors on an international scale. He has a history of delivering significant growth by building cross-border business channels that result in sustained growth. Alex joins Santander from Wells Fargo Bank where he was a senior vice president in the global banking division responsible for building out the bank’s Latin America initiative. Prior to working for Wells Fargo, Alex served as vice president at BNP Paribas, Wachovia Bank, and Itaú Unibanco in a variety of senior roles in the U.S. and overseas. Santander Bank, N.A. is one of the

country’s largest retail and commercial banks and an active provider of capital, treasury management, risk management and international solutions to thousands of corporate and institutional clients across a wide variety of industries and geographies in the United States. Offering specialty groups of experienced bankers in asset-based lending, government banking, auto finance, commercial real estate banking, commercial equipment & vehicle financing, technology, media & telecommunications (tmt), healthcare, transportation & logistics, food & beverage and consumer retail, along with experts in middle-market and corporate & investment banking, Santander earns the loyalty of its commercial banking clients by offering services that help them manage their operating needs, maximize their working capital and grow their business domestically and internationally. The bank is a wholly-owned subsidiary of Madrid-based Banco Santander, S.A. (NYSE: SAN) - one of the most respected banking groups in the world with more than 125 million customers in the U.S., Europe, and Latin America. Signature Bank, a New York-based fullservice commercial bank, announced the appointment of several professionals joining both its Asset-Based Lending (ABL) Group as well as its wholly owned subsidiary, Signature Financial LLC. Three professionals were named to the ABL Group, led by group director and senior vice president Robert Love: Robert Abraham, vice president, new business development; Melissa Anchundia, vice president, underwriting; and Michael Grande, new business development, transportation and logistics. Abraham, with 30 years of business development and lending experience in the credit, risk management and lending areas of banks, commercial services and accounting companies, joins from Lakeland Bank, where he was team

leader, asset-based lending – senior vice president. In this capacity, he managed the ABL Department, developing new business. Prior, he was first vice president for ABL at IDB Bank, where he managed a large ABL portfolio. Anchundia has spent 17 years in finance, most recently as vice president of Credit Administration at Bank Hapoalim, where she provided credit and collateral oversight for all their lending teams. Prior, she spent seven years at Wells Fargo Capital Finance, most recently as vice president and ABL relationship manager, managing a portfolio comprised of middle-market asset-based transactions in consumer products and earlier, as assistant vice president, operations analyst, designing and implementing strategic system analysis. Grande is a seasoned finance executive who specializes in transportation and logistics finance. He spent the past 25 years providing transportation companies credit facilities to fund acquisitions, growth, working capital, equipment and turnaround financing. Most recently, as senior vice president for Santander, he helped the institution build an East Coast presence, providing transportation-related credit facilities. Earlier as senior vice president for the Business Credit Services division of CapitalSource Finance, LLC, Grande helped build a national assetbased loan platform with a focus on transportation intermediaries. Concurrent with the ABL expansion, Signature Bank also grew its specialty finance business unit, appointing five professionals to the post of vice president – executive sales officer, including Katherine Adams, Steve Brantley, Karle Armitage, Andrew Jones and Anthony Zaccari. The new additions are strategically located in various areas of the country and responsible for covering specific geographic territories or business segment specialties. The appointment of these professionals brings the total number of

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Signature Financial’s direct sales team to 33 professionals nationwide. Adams is based in Hattiesburg, MI and has 22 years of equipment finance experience. Prior, she was vice president at The First, a National Banking Association, also in Hattiesburg, where she was responsible for operations. She also was first vice president at BancorpSouth Equipment Finance in Hattiesburg for 14 years. In her tenure, she worked in various other related roles, including director of operations and commercial credit officer. Brantley, with 20 years of specialty finance experience, is also based in Hattiesburg. Earlier, he was a vice president and commercial lender for The First, a National Banking Association, in Hattiesburg, responsible for identifying and closing new equipment loans. Previously, he spent 15 years as vice president, territory manager at BancorpSouth Equipment Finance (Hattiesburg). In addition to his role as an equipment generalist, Brantley will also source commercial marine opportunities in the Gulf Coast for Signature Financial. Armitage, with a 40-year career in finance, is based in Boise, Idaho, and was a territory sales manager at First Midwest Equipment Finance (Boise) before joining Signature Financial, a position in which he focused on construction loans. He spent 38 years at Wells Fargo Equipment Finance in Boise, also in the construction lending arena. Jones, who was named executive sales officer as well as vice president— Franchise Finance, is based in Stuart, FL. In this capacity, he will focus on new business development in the franchise finance arena. He had served as business development officer and vice president of Franchise Finance at PNC Bank in Horsham, PA, originating cash flow-based franchise loans to multi-unit operators of franchised quick serve and fast casual restaurants. Prior, he was business development officer and vice president

at United Capital Business Lending and brings 25 years of franchise-related finance experience to Signature Financial. Zaccari, with 15 years of finance-related expertise, most recently spent 13 years at Caterpillar; for the past seven, he was corporate account manager for Caterpillar Financial, responsible for serving its pipeline and energy infrastructure clients throughout North America. Previously, he worked in the direct lending group, FCC Equipment Finance, with responsibility for Southern Texas and Louisiana. Zaccari is based in Cypress, TX, a Houston suburb, and will focus on the construction market throughout southwestern Texas as well as clients with general equipment finance needs. “We are pleased to attract all these seasoned finance professionals to the Bank, each of whom comes with a niche expertise that will complement various areas of our diverse lending businesses. With the hiring of these highly experienced specialty banking professionals, the Bank is advancing its diversification strategy and expanding its presence throughout the country. By bolstering our ABL and specialty finance businesses, we are further solidifying our market position in these key areas. We look forward to contributions each of these professionals will make in their new roles, and to their impact on these lending businesses,” said Signature Bank president and chief executive officer Joseph J. DePaolo. Abraham is a member of the Commercial Finance Association, Turnaround Management Association (TMA), Association of Corporate Growth (ACG), Garden State Credit Association; Society of CPA (NY/NJ) Advisory board- Commercial Finance League and Secretary of the 475 Toppers Credit Club. Anchundia resides in Hoboken and is a member of the Commercial Finance Association, Commercial Finance League, Contemporary Credit Club and the New York Banking

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and Finance Group. Grande, a resident of Farmington, CT, is a member of the ACG and the TMA. He is the Founder and Chair of Ride America, a non-profit benefitting the Connecticut Sports Foundation against Cancer. Adams lives in Hattiesburg as does Brantley. Armitage resides in Boise. Jones is a resident of Stuart, FL while Zaccari lives in Cypress, TX. Signature Bank, member FDIC, is a New York-based full-service commercial bank with 30 private client offices throughout the New York metropolitan area, including those in Manhattan, Brooklyn, Westchester, Long Island, Queens, the Bronx, Staten Island and Connecticut. In 2018, the bank expanded its footprint on the West Coast with the opening of its first full-service private client banking office in San Francisco. The bank’s growing network of private client banking teams serves the needs of privately owned businesses, their owners and senior managers. Signature Financial, LLC, is a specialty finance subsidiary of Signature Bank, dedicated to equipment finance and leasing, transportation financing, franchise finance and commercial marine finance. Signature Financial operates from 29 locations throughout the country. Signature Securities Group Corporation, a wholly owned Bank subsidiary, is a licensed broker-dealer, investment adviser and member FINRA/SIPC, offering investment, brokerage, asset management and insurance products and services. Since commencing operations in May 2001, the Bank has grown to $45.22 billion in assets, $34.15 billion in loans, $34.99 billion in deposits, $4.15 billion in equity capital and $3.49 billion in other assets under management as of June 30, 2018. Signature Bank’s Tier 1 and risk-based capital ratios are significantly above the levels required to be considered well capitalized. Signature Bank is ranked the 40th largest bank in the U.S. from nearly 6,000,

based on deposits (SNL Financial). The Bank recently earned several third-party recognitions, including: appeared on Forbes’ Best Banks in America list for the eighth consecutive year in 2018; named Best Business Bank, Best Private Bank and Best Attorney Escrow Services provider by the New York Law Journal in the publication’s annual “Best of” survey for 2018, earning it a place in the New York Law Journal’s Hall of Fame, awarded to companies that have ranked in the “Best of” Survey for at least three of the past four years. www.signatureny.com Sterling National Bank (NYSE: STL) announced four key additions to its Specialty Finance team. Sharon Bender and Dennis Phelps join as senior vice presidents and managing directors of Assetbased Lending. Both will leverage more than two decades of experience leading asset-based lending groups to help Sterling clients access funding for working capital, equipment finance and capital expenditures. Bender will focus on building relationships within the northeast market and Phelps the southeast. Stephanie Lynn Szymanski joins as vice president and managing director of Warehouse Lending. Szymanski will be responsible for developing new warehouse lending relationships nationally. She brings a proven history of managing and growing portfolios specific to the mortgage industry. Joining as managing director of Capital Markets, Andrew Shuster will manage the team’s growth and profitability with a focus on business development. Having served the New York market for over 30 years, Shuster will provide practical strategies Sterling clients need to address complex financing challenges “We are very pleased to welcome Sharon, Dennis, Stephanie and Andrew to the team,” said Tom Geisel, Sterling’s senior executive vice president and president of Corporate Banking. “As we

grow our specialty finance group, their rich backgrounds in asset-based lending, capital markets and mortgage finance will strengthen and expand our current business offerings.” Sterling Bancorp, of which the principal subsidiary is Sterling National Bank, specializes in the delivery of financial services and solutions for small to mid-size businesses and consumers within the communities it serves through a distinctive team-based delivery approach utilizing highly experienced, fully dedicated relationship managers. Sterling National Bank offers a complete line of commercial, business, and consumer banking products and services. Wells Fargo Capital Finance: Chad Ludwig has joined the Government Services Group. Government Services provides industry-specialized financing to businesses that contract with federal, state and municipal governments. Based in McLean, VA, Ludwig reports to Samantha Bloom, government services relationship team manager. “Chad’s industry experience and track record of outstanding results will enable us to better serve our growing number of government contractor clients,” said Greg Wheeless, regional manager of the Government Services Group. “He will play a key role in managing the ongoing working capital needs of government contractors, including providing lines of credit to support receivables, acquisition funding and growth-capital needs.” Ludwig previously worked for Access National Bank as a commercial lender for its Government Contractor Lending group. In this role, he was responsible for the origination, analysis and portfolio management of asset-based lines of credit, acquisition and growth-capital financing for government contractors. He also managed the Small Business Administration portfolio. Previously Ludwig worked with Banco Popular and LaSalle Bank.

Ludwig graduated from the University of Northern Iowa with a bachelor of arts in finance and an economics minor. In addition, he has served on various organizational panels for funding government contractors and is a founding member of the Small Business Development Consortium. In 2015, he led the Armed Forces Communications and Electronics Association 5k, raising $6,000 for science, technology, engineering and mathematics scholarships. White Oak Commercial Finance: Robert Dean was appointed managing director of risk management for ABL and factoring. Dean joins from Wells Fargo Capital Finance, where he served as senior vice president and regional sales manager responsible for sourcing and structuring asset-based financing for middle-market companies with credit needs ranging from $5 million to $40 million. “Bob brings both decades of experience in asset-based lending capabilities in the commercial finance sector as well as deep relationships across the Southeast, and we are pleased to have him on-board,” said Robert Grbic, CEO and president of White Oak Commercial Finance. “We continue to add top tier talent to White Oak’s ABL team as client demand for our financing solutions continues to grow, and I’m looking forward to Bob’s contributions.” Dean’s appointment comes alongside the promotions of Mignon Winston to head of Underwriting in New York, and David Montiel to head of ABL originations in North Carolina. “I am excited to join with the expert team at White Oak, which as a non-bank lender specializes in delivering a broad range of lending products, including growth capital, turnaround plans, and dividend recaps,” Dean said. Dean is a 38-year industry veteran, having spent more than 20 years with Wells Fargo. Prior to that, Dean held positions

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at The Bank of New York and other New York metropolitan banks. He has been an active member of the Commercial Finance Association, the Association for Corporate Growth and the Turnaround Management Association (TMA), having served six years on the TMA Carolinas board of directors. Dean received his Bachelor of science in accounting from Susquehanna University. He will be based in Charlotte, NC. White Oak Commercial Finance, LLC is a global financial products and services company providing credit facilities to middle-market companies between $1$40 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. More information can be found at 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.

White Oak ABL, LLC (White Oak), an affiliate of White Oak Global Advisors, LLC, announced the appointment of Clark D. Griffith to managing director, based in San Francisco. Griffith joins from Encina Business Credit where he held the position of senior managing director in charge of West Coast originations, offering lines of credit and term loans from $5

million to $50 million. “Clark brings a unique skill set to White Oak that marries technical expertise with a deep commitment to problem solving, and we expect our clients will benefit from having him develop solutions to meet every stage of growth,” said Thomas Otte, head of White Oak ABL, LLC. “We look forward to learning from Clark’s decades of experience as we pursue even more flexible, transparent products for our borrowers.” Prior to Encina Business Credit, Griffith spent over a decade with GE Capital, most recently serving as an officer of GE Japan and senior managing director of GE Capital’s Structured Finance business. During his tenure with the company, he led both the Sponsor Finance and Asset-based Lending teams. Griffith holds a master degree in international affairs from Columbia University where he concentrated in International finance and banking, as well as an advanced certificate from Columbia University’s Weatherhead East Asian Institute. He received his undergraduate degree in economics from San Diego State University. 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 our investors while establishing long term partnerships with our borrowers. More information can be found at www.whiteoaksf.com. Wintrust announced the expansion of its asset-based lending group, Wintrust Business Credit, with the addition of a specialized team focused on accounts receivable financing. Wintrust Receivables Finance will serve middle-market

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companies, nationwide, with annual revenues between $10 million and $300 million. “We think this team is a great expansion to our current services,” said Wintrust president, founder & CEO Edward J. Wehmer. “Wintrust Receivables Finance makes our asset-based lending even more robust and competitive—accounts receivable financing is a solution many other companies don’t offer—but, most importantly, it allows us to provide working capital to companies which are looking for creative lending solutions when they’re most in need.” Wintrust Receivables Finance will work with companies that don’t fit the profile for traditional commercial lending tools or asset-based lines of credit. The group will help business owners who need working capital support as they navigate quick growth, company restructuring or turnover, or seasonality. “Through asset-based lending, Wintrust Business Credit has offered creative financing for companies with unique credit profiles,” said Wintrust Business Credit president Bob Shanahan. “Wintrust Receivables Finance gives us another arrow in our quiver to reach even more companies during important times of transition.” Traditionally, accounts receivable financing works well for companies in transportation, logistics, temporary staffing, and oil field service industries. Lead by Jason LeuVoy, senior vice president, national head of originations, and John Marrinson, executive vice president, group head, the Wintrust Receivables Finance team has extensive experience originating accounts receivable financing in these areas. LeuVoy has spent 18 years in accounts receivable financing and asset-based lending. He recently joined the team from Wells Fargo Capital Finance where he oversaw all new business for a 10-state region for multiple accounts receivables

groups. Marrinson has more than 25 years of experience in the accounts receivable financing and trade finance industries. Marrinson also recently came from Wells Fargo Capital Finance where he managed both the receivable finance group and transportation services group portfolios. “We’re confident that Jason and John’s receivables financing expertise will help guide the new team to success,” Shanahan said. “Their knowledge and experience financing in a variety of niche industries allows Wintrust Receivables Finance to not only serve the traditional markets that find this service most valuable, but also expand to additional industries as well, including the whole distribution and manufacturing sectors. We’re excited for this new direction.” Wintrust is a financial holding company with assets of approximately $29 billion whose common stock is traded on the NASDAQ Global Select Market. Built on the “HAVE IT ALL” model, Wintrust offers sophisticated technology and resources of a large bank while focusing on providing service-based community banking to each and every customer. Wintrust operates fifteen community bank subsidiaries with more than 160 banking locations located in the greater Chicago and southern Wisconsin market areas. THE COMMERCIAL FINANCE ASSOCIATION IS PLEASED TO WELCOME THE FOLLOWING NEW MEMBERS Equiniti Riskfactor Units A-C, Kemps Farm, London Road, Balcombe London, RH17 6JH United Kingdom Equiniti Riskfactor provides marketleading accounts receivable and ABL risk management software for commercial lenders. The technology helps lenders to prevent fraud and minimize losses. The unique risk algorithms enable lenders to quickly detect and prevent fraud, while also delivering operational

efficiencies. This unique fraud prevention system is easily implemented alongside existing risk management processes to ensure that any unusual account activity is instantly detected, alerting the user so that further investigation can take place. To find out more about this unique fraud prevention tool and to book a demonstration please contact Leigh Lones, EQ Riskfactor, North America leigh.lones@ equiniti.com or Tel.: 404-660-8933 Leigh Lones Director, Equiniti Riskfactor, North America leigh.lones@equiniti.com Lones has significant experience in the financial services industry and specializes in the asset-based lending and factoring space. Lones has held senior leadership roles across the industry and worked in both US and international financial services organizations. Lones’ outstanding commitment to the industry, along with her excellent grasp of the challenges that lenders face, means she is well placed to share her knowledge with lenders and her experiences of implementing new technology to improve risk management processes. Lones has held director positions within the Commercial Finance Association and American Factoring Association and actively participates in supporting women in the industry through the Women In Commercial Finance. University with a B.A. in business. He is the vice president of ThinkingAhead and recruits in the commercial banking and commercial finance space. He is responsible for operations, recruiting, and training for the firm. His team focuses on client opportunities in commercial banking, commercial finance, specialty lending, equipment leasing, private client services, restructuring/turnaround management and commercial real estate finance.

Waterfall Asset Management 1140 Avenue of the Americas New York, NY 10036 (212) 257-4154 Waterfall Asset Management is an SEC registered specialist credit advisor focused on high-yield asset-backed securities and loan investments and has estimated $7.3 billion of assets under management as of 7/1/18. The Specialty Commercial Finance Group provides credit facilities to asset-based lenders, factors, equipment finance companies and many other specialty finance companies as well as purchasing participations from specialty fincos. Andrea L. Petro Managing Director apetro@waterfallam.com Waterfall Asset Management, LLC’s Specialty Commercial Finance GroupSCFG is led by Andrea Petro. Ms. Petro has 26 years of experience lending to specialty finance companies, beginning her specialty finance career at Transamerica Business Credit and culminating in 17 years with Wells Fargo Capital Finance’s Lender Finance Division. As a managing director, Ms. Petro is leading the effort to expand Waterfall’s participation in lending to the specialty underlying commercial finance company market. .

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CHAPTER NEWS

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California The Chapter held its holiday party at the Sheraton Universal on December 12. In support of those who’ve experienced loss due to the recent fires and hurricanes, the Chapter donated $10 to the Salvation Army for each person that registered. The Chapter will host an education event on January 30 at the Jonathan Club in Los Angeles. Save the dates for the Chapter’s events scheduled for 2019 so far: Women of CFCC, February 19 (location TBD), a speaker panel at the JW Marriott in downtown Los Angeles on April 10, a Summer party at The StandardRooftop on July 10, a Hot Topic Panel Discussion at the Luxe Summit Hotel in Los Angeles on October 2, the Annual Fall Golf Classic in October at Coyote Hills Golf Course (Date TBD), and a Women of CFCC event on October 23, (location TBD), a Chapter networking event at Center Club-Orange County on November 13, and a holiday party at Mr. C’s in Beverly Hills on December 11. For more information visit community.cfa.com/californiachapter Florida The Chapter hosted a panel, Opportunity Zones and Other New Tax Law Changes, on January 15 at the Lauderdale Yacht Club in Ft. Lauderdale, FL. The luncheon discussion was led by John Majer, tax partner, RSM. The Chapter will hold its Annual CFA - TMA

Evening with the Florida Panthers on February 21 at the Corona Beach House on the e Club Level of the BB&T Center in Sunrise, FL. The venue will open at 6 p.m. and the game starts at 7 p.m. For more information visit community.cfa.com/floridachapter MidWest The Chapter’s Annual Blackhawks Outing will be held March 11 at Super Suites West C&D, United Center in Chicago, IL. Attendees will watch Arizona Coyotes vs. Chicago Blackhawks. For more information, visit community.cfa.com/midwestchapter Minnesota The Chapter’s Top Golf Social at Top Golf Minneapolis in Brooklyn Center, MN will be held February 6. Attendees will get to enjoy an evening of golf in this brand new, state-of-the art-facility. Space is limited so be sure to register early for this fun evening. For more information, visit community.cfa.com/minnesotachapter New England The Chapter’s Holiday Party was held January 10 at Marriott Long Wharf in Boston, MA. The Chapter continued its tradition of asking attendees to bring a pair of gloves/mittens or white cotton socks to donate to St. Francis House. For more information, visit community.cfa.com/newenglandchapter New Jersey The Chapter will hold a Panel Event with the New Jersey TMA, Structuring and Restructuring the Commercial Loan, on February 21, 2019 at Tournament Players Club at Jasna Polana in Princeton, NJ. This event was rescheduled from November 15, 2018 The event will feature an interactive discussion on the formation of

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both a newly originated commercial loan and a to-be-restructured troubled commercial loan, including a discourse on the selection of lenders, format, pricing, financial covenants, risk reduction, mitigation strategies and the interplay with other creditors. This program qualifies for 1.0 CPE credit and 1.5 NJ CLE credits. The moderator/ panelist is Paul H. Shur, Esq., shareholder, Wilentz, Goldman & Spitzer P.A. Panelists include: Alan J. Brody, Esq., shareholder, Greenberg Traurig LLP; Ita M. Conlon, senior vice president, credit risk officer, Specialty and C&I Credit Risk, Santander Bank, N.A.; Kenneth R. Pogrob, CPA, CFF Partner, Financial Advisory Services; practice leader, Mazars USA LLP, Daniel F. Tortoriello, executive vice president, chief operating officer, North Mill Capital, LLC. The Chapter’s Joint Super Networking Party will be held February 13 at Iberia Tavern Restaurant in Newark, NJ. The event will be co-hosted by New York Institute of Credit, TMA New Jersey, 475 Credit Club, Alternative Finance Bar Association, American Bankruptcy Institute (ABI), Association for Corporate Growth (ACG) - New Jersey Chapter, Association of Insolvency & Restructuring Advisors (AIRA), Commercial Finance Association (CFA) - New Jersey, Commercial Finance League (CFL), Financial Executives International (FEI) - New York City Chapter, FEI - New Jersey Chapter, Garden State Credit Associates, International Factoring Association (IFA), IFA - Northeast Chapter, IWIRC New Jersey, IWIRC Philly, New York Banking & Finance Group, Turnaround Management Association (TMA) – Chesapeake, TMA – Connecticut, TMA - Long Island, TMA - New York City, TMA – Northeast, TMA – Philadelphia, TMA - Upstate NY. This event is not affiliated with, sponsored by, or endorsed by the NFL or its teams.

The Chapter’s Golf & Tennis Outing will be held May 28, 2019 at Essex County Country Club in West Orange, NJ. For more information, visit community.cfa.com/newjerseychapter New York The Chapter’s holiday party was held November 28 at The Yale Club of New York City. The Chapter raised $600-plus and more than 100 toys for Marines for Toys for Tots. For more information, visit community.cfa.com/newyorkchapter Ohio The Chapter will host a Lunch & Learn discussing FAQs about the end of LIBOR, on January 24 at McDonald Hopkins in Cleveland, OH. The Chapter will host a March Madness event on March 21 (location TBD) and a golf outing on June 6 at Quail Hollow Resort in Painesville, OH. The Chapter’s Annual CFA/TMA Joint Shuffleboard Event will be held August 29 at Forest City Shuffleboard in Cleveland, OH. The venue features indoor and outdoor shuffleboard courts, regulation shuffleboard tables and a patio. For more information, visit community.cfa.com/ohiochapter Philadelphia The Chapter’s 12th Annual Philadelphia Credit & Restructuring Summit will be held March 26 at The Union League of Philadelphia in Philadelphia, PA. This is a joint event with the ABF Journal, the New York Institute of Credit, and the Philadelphia/Wilmington Chapter of the Turnaround Management 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 special

Jeopardy! event featuring 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. Sessions will include Titans of Lending ...Vision, Success and Growth - Where are the Opportunities in 2018?; Block Chain, ECommerce Funding & Alternative Financing and Views from the Bench. The Chapter’s Day One at the Masters Networking Event will be held April 11 in Center City, Philadelphia (exact location TBD). The Chapter’s Annual Golf Outing will be held May 13, 2019 at Philmont Country Club in Huntingdon Valley, PA. For more information, visit community.cfa.com/philadelphiachapter

Southwest Save the date for the Chapter’s Eighth Annual Energy Summit on September 17. The Chapter’s PEGapalooza Dealmaker Wine & Whiskey Tasting event will be held January 30 at 3015 at Trinity Groves. For more information, visit www.cfasw.org. For more information on CFA Chapters, please visit community.cfa.com/ ch/chaptersmain

COLLATERAL CONFIRMED. CONFIDENCE SECURED.

Michael A. Boeheim, CIA, CFE Director

Howard A. Rein, CPA, CFE President

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CALENDAR

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February 5-6, 2019 CFA’s Asset Based Capital Conference Encore at Wynn Las Vegas Las Vegas, NV February 6, 2019 CFA’s Minnesota Chapter Top Golf Social Top Golf Minneapolis Brooklyn Center, MN February 13, 2019 CFA’s New Jersey Chapter – Super Networking Party Iberia Tavern Restaurant Newark, NJ February 21, 2019 CFA’s New Jersey Chapter Panel Event Joint with the NJTMA Tournament Players Club at Jasna Polana Princeton, NJ February 21, 2019 CFA - TMA Evening with the Florida Panthers Corona Beach House on Club Level, BB&T Center Sunrise, FL March 11, 2019 CFA’s Midwest Chapter 7th Annual Blackhawks Outing Super Suites West C&D, United Center Chicago, IL Mar 12-13, 2019 2:00 PM (ET) CFA’s 2019 Spring ABL Basics Workshop

March 13, 2019 CFA’s FinTech and Innovation Forum Jones Day New York, NY March 13-14, 2019 CFA’s Women in Commercial Finance Conference Wells Fargo Capital Finance New York, NY March 21, 2019 CFA’s Ohio Chapter March Madness event Location TBD March 26-29, 2019 Spring Field Examiner School Location TBD New York, NY March 26, 2019 CFA’s Philadelphia Chapter - 12th Annual Philadelphia Credit & Restructuring Summit The Union League of Philadelphia Philadelphia, PA April 2-3, 2019 CFA’s Workouts & Bankruptcy Workshop – Webinar April 11, 2019 CFA’s Philadelphia Chapter – Day One at the Masters Networking Event Tavern On Broad Philadelphia, PA April 16-17, 2019 Spring What’s it Worth? All You Need to Know About Inventory – Webinar May 8-9, 2019 CFA’s Independent Finance and Factoring Roundtable Holston House Nashville Nashville, TN

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May 13, 2019 CFA’s Philadelphia Chapter 24th Annual Golf Outing Philmont Country Club Huntingdon Valley, PA May 14-16, 2019 CFA’s Spring Operations Bootcamp Location TBD Chicago, IL May 21-23, 2019 CFA’s International Lending Conference 2019 DLA Piper London May 28, 2019 CFA’s New Jersey Chapter Golf & Tennis Outing Essex County Country Club West Orange, NJ June 4-6, 2019 CFA’s Summer Field Examiner School – Online Class June 6, 2019 CFA’s Ohio Chapter Golf Outing Quail Hollow Resort Painesville, OH June 18, 2019 CFA’s IdeaCon Location TBD New York, NY June 11-12, 2019 CFA’s Summer ABL Basics Virtual Workshop June 19-20, 2019 CFA’s Advanced Legal Issues Workshop Location TBD New York, NY July 9-25, 2019 CFA’s Summer Underwriting Fundamentals Virtual Classes

August 29, 2019 CFA’s Ohio Chapter - Annual CFA/TMA Joint Shuffleboard Event Forest City Shuffleboard Cleveland, OH

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September 11-12, 2019 CFA’s Advanced Underwriting Workshop Location TBD Chicago, IL

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September 17-19, 2019 CFA’s Fall Operations Bootcamp Location TBD Atlanta, GA

Tiger Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.tigergroup.com . . . . . . . . . . . . . . . . . . . Page 51

Freed Maxick ABL Services . . . . . . . . . . . . . . . . . . . . . www.freedmaxick.com . . . . . . . . . . . . . . . . . Page 61 Hilco Global . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.hilcoglobal.com . . . . . . . . . . . . . . . . . . . BC

Utica Leaseco, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.uticaleaseco.com . . . . . . . . . . . . . . . . . Page 54 Wells Fargo Capital Finance . . . . . . . . . . . . . . . . . . . www.wellsfargocapitalfinance.com . . . Page 2 William Stucky & Associates, Inc. . . . . . . . . . . . . . . www.stuckynet.com . . . . . . . . . . . . . . . . . . . . Page 1

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THE SECURED LENDER JANUARY/FEBRUARY 2019 63

CHAPTER SPOTLIGHT

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By Brent Kugman, president & CEO, Kugman Partners, Sue Duckett, executive vice president, Franklin Capital Network, Michael Dudek, managing director, High Ridge Partners and Joe Fobbe, senior vice president, Originations, MB Business Capital “The Midwest Chapter Middle Market Capital Symposium is a great example of how ‘CFA brings together the resources that make capital work’. Much anticipated, highly thought provoking and exceptionally well executed, this year’s MMS-II was a home run.” Richard D. Gumbrecht, CEO, Commercial Finance Association Following the success of the first Middle Market Capital Symposium (“MMS”) in 2016, the CFA Midwest Chapter sought to replicate and establish the symposium as a bi-annual event. The 2018 MMS-II had strong support from inception, with current Chapter President Joe Fobbe leading the efforts with a clear and inspiring vision. The Event Planning Committee consisted of Brent Kugman (Education Committee Chair), Jennifer Kempton (MMS-II Co-Chair), Michael Dudek (MMS-II Co-Chair), Shari Lipski, Sue Duckett, Tony Martorano, Sandi Evans, Tom McCabe, Tom Hunt and Eric Welchko (Immediate Past President). Sponsorship for the event sold out immediately, with Chapman and Cutler, LLP and High Ridge Partners, LLC as co-event sponsors, ExWorks Capital as coffee break sponsor and Kugman Partners and Winston & Strawn, LLP as co-reception sponsors. The MMS-II took place on October 4 at the University Club of Chicago in the dramatic Cathedral Hall with over 200 guests enthusiastically in attendance.

“The Middle Market Capital Symposium put on by the Chicago Chapter of the CFA is a premier event,” said Kenny Smith, managing director, Crystal Financial LLC. “The high-caliber panelists and diverse crowd of members of the finance community make it an event that I plan a trip to Chicago for, just to be a part of.” The Middle Market CFO panel moderated by Bruce Denby, managing director and co-head of Asset Based Lending at CIBC, kicked off the event with a very wellregarded panel consisting of Lori Bottoms of The Jel Sert Company, Frank Cesario of CTI Industries Corporation, George Cook of Maclean-Fogg Company and John Glazier of ATF, Inc. Topics of the panel included what keeps them awake at night, tax law changes, tariffs/trade scuffles, labor force issues, transportation costs and other inflationary pressures, cybersecurity, and state and federal government issues. The panel brought great insight and perspective as it relates to these current topics in finance and accounting and specifically how their companies are affected and respond to each issue. The panelists provided an in-depth and candid perspective into their side of the industry, a perspective not often afforded to lenders and institutional professionals. “I really have to tell you how much I enjoyed the first panel of the MMS-II - Middle Market CFOs,” said Mitch Rasky, managing director, CIBC US. “It was well organized, substantive, informative, thought provoking and enjoyable.” The Chicago Bank Executive panel moderated by Richard Kohn, principal of Goldberg Kohn, brought together several of Chicago’s most distinguished bank executives. Mitchell Feiger, president and CEO of MB Financial, Inc., Mark Sander, senior executive vice president and COO of First Midwest Bancorp, Inc., and Edward Wehmer, founder, president and CEO of Wintrust Financial Corporation, provided an educational, while exceptionally entertaining, panel focused on the economic outlook and stage of the current credit cycle; the globalization of the middle

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market; political forces impacting banking including tariffs, taxes, and regulation; Bank M&A; Fintech and other technological challenges and opportunities; staffing challenges in this tight labor market; and community relations. The panel also made the time to address the topic of millennials in the workforce, discussing their organizations’ approach to the new millennial career ideologies as well as offering advice to the young professionals on how to best navigate for success within the financial industry. “I greatly enjoyed the bank executive panel, particularly their perspective on recruiting and retaining as well as career advice for young professionals. I’m looking forward to the next one,” added Bryan E. Jacobson, associate, Chapman and Cutler LLP. The Asset Based Lending Update panel moderated by Allan Allweiss, senior managing director of LBC Credit Partners, delivered to the CFA’s core membership and audience its industry update in a dynamic and energetic format. The notable panel included Ira Kreft, senior vice president of Bank of America Merrill Lynch, Samuel Philbrick, president, Asset Based Finance of U.S. Bank and Michael Scolaro, managing director of BMO Harris Bank. The panel addressed the topics of the evolving state of the asset-based loan markets, attracting and retaining talent, private equity group activity, structural trends, and where we are in the credit cycle. The event concluded with a closing networking reception in the Library Room of the University Club of Chicago with decorative and inviting designs, lively music and abundant food and drink which established a warm and inviting atmosphere for a fantastic evening of networking and socializing with the CFA’s members and friends. The CFA Midwest Chapter deeply enjoyed the event, concluded it was an enormous success, thanks all its moderators, panelists, sponsors, members and guests, and looks forward to hosting the Middle Market Symposium again in 2020.

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capital.one/ﬁnancialinstitutions Note: Rank excludes banks with high non-loan asset concentrations: Goldman Sachs, Morgan Stanley, BONY, State Street, Charles Schwab. Ranks as of 6/30/2018. Based upon total gross loans and total aggregated domestic deposits for bank holding company. Sources: SNL, FDIC, company reports. Subject to credit approval. Additional terms and conditions apply. Products and services oﬀered by Capital One, N.A., Member FDIC. © 2019 Capital One.

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