TSL March 2020

THE SECURED

THE FACTORING & ENTREPRENEURIAL FINANCE ISSUE MARCH 2020 WWW.SFNET.COM

Putting Capital To Work

Factoring Executives Focus on Innovation, Challenges and Opportunities INTERVIEWS WITH ROBERT GRBIC OF WHITE OAK AND RYAN JASKIEWICZ OF 12FIVE CAPITAL, PLUS AN ARTICLE ON INNOVATION FROM JENNIFER LICKTEIG OF TBS FACTORING, AND MORE

A publication of:

What If Your Team Could Do 80% More?

Manage nearly 80% more Net Funds Employed with FactorCloud Factoring is a hard business. It’s risky. It’s laborintensive. It’s full of paperwork. And there’s no room for error - one mistake can wipe out a year’s worth of profits. We know – we’ve been there. We started as a factoring company, so we understand the unique opportunities and challenges you’re facing. When we couldn’t find factoring software we liked, we built it ourselves.

Visit www.factorcloud.com and use our free calculator to see how much more NFE your employees could handle with FactorCloud.

Now you can also benefit from FactorCloud, which has processed over $1.5 billion in transactions to date.

Save time and increase efficiencies. Reduce risk and errors. Lower costs and make profit rain.

Call 888-888-0694 or visit www.factorcloud.com to learn more or schedule a demo. www.factorcloud.com | 888-888-0694 © 2020 FactorCloud, LLC

TOUCHING BASE PLANNING AHEAD

SFNet Offers a Host of Education and Networking Events

By the time this issue reaches you, we will be close to the end of the first quarter of 2020. As you reflect on the needs of your team and your clients in order to make 2020 a stellar year, I wanted to highlight the professional development opportunities and networking events hosted by the Secured Finance Network.

Coming up on April 1-2 in Chicago is our Independent Finance Roundtable, where entrepreneurial finance and factoring executives come together to share thoughts and insights on topics such as current legal issues impacting our industry, deal challenges and opportunities, M&A, and succession planning—just to name a few. This is a great chance to enjoy a unique and intimate format with your senior-level peers, so reserve your spot soon.

If you are active in cross-border lending, you need to understand the ever-changing global landscape and the ramifications for you and your clients. SFNet’s International Lending Conference, held in London, May 12-14, brings together some of the most informed and interesting players on the international lending scene.

On June 11, the SFNet 40 Under 40 Awards celebration returns at the Plaza Hotel in New York City. The 2020 class will be announced shortly, but whether or not your organization has a winner this year, I urge you to demonstrate your support for the next generation of industry leaders by sponsoring a table at this highly anticipated and illustrious event. Contact James Kravitz at jkravitz@sfnet.com for details. Proceeds from this event benefit the SFNet Foundation.

Earlier that same day, the SFNet Women in Secured Finance Committee will host its third annual conference offering a dynamic combination of networking and professional development. This half-day event brings 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.

This event sold out last year, so be sure to register soon.

As part of our ongoing commitment to present industry-specific content to our members, SFNet is partnering with the Retail Marketing Society to co-host our first Retail Conference on June 25 in New York City. The conference will bring together senior retail industry professionals to share case studies and best practices across all facets of the marketplace, including merchants, vendors, real estate executives, private equity sponsors, investment

bankers, lenders and service providers that support this evolving industry.

SFNet’s virtual courses are a convenient way to access ongoing education as part of our ongoing EDU Focus 2020 initiative. On April 15 we will be offering our 90-minute Business Development Level Two class which offers attendees a chance to learn from experts in the field about RICHARD D. GUMBRECHT identifying new business SFNet Chief Executive Officer opportunities, building relationships, and overcoming roadblocks along the way.

The program will feature real-world examples and opportunities for attendees to ask questions and join the discussion. Joe Accardi of People’s United Business Capital will be the instructor. Don’t miss Joe’s article on business development in this issue of TSL on page 25.

For a more in-depth, in-person course, Account Management Level Two will be taught by Kevin Gimber of PNC on May 19-20 in Atlanta. This course is designed to assist the account manager in navigating complex issues pertaining to borrowers in assetbased lending especially in a difficult economic climate. Topics will include analyzing key financial and collateral data and indices and using them as effective management tools.

This issue of TSL focuses on factoring, a dynamic industry which has adapted and innovated in the face of increased competition. One executive who has adapted successfully to these changes is Ryan Jaskiewicz, CEO of 12five Capital, LLC. He started 12five Capital in early 2006 at the age of 23. Turn to page 22 to read the interview.

On page 20, Robert Grbic, president & CEO of White Oak Commercial Finance, discusses White Oak’s growth as well as the most pressing challenges factors face in 2020.

In Innovation is Key to Survival for Factors on page 18, Jennifer Lickteig, president of TBS Factoring, discusses the importance of innovation in factoring and how she applies the lessons of the past to her current role.

LIBOR is on everyone’s mind these days as we count down the days to its expiration. On page 35, Meredith Coffey of LSTA discusses what the loan market and LSTA have been doing to prepare for LIBOR cessation – and what’s on deck for 2020.

I hope to see you at one of our many upcoming events. As always, I welcome your comments and suggestions on any of SFNet’s offerings and thank you for everything you do for our thriving community.

1

THE SECURED LENDER MARCH 2020

TABLE OF CONTENTS. MARCH 2020 VOL. 76 ISSUE 2

FEATURE STORY INNOVATION IS KEY TO SURVIVAL FOR FACTORS P.18

Innovation is Key to Survival for Factors The president of TBS Factoring discusses the important of innovation in factoring and how she applies the lessons of the past to her current role. 18

BY JENNIFER LICKTEIG FEATURE STORY

TSL INTERVIEW

Better Together – Achieving Success By Lenders Working Together

Robert P. Grbic, White Oak Commercial Finance

Forrest Gump said, “Life is like a box of chocolates, you never know what you are going to get.” Partnering with other lenders can be similar. You don’t know what you are going to get if you jump into partnerships without doing your due diligence and establishing alliances with the best partners. 22

BY DARREN PALESTINE AND MARK POLINSKY

Bob Grbic is the president & CEO of White Oak Commercial Finance. He has more than 30 years of commercial lending experience. Here he discusses his career trajectory, White Oak’s goals and portfolio expansion. 27

BY MICHELE OCEJO TSL INTERVIEW

Ryan Jaskiewicz of 12five Capital, LLC

2

THE SECURED LENDER MARCH 2020

FEATURED STORY BETTER TOGETHER – ACHIEVING SUCCESS BY LENDERS WORKING TOGETHER P28

Ryan Jaskiewicz is CEO of 12five Capital, LLC. He started 12five Capital in early 2006 at the age of 23. Here he discusses what sets his company apart and the challenges facing the factoring industry. 28

BY MICHELE OCEJO

PRIVATE EQUITY Maximizing Private Equity Investments Through Sale-Leaseback Transactions

TSL INTERVIEW ROBERT P. GRBIC P.20

Articles

BUSINESS DEVELOPMENT

Get Out Your Umbrella: The Definitive Guide to Making It Rain and Growing Your Business With few exceptions, every organization is interested in growth, and it usually falls on the new business teams - the “rainmakers” - to make it happen. Here, Accardi looks at each of these levels and sees what is required as progress is made toward substantial growth. 25

TSL INTERVIEW RYAN JASKIEWICZ P.22

After private equity firms take control of a target company through a leveraged buyout, a firm can optimize the balance sheet of the acquired company through a sale-leaseback transaction on their owned real estate holdings. A sale-leaseback can enhance the acquired company’s financial statements by either reducing a portion of existing debt on the balance sheet, increasing equity value or providing unrestricted short-term dry powder to fund additional acquisitions in the future 32

BY JACOB SOYKA INTERNATIONAL FACTORING

The ABCs of International Factoring

TRENDS & OUTLOOK SOFR and Loans: What’s on Deck for 2020

Summar Financial’s president and founder offers a primer for young professionals on International factoring, including non-recourse international factoring which protects the importer from the risks of non-payment, collection, and barriers that may exist in different countries. 30

BY MEREDITH COFFEY

BY ALVARO OTOYA

BY JOE ACCARDI

TRENDS & OUTLOOK SOFR AND LOANS: WHAT’S ON DECK FOR 2020 P35

As of January 1, 2020, there are 730 days until the likely end of LIBOR. Will the syndicated loan market be ready? Below Meredith Coffey of LSTA discusses what the loan market and LSTA have been doing to prepare for LIBOR cessation – and what’s on deck for 2020. 35

M&A Seller’s Beware: Three Crucial Terms to Review in Your Buyer’s Acquisition Financing During the frenzied period before execution of an acquisition agreement, a seller will be overwhelmed with pressing tasks, so the terms of the buyer’s financing may not be front of mind. There is good reason for this since it is not the seller’s debt and many of the financing terms will apply only after the acquisition closes.

But there are some terms of a buyer’s financing that it is crucial for sellers to review in order to ensure that closing of the deal is as smooth as possible. This article will discuss in-depth three of those crucial terms. 38

BY EMILY STORK

3

THE SECURED LENDER MARCH 2020

Departments

PUTTING CAPITAL TO WORK Internex Capital Customer Integrated Security

TOUCHING BASE 1

Internex Capital provides needed capital to company founded by a retired New York City police sergeant 44

INDUSTRY DEALS 6 NETWORK NOTES 14 CRUCIAL CONVERSATIONS Crucial Conversations poses a timely question to industry executives. 40

SFNET MEMBER PROFILE An American Dream - How an Entrepreneurial Founder Found His Maxim Commercial Capital’s chairman and CEO, Behzad Kianmahd, and his son, Michael, executive vice president, discuss how the company came to be. 42

SFNET CHAPTER CONNECTIONS SFNet South Florida Chapter: The Economy in 2020 SFNet’s South Florida Chapter kicked off the new year by discussing what to expect in economic trends for 2020. The meeting was held on January 22 and the speaker was Dr. William Luther, Professor of Economics in the College of Business at Florida Atlantic University 46

PUTTING CAPITAL TO WORK P44 ONLINE SUBSCRIBER CONTENT

Online Exclusives and News Visit sfnet.com to read the latest issue and web-exclusive subscriber-only content. Also sign up for our daily enews blast highlighting industry deals, moves and more — signup at sfnet.com/tslexpress

Join us @

4

THE SECURED LENDER MARCH 2020

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

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

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

The Secured Lender, magazine of the asset-based financial services industry (ISSN 0888-255X), is published 8 times per year (Jan/Feb, March, April, May, June, September, October and November) $65 per year non-member rate, and $105 for two years non-member rate, SFNet members are complimentary.

Secured Finance Network 370 Seventh Avenue, New York, NY 10001.

(212) 792 -9390 Email: tsl@sfnet.com

www.SFNet.com Periodicals postage paid at New York, NY, and at additional mailing offices. Postmaster, send address changes to The Secured Lender, c/o Secured Finance Network, 370 Seventh Avenue, New York, NY 10001 Editorial Staff Michele Ocejo Editor-in-Chief and SFNet Communications Director

@SFNet_National

Eileen Wubbe Senior Editor

@SFNet_National

Aydan Savaser Art Director

Secured Finance Network | National

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

Reduce Risk, Save Money and Grow your Portfolio Equiniti Riskfactor provides market-leading risk management software for finance companies that offer asset based lending, invoice discounting and factoring. We have a twenty-year heritage and operate on a global scale, helping clients from the USA, Canada, Europe and Australia.

EQ Riskfactor’s unique software allows you to identify fraud quickly and save money from improved operational processes.

Contact us today!

Talk to our expert team and find out how EQ Riskfactor can improve your business.

For further information please contact: Mark Watkins, Director North America Email: mark.watkins@equiniti.com Tel: +44 (0)1903 698 600

equinitiriskfactor.com

DEPARTMENT INDUSTRY DEALS

6

THE SECURED LENDER MARCH 2020

Lender/Participant (Role)

Lender Type

Amount

Abacus Finance Group, LLC

Non-bank

N/A

ABN AMRO Bank N.V., BNP Paribas, HSBC Bank plc (HSBC), ING Bank N.V. (ING), Natixis and Sumitomo Mitsui Banking Corporation (SMBC)

Bank

$1.75 Million

Amerisource Business Capital

Non-bank

Amerisource Business Capital

Industry

Borrower

Structure

To support the recapitalization of Custom Wheel House, LLC (CWH) by Thompson Street Capital Partners

Senior secured credit facilities. Abacus also made an equity co-investment in CWH.

Agriculture

Bunge Finance Europe B.V., wholesaler of agricultural products

Sustainability-linked revolving credit facility. The amended facility amends and extends borrower's existing $1,750,000,000 revolving credit facility dated December 12, 2017.

In addition, ABN AMRO, BNP Paribas, Coรถperatieve Rabobank U.A. and Natixis served as Sustainability Cocoordinators and assisted Bunge in structuring the facility in line with the Sustainability Linked Loan Principles.

$1.5 Million

Manufacturing

Marble and granite wholesaler, North Carolina

Revolving credit facility

Non-bank

$2 Million

Manufacturing

Utility contractor based in the upper Midwest

Revolving credit facility

Amerisource Business Capital

Non-bank

$1 Million

Energy

Wind farm maintenance company, Colorado

Revolving credit facility

The Antares Bain Capital Complete Financing Solution (ABCS)

Bank

$355 Million

Healthcare

Crisis Prevention Institute, Senior secured unitranche Inc. (CPI), Milwaukee, WI credit facility

Apollo Global Management, Inc.

Non-bank

$800 Million

Energy

New Fortress Energy LLC

Term loan facility

Ares Commercial Finance

Non-bank

$17 Million

Home furnishings

Cox Interior, Inc.

Senior secured credit facility, comprised of a revolving line of credit and a term loan secured by real estate, machinery and equipment

Bank of America Securities and Credit Suisse

Bank

$200 Million

Energy

Vivint Solar, Lehi, UT

Revolving asset-based loan facility

Bank of America, JP Morgan Chase Bank, Wells Fargo Bank, and Regions Bank

Bank

$250 Million

Trucking

U.S. Xpress Enterprises, Inc., Chattanooga, TN

Senior credit facility

Barclays, NatWest, Gryphion Capital Investments

Bank and Non-bank

$112 Million

Entertainment

Cinesite, London, UK

Investment along with new banking facilities

BHI

Bank

$16.5 Million

Food and Beverage

White Toque, a leading importer and distributor of European specialty fine foods

Credit facility

Lender/Participant (Role)

Lender Type

Amount

Industry

Borrower

Structure

Bibby Financial Services (BFS) North America

Non-bank

$2 Million

Manufacturing

Manufacturer of single and multiple-part continuous computer paper and custom business forms

ABL Line

Bibby Financial Services (BFS) North America

Non-bank

$900,000

Manufacturing

Company that Funding manufactures navigation aids (lights, signs, buoys, etc.) and helideck products primarily for offshore oil

Bibby Financial Services (BFS) North America

Non-bank

$1.5 Million

Staffing

Mobile staffing agency

Funding

Bibby Financial Services (BFS) North America

Non-bank

$500,000

Printing

Printing equipment supplier

Funding

BNP Paribas

Bank

N/A

Energy

Brookfield Renewable Partners L.P.

Bilateral, incentive-linked corporate revolving credit facility

Bridge Bank

Bank

$4 Million

Technology

H Code Media, Inc.

Credit facility

Burke Porter Group

Non-bank

N/A

Technology

Grabit™ Inc., an intelligent automation systems provider

Financing

CIT Group Inc. - Maritime Finance

Bank

$56 Million

Shipping

Acquisition of two large commercial shipping tankers

The financing is part of a transaction involving Advantage Tankers and Fleetscape Capital. Both Advantage and Fleetscape are active in commercial shipping operations and financing, respectively, and are existing CIT clients. CIT served as lead arranger, agent and hedge provider on the financing, and provided capital markets and treasury management services.

CIT Group Inc. - Power and Energy

Bank

$200 Million

Energy

Clearway Energy Group, one of the largest developers and operators of clean energy generation facilities in the U.S.

Financing

CIT Group Inc. - Real Estate Finance

Bank

$87 Million

Real Estate

To finance construction of a new logistics warehouse and storage facility adjacent to John F. Kennedy International Airport in Queens, NY

Triangle Equities Development Company and its partners Township Capital Inc. and L&B Realty Advisors LLP are planning to develop a five-story, 300,000-square-foot Terminal Logistics Center, which will be among the first multi-story industrial buildings in the U.S.

7

THE SECURED LENDER MARCH 2020

DEPARTMENT INDUSTRY DEALS

8

THE SECURED LENDER MARCH 2020

Lender/Participant (Role)

Lender Type

Amount

Industry

Borrower

Structure

Citizens Commercial Banking

Bank

$42 Million

Food & Beverage

Stoli Group USA, New York, NY

Asset-based credit facility

CIT Northbridge Credit

Bank

$75 Million

Staffing

MVP Staffing, Deerfield, IL

Senior secured credit facility

Crescent Capital Group LP

Non-bank

N/A

Staffing

To support the acquisition of Highcare by Bencis, a specialized staffing and education company

Unitranche financing

CVC Credit Partners

Non-bank

N/A

Technology

Sabio, a leading customer experience solutions provider and managed services business, backed

by Horizon Capital

Unitranche loan and a dedicated acquisition facility

Deerfield Private Design Fund III, L.P. and Deerfield Private Design Fund IV, L.P.

Non-bank

$140 Million

Pharma

Melinta Therapeutics, Inc., New Haven, CT

Restructuring support agreement. Under the agreement, the supporting lenders would acquire the company as a going concern by exchanging $140 million of secured claims arising under its senior credit facility for 100 percent of the equity to be issued by the reorganized Company pursuant to a pre-negotiated Chapter 11 plan of reorganization.

Encina Business Credit, LLC

Non-bank

$15 Million

Mining

Coal mining company

Senior secured credit facility

European Equity Group

Non-bank

$2.5 Million

Cannabis

EuroLife Brands, Toronto, Canada

Credit facility

Finacity Corporation and Fifth Third Bank

Non-bank

$90 Million

Communications

Trade receivables securitization program for Black Box Corporation, a subsidiary of AGC Networks Singapore Pte Limited (“AGC”)

The securitization program comprises multiple tranches and allows up to $90 million in senior funding by Fifth Third Bank, National Association. In addition, Greensill has provided a $15 million subordinated facility to further enhance the company’s liquidity.

The securitization program achieved accounting derecognition per both IFRS and US GAAP.

Lender/Participant (Role)

Lender Type

Amount

Industry

Borrower

Structure

First Business Capital Corp.

Non-bank

$4.1 Million

Manufacturing

Commercial door manufacturer, Oregon

Revolving line of credit facility; equipment term loan; equipment CapX loan and real estate term loan

Gibraltar

Non-bank

$10 Million

Oil

Heating oil distributor, New York

Credit facility secured by accounts receivable

Goldman Sachs Merchant Banking Division

Bank

$16 Million

Technology

Beezy Inc., the Intelligent Workplace solution for Microsoft Office 365, SharePoint and Teams

Senior secured credit facility

Hercules Capital, Inc. (HTGC)

Non-bank

$100 Million

Healthcare

ChemoCentryx Inc., Mountain View, CA

Facility comprises three tranches over the next two years to be drawn at ChemoCentryx’s discretion

The Hedaya Capital Group, Inc.

Non-bank

$750,000

Home furnishings Candle manufacturer, Midwest

Factoring facility

Huntington Business Credit

Non-bank

$13.4 Million

Manufacturing

Dutchland Plastics, LLC, rotational molding plastic products manufacturer, Oostburg, WI

Credit facility

InterNex Capital

Non-bank

$2 Million

Food

Bread wholesale and distribution company, New York

Revolving line of credit

InterNex Capital

Non-bank

$750,000

Retail

Sporting goods manufacturing company, New York

Revolving line of credit

InterNex Capital

Non-bank

$500,000

Printing

Commercial printing company, Arizona

Revolving line of credit

InterNex Capital

Non-bank

$1.5 Million

Food

Grocery importing company, Illinois

Revolving line of credit

InterNex Capital

Non-bank

$500,000

Manufacturing

Environmental lab testing company, Texas

Revolving line of credit

InterNex Capital

Non-bank

$1.42 Million

Retail

Grocery distribution company, Illinois

Revolving line of credit

InterNex Capital

Non-bank

$1 Million

Transportation

Transportation company, Missouri

Revolving line of credit

InterNex Capital

Non-bank

$600,000

Marketing and Advertising

Marketing and advertising company, New Jersey

Revolving line of credit

InterNex Capital

Non-bank

$400,000

Transportation

Freight transportation company, Illinois

Revolving line of credit

Iron Horse Credit (IHC)

Non-bank

$12 Million

Agriculture

Plant nursery and distributor that primarily sells to home and hardware stores, big box retailers and grocery stores

Stand-alone inventory facility

9

THE SECURED LENDER MARCH 2020

DEPARTMENT INDUSTRY DEALS

Lender/Participant (Role)

Lender Type

Amount

Industry

Borrower

Structure

Israel Discount Bank of New York

Bank

N/A

Healthcare

STRATA Skin Sciences, Inc., Horsham Township, PA

Refinancing of its existing debt with a lower interest one-year cash-secured loan facility

J D Factors

Non-bank

$300,000

Manufacturing

Distribution company, Ontario

Factoring facility

J D Factors

Non-bank

$150,000

Toy

Toy manufacturing company, New Jersey

Factoring facility

J D Factors

Non-bank

$120,000

Transportation

Transportation company, Illinois

Factoring facility

J D Factors

Non-bank

$1 Million

Staffing

Staffing company, Quebec

Factoring facility

J D Factors

Non-bank

$50,000

Transportation

Transportation company, Missouri

Factoring facility

J D Factors

Non-bank

$100,000

Transportation

Transportation company, British Columbia

Factoring facility

J D Factors

Non-bank

$100,000

Transportation

Transportation company, Alberta

Factoring facility

J D Factors

Non-bank

$150,000

Transportation

Transportation company, Connecticut

Factoring facility

J D Factors

Non-bank

$350,000

Transportation

Transportation company, Wisconsin

Factoring facility

JPMorgan Chase

Bank

$200 Million

Oil

SEA-Vista I LLC, Ft. Lauderdale, FL an indirect wholly-owned subsidiary of SEACOR Holdings Inc.

Amended and restated credit agreement. J P Morgan Chase led a syndicate of lenders.

Agreement provides for a $100 million revolving credit facility and a $100 million term loan facility, both of which mature in December 2024.

JPMorgan Chase Bank, N.A., SunTrust Robinson Humphrey, and MUFG Union Bank, N.A

Bank

$1.315 Billion

Lender finance

TPG Specialty Lending, Inc.

Revolving credit facility

KeyBank National Association

Bank

$165 Million

EntertainmentGaming

Lucky Bucks, LLC, Seven Aces Limited 70% owned subsidiary

Credit facility. KeyBank National Association and KeyBanc Capital Markets Inc. are acting as a joint lead arranger and a joint bookrunner, and as administrative agent and collateral agent under the credit facility.

King Trade Capital

Non-bank

$2.4 Million

Contracting

Minority-owned government contractor, Florida

Purchase-order finance facility

10

THE SECURED LENDER MARCH 2020

Lender/Participant (Role)

Lender Type

Amount

Industry

Borrower

Structure

LBC Credit Partners

Non-bank

N/A

N/A

To support the acquisition of EDSCO Fasteners LLC by MiddleGround Capital

LBC served as agent and sole lead arranger for the senior secured credit facility.

LBC Small Cap

Non-bank

N/A

Technology

To support the acquisition of TalentSmart, Inc. by Seaside Equity Partners

Senior secured credit facilities and an equity co-investment

Live Oak Bank

Bank

$8 Million

Beverage

Eastside Distilling, Inc., a producer of high-quality, craft spirits, Portland, OR

Asset-based revolving credit facility

MidCap Business Credit

Non-bank

$2.75 Million

Food

New England Natural Bakers, Inc., a manufacturer of granolas and trail mixes, Greenfield, MA

Asset-based credit facility

Midcap Financial

Non-bank

$25 Million

Construction

Williams Industrial Services Group Inc., a construction and maintenance services company

Amended the terms of its revolving credit facility

Monroe Capital LLC

Non-bank

N/A

Technology

To support the merger of Anova and Silicon Controls, New Providence, NJ, an existing portfolio company of FFL Partners

Senior credit facility

Natixis

Bank

$30 Million

Minerals

Bluestone Resources Inc., Vancouver, Canada

Credit facility

NXT Capital

Non-bank

N/A

Automotive

To support Cortec Group’s recapitalization of Enthusiast Auto Holdings

Senior credit facility

Oxford Finance LLC

Non-bank

N/A

Technology

Impact Advisors

Senior credit facility

Oxford Finance LLC

Non-bank

$87.5 Million

Healthcare

Tarrytown Expocare, a closed-door long-term care pharmacy specializing in serving individuals with intellectual and developmental disabilities, Austin, TX

Term loan and revolving line of credit

Rosenthal & Rosenthal, Inc.

Non-bank

$1.8 Million

Retail

Family-owned andoperated outerwear company, Massachusetts

Purchase-order finance facility

Royal Bank of Canada (RBC)

Bank

$60 Million

Finance

CBAM Partners

Credit facility - RBC Capital Markets as lead arranger and sole bookrunner with lenders Royal Bank of Canada (RBC) as administrative agent and Barclays Bank PLC (Barclays) as syndication agent.

11

THE SECURED LENDER MARCH 2020

DEPARTMENT INDUSTRY DEALS Lender/Participant (Role)

Lender Type

Amount

Industry

Borrower

Structure

Royal Bank of Canada (RBC

Bank

$3.5 Million

Healthcare

Crescita Therapeutics Inc., a commercial dermatology company

Revolving demand operating credit facility

Santander Bank

Bank

$75 Million

Energy

Wind Turbine & Energy Cables Corporation (WTEC), Hasbrouck Heights, NJ

Asset-based revolving credit facility

SG Credit Partners and CapitalPlus Construction Services

Non-bank

$4 Million

ManufacturingIndustrial

Full-service mechanical contractor located in the Midwest

SG Credit Partners teamed up with CapitalPlus Construction Services to provide a $13.0 MM structured factoring facility.

Siena Lending Group LLC

Non-bank

$9 Million

Healthcare

Subsidiaries of Interactive Health, Inc., Human Touch LLC and Relax the Back Corporation

Revolving credit facility

Siena Lending Group LLC

Non-bank

$3 Million

Technology

Datamation Systems, Inc. (DSI), South Hackensack, NJ

Asset-based revolving credit facility

Simcah Management LLC

Non-bank

$30 Million

Fintech

Demica, one of the world’s largest working capital Fintechs

Series C financing

SMB Compass

Non-bank

$5 Million

Pharma

Specialty Pharmacy

Asset-based revolver

Solar Capital Partners, LLC

Non-bank

$45 Million

Technology

Alimera Sciences, Inc., a leader in the commercialization and development of prescription ophthalmology treatments

Refinanced its debt facility with a term loan -includes an initial tranche of $42.5 million used to repay the current facility, including principal, prepayment fees and accrued interest, and another $2.5 million tranche.

Stable Road Capital

Non-bank

$78 Million

Cannabis

MedMen Enterprises Inc., a leading cannabis retailer with operations across the U.S.

Senior secured term loan

Stenn International

Non-bank

N/A

Manufacturing

Trading company based in New York that sources photographic paper from Canada

Trade receivables finance program

Stonebriar Commercial Finance

Non-bank

$40 Million

Oil

Publicly traded oilfield services provider

Equipment lease facility

Synovus Bank

Bank

$45 Million

Steel

Steel mill, Midwest

Line of credit

12

THE SECURED LENDER MARCH 2020

Lender/Participant (Role)

Lender Type

Amount

Industry

Borrower

Structure

Synovus Bank

Bank

$25 Million

Factoring

Finance company specializing in factoring and small ABL lines of credit

Line of credit

Synovus Bank

Bank

$16 Million

Manufacturing

Distributor of bedding products, Southeast

Line of credit

Synovus Bank

Bank

$16 Million

Agriculture

Distributor of agricultural and irrigation supplies, Southeast

Line of credit

Synovus Bank

Bank

$10 Million

Agriculture

Distributor of agricultural products and chemicals, Southeast

Line of credit

Synovus Bank

Bank

$6 Million

Retail

Distributor of retail displays Line of credit and supplies, Southeast

Synovus Bank

Bank

$5 Million

Manufacturing

Distributor of tires and related products, Southeast

Line of credit

Texas Capital Bank

Bank

$40 Million

Real Estate

Terra Firma Capital Corporation

Letter of Credit providing for an increase to $50 million over time, subject to approval by Texas Capital.

Toronto-Dominion Bank, National Bank of Canada, Comerica Bank and J.P. Morgan

Bank

$120 Million

Defense

AirBoss of America Corp.

Amended senior secured credit facilities, consisting of a $60 million term loan, a $60 million revolving credit facility and an accordion feature of up to an additional $50 million of availability, upon the satisfaction of customary conditions for such features.

TPG Sixth Street Partners and other leading investors

Non-bank

$260 Million

Technology

AvidXchange, the leading provider of accounts payable (AP) and payment automation solutions for the middle market

Equity capital

Tradewind Finance

Non-bank

N/A

Electronics

Hong Kong-based electronics company whose buyer is located in the United States

Reverse factoring deal

Packaging manufacturer in the UAE that primarily sells to domestic big names

Non-recourse factoring facility

Tradewind Finance

Non-bank

$1 Million

Manufacturing

13

THE SECURED LENDER MARCH 2020

DEPARTMENT DEPARTMENT NETWORK INDUSTRY NOTES MOVES Tom Linebarger Joins 36th Street Capital as SVP, Business Development 36th Street Capital Partners LLC announced the appointment of Thomas Linebarger as senior vice president of business development, based in the Chicago metro area. He brings over 30 years of experience in structured finance, including most recently serving as senior vice president of new business development with Santander Bank.

Amerisource Hires Industry Veteran Doug Forbes to Aid Expansion of ABL Product Line Amerisource Business Capital is pleased to announce the addition of industry veteran Doug Forbes. Forbes will serve as a regional market manager out of Houston and will be responsible for new business development throughout Texas and Louisiana.

Ares Management Appoints Naseem Sagati Aghili as General Counsel; Michael Weiner Appointed as Head of Public Policy & Legislative Affairs Ares Management Corporation announced that Naseem Sagati Aghili has been appointed to the role of general counsel and secretary of Ares, effective January 1, 2020.

Aghili had served as co-general counsel of Ares since 2019 alongside Michael Weiner, who has been appointed as head of Public Policy & Legislative Affairs.

Jeff Griffor Joins Avidbank as Senior Vice President to Expand Northeast Presence Avidbank Holdings, Inc., a bank holding company and the parent company of Avidbank, announced that it is further expanding its reach in the Northeast, adding Jeff Griffor to its powerhouse Venture Lending team. Griffor joined the bank as senior vice president, Venture Lending, and will be based in Boston.

14

THE SECURED LENDER MARCH 2020

Axiom Bank N.A. Appoints Susan Maurer as SVP, Market Executive Axiom Bank N.A., a Maitland-based, leading community bank, named Susan Maurer as SVP, market executive. In this role, Maurer will develop relationships with Axiom’s commercial partners and create opportunities for growth in the Tampa Bay area.

Bank of America Business Capital Announces New Region Marketing Managers

Faegre Baker Daniels and Drinker Biddle & Reath to Combine, Creating a Top 50 Law Firm

Bank of America Business Capital is pleased to announce three new region marketing managers, Bobby Bans in the western region, Peter Langburd in the eastern region; and Steve Pomerantz in the central region. Each will oversee a team of business development officers, who provide asset-based lending solutions and banking products to large-and middlemarket companies, intermediaries and financial sponsors in the United States, Canada and across Europe.

Faegre Baker Daniels and Drinker Biddle & Reath announced the combination of their law firms, following an affirmative vote by the partnerships of both organizations. The combined firm began operations as Faegre Drinker Biddle & Reath (Faegre Drinker) on February 1, 2020.

Blank Rome Welcomes New Corporate Associate in Los Angeles Blank Rome LLP is pleased to announce that Jose A. Manalo Jr. has joined the firm’s Los Angeles office as an associate in the Corporate, M&A, and Securities group, which recently welcomed leading corporate and finance partner Craig R. Culbertson in the Chicago office.

BMO Harris Bank Announces Two New Vice Chair Roles BMO Harris Bank announced the hiring of two vice chairs, Eric Smith and Michael Morton. Morton and Smith will report directly to David Casper, U.S. CEO, BMO Financial Group, and will be actively focused on business development, working with customers and all our constituencies across BMO’s lines of business, while also enhancing BMO’s brand, market presence and customer experience.

CIT Names Business Development Officer in Commercial Services CIT Group Inc. announced that it has hired Calvin Navatto as a business development officer in its Commercial Services business. Navatto will be based in New York City and focus on business development across a wide range of business verticals supported

by Commercial Services, including apparel, footwear, housewares, consumer electronics, health and beauty aids and more.

Oz K. Lindley and Christopher Saldana Join First Business Capital Corp.

First Business Capital Corp. announced that Oz K. Lindley was hired as vice president – business development. Oz K. Lindley is responsible for originating asset-based lending opportunities in the southeast.

He has over 30 years of asset-based and commercial lending experience through his work at several national financing organizations.

First Business Capital Corp. also announced that Christopher Saldana was hired as vice president – business development. In his new role, Saldana is spearheading client acquisition efforts across the southwestern United States. He has 20 years of experience underwriting asset-based lending facilities for companies across the country, with expertise in private equity businesses, multi-generational family-owned businesses, and turnaround situations for companies experiencing challenges.

Gerber Finance Announces CEO Succession; Jennifer Palmer Appointed CEO of Gerber, Founder Gerald Joseph to become Chairman of the Board Gerber Finance, the leading finance partner for companies experiencing accelerated growth, announced the completion of their CEO succession strategy, naming longtime president Jennifer Palmer as CEO with founder Gerald Joseph transitioning to his new role as strategic advisor and Chairman of the Board.

Joseph founded Gerber Finance in 1995, emigrating from South Africa to the United States to build a finance company that would shift the paradigm from lender to partner by diving into each client’s business, developing trust, and working alongside their

management to think differently about how to finance growth. Palmer, who began her career as an attorney, started at Gerber in 2006 in the marketing department, quickly moving into the position of vice president of marketing, then senior vice president, thanks to her signature work ethic and appetite for learning. In 2013, she was appointed president and has since led the company through multiple years of growth as they have posted record wins.

Gibraltar Welcomes New SVP Randi M. Hershgordon Gibraltar Business Capital is pleased to welcome Randi M. Hershgordon as its newest senior vice president.

Hershgordon has more than 30 years of professional experience serving middlemarket companies. She brings to Gibraltar keen underwriting, credit analysis, and risk management skills, combined with a steadfast commitment to delivering personalized service that fosters strong working relationships.

Great Rock Capital Expands Management Team, Adds Chief Risk Officer Great Rock Capital, an asset-focused commercial finance company specializing in middle-market lending, announced Kathleen Auda has joined the firm as chief risk officer.

Auda will be responsible for overseeing both the underwriting and portfolio management teams and will report to Stuart Armstrong, CEO and CIO. Greenberg Traurig’s Miami Office Adds Attorneys in Litigation and Corporate Practices Global law firm Greenberg Traurig, P.A. has expanded its Miami office Litigation Practice and Corporate Practice with the addition of attorneys Humberto H. Ocariz and Jennifer D. Newton.

Leading M&A Lawyer Adel Aslani-Far Joins Greenberg Traurig in New York M. Adel Aslani-Far, widely recognized as one of the United States’ leading public company mergers and acquisitions attorneys, has joined the New York office of Greenberg

Traurig, LLP as a shareholder in the firm’s Global Corporate Practice. Aslani-Far joins from Latham & Watkins LLP, where he was a partner and former global co-chair of the firm’s Mergers & Acquisitions Practice.

Hahn & Hessen Law Firm Promotes New Partner in the Firm’s Business Finance Group The New York-based law firm of Hahn & Hessen LLP is pleased to announce that Ariele T. Strauss has become a partner in the firm, effective January 1, 2020. Strauss was formerly a senior associate with the Firm.

She concentrates her practice on secured commercial lending transactions.

Hilco Global Hires Accomplished Commercial Real Estate Attorney Anne Garr Anne Garr joins Hilco Global in the newly created position of general counsel for Hilco Redevelopment Partners (HRP). In this role, she will be responsible for managing the day-to-day legal needs and robust deal flow within the growing HRP organization as well as certain legal assignments on behalf of the holding company.

15

THE SECURED LENDER MARCH 2020

DEPARTMENT DEPARTMENT INDUSTRY NETWORK NOTES MOVES Hilco Valuation Services Europe Hires Real Estate Veteran Edward Jeffery

JPMorgan Targets Mid-size Companies in Japan Expansion

Hilco Valuation Services Europe and Real Estate Advisory Services UK and Europe are pleased to announce the appointment of Edward Jeffery as associate director of the Real Estate Advisory Services department.

Jeffery has over 20 years’ experience in valuation, restructuring and insolvency matters across a broad spectrum of real estate classes providing advice to lenders, restructuring and insolvency practitioners and corporates.

JPMorgan Chase & Co is launching a new effort to be the international bank for mid-sized companies in Japan, the latest Asia market where the U.S. bank seeks to challenge its international rivals.

J D Factors Promotes Tina Capobianco and Matthew Johnson J D Factors is proud to announce the promotions of Tina Capobianco to senior vice president and Matthew Johnson to vice president. Capobianco works out of the Mississauga, Ontario office, and has been with J D Factors for over 27 years and oversees all Canadian operations. Johnson is in the Palos Verdes, CA corporate office and manages all west coast operations in the United States. He has been with J D Factors for over 18 years.

The bank hired Shotaro Akita to lead the CCBSI group and the commercial bank in Japan. Akita joins JPMorgan from Mitsubishi UFJ Morgan Stanley Securities Co, where he worked for 12 years handling mergers and acquisitions and corporate financing.

Working with Akita are Toshiyuki Okuyama and Masato Sato, who will serve as senior bankers on the team, and Hideki Hiramatsu, who will handle treasury services.

KeyBank Appoints Matthew Hummel Commercial Banking Team Leader As part of its planned expansion of commercial banking talent and resources across the Northeast, KeyBank announced that Matthew Hummel has joined the

Experience a whole new

on life for your clients.

16

THE SECURED LENDER MARCH 2020

It’s difficult for financially challenged companies to preserve capital and manage cash flow to move ahead. Utica Leaseco can help improve your clients’ position with a creative funding approach that gets challenging deals done, fast. They’ll benefit with lease and loan solutions such as: • Capital leases and sale/leaseback transactions • Secured loans • Debtor-in-possession financing Contact us today!

248-710-2134 | info@uticaleaseco.com | www.uticaleaseco.com

Finance with collateral, not credit.

bank in the newly created position of Commercial Banking team leader, reporting to market president James Barger. In his new role, Hummel will lead and expand the team of commercial bankers serving middle-market clients in Connecticut and Western Massachusetts and help drive KeyBank’s commercial business growth throughout the market.

Moritt Hock & Hamroff Announces Partner & Counsel Promotions For 2020 The law firm of Moritt Hock & Hamroff with offices on Long Island and in Manhattan has announced that Theresa A. Driscoll, Rachel A. Fernbach and Dylan Saperman, formerly counsel of the firm, have been elevated to partner, and that Julia Gavrilov, Jacquelyn J. Moran and Kelly D. Schneid, formerly associates at the firm, have been each elevated to counsel, effective January 1, 2020.

Equipment Leasing & Finance Association Appoints Marc L. Hamroff To Its Legal Committee The Equipment Leasing & Finance Association (the ELFA) announced the appointment of Marc L. Hamroff, managing partner at Moritt Hock & Hamroff LLP (MH&H), to the ELFA’s Legal Committee. Hamroff’s appointment was effective January 1, and he will serve a three-year term on the committee.

Hamroff has been a member of the ELFA for more than 30 years and is a frequent featured speaker and presenter at ELFA conferences and conventions.

MUFG Grows Leveraged Finance Business with Hire of Timothy Fischer as Head of U.S. Sales Mitsubishi UFJ Financial Group (MUFG) has hired Timothy Fischer as managing director, head of U.S. Leveraged Finance Sales. Based in New York, Fischer began on January 21 and reports to John Karabelas, MUFG’s head of Institutional Investor Sales in the Americas. In this newly created role, Fischer will be responsible for leading distribution of leveraged loans and high-yield bonds in partnership with the bank’s Capital Markets team.

North Mill Capital (NMC) Hires David McFarland as Senior Vice President in its Minneapolis, MN Office

Pinnacle Financial Partners Announces De Novo Start in Atlanta With Rob Garcia as Market President

North Mill Capital (NMC) hired David McFarland as senior vice president in its Minneapolis, MN office. McFarland will be responsible for handling a portfolio of asset-based and factoring clients along with working closely with NMC’s business development team in underwriting new business opportunities. His involvement will be on a national scope.

Pinnacle Financial Partners is entering the Atlanta market with a veteran bank leader at the helm of its de novo startup. Cobb County stalwart Rob Garcia joined Pinnacle as the firm’s Atlanta president. Garcia comes to Pinnacle from Synovus, where he was a division CEO for its largest area: metro Atlanta and northwest Georgia.

North Mill Capital (NMC) Acquires Sage Business Credit Portfolio North Mill Capital LLC (NMC) has acquired the portfolio of Sage Business Credit, a Minneapolis, MN-based company. The portfolio will be serviced by NMC’s factoring operation in Minneapolis.

“This acquisition expands our factoring business in the Midwest,” said Kristin Erickson, a senior vice president at NMC and the originator of the opportunity.

Otterbourg Promotes Ikhwan Rafeek to Member of the Firm Otterbourg P.C. announced that Ikhwan A. Rafeek has been promoted to member of the firm in the Banking and Finance Group, effective January 1. Rafeek represents institutional lenders, banks, commercial finance companies, and factors in connection with the documentation of domestic and international secured lending arrangements, including asset-based, factoring, term loan, healthcare, real estate, middle-market, leveraged, and first and second lien loan transactions.

Pinnacle Bankshares Corporation and Virginia Bank Bankshares, Inc. Announce Strategic Merger Pinnacle Bankshares Corporation and Virginia Bank Bankshares, Inc. jointly announced the signing of a definitive agreement to combine in a strategic merger. The combined company would have approximately $703 million in total assets, $624 million in total deposits, and $537 million in loans based upon reported amounts as of September 30, 2019.

Sidley Adds M&A and Private Equity Partner Parthiv Rishi in Singapore Sidley Austin LLP is pleased to announce that Parthiv Rishi has joined the firm in Singapore as a partner in its global M&A and Private Equity practice. Rishi was previously a partner at Linklaters LLP, where he led the firm’s financial sponsor and private equity practice in Southeast Asia.

Prime Trust, a technology-driven financial institution providing infrastructure solutions for the digital economy. Prime Trust’s Prime Settlement Network, one of the most advanced multi-asset counterparty settlement platforms in the world, will leverage Signature Bank’s Signet™ platform, a revolutionary blockchain-based digital payments platform, to provide real-time payment and settlement services to Signature Bank and Prime Trust’s institutional clients.

Luis Massiani Promoted to President of Sterling National Bank Sterling Bancorp announced the promotion of Luis Massiani to president of Sterling National Bank. In addition to maintaining his role as chief financial officer of Sterling Bancorp and Sterling National Bank, Massiani will lead all finance, bank operations and consumer banking functions.

Signature Bank and Prime Trust to Align Their Respective Technologies to Better Serve the Institutional Blockchain Industry Signature Bank forged a relationship with

TRANSACTION CONFIRMED. CONFIDENCE SECURED. Michael A. Boeheim, CIA, CFE Director, Practice Leader ABL Services

David L. Mancuso, CPA Director, Practice Leader Transaction Advisory Services

Industry experience, proactive scheduling and rapid deployment that top lenders and private equity groups demand.

ASSET BASED LENDING Pre-loan surveys & rotational inspections Fraud investigations Portfolio reviews Mark Stebbins, Director Freed Maxick CPAs

TRANSACTION ADVISORY SERVICES Due diligence Quality of earnings Structuring Paul Ciminelli, President & CEO Ciminelli Real Estate Corporation

7 1 6 .8 4 7 .2 6 5 1 | F REEDMAXICK .COM

17

THE SECURED LENDER MARCH 2020

FEATURE STORY

Innovation is Key to Survival for Factors

BY JENNIFER LICKTEIG

18

THE SECURED LENDER MARCH 2020

The president of TBS Factoring discusses the importance of innovation in factoring and how she applies the lessons of the past to her current role.

M

y grandfather Lee invented the plastic charge card.

It’s a fun story to tell and an easy win for every “two truths and a lie” icebreaker I have participated in. And while there is no lasting monetary value to me from his idea, for most of my JENNIFER LICKTEIG adult life it has provided a President thematic undercurrent to

TBS Factoring, LLC many professional endeavors and set an important tone to decisions I’ve made about our business and why we do the things we do.

My grandfather and his brother still hold the original patents for the plastic marvel they innovated in the ‘50s when my uncle was tired of carrying a checkbook on visits to vendors of their Southern California plastic injection molding company. Some of you will remember cumbersome three-ringed leather-bound “corporate” checkbooks, where each check was also handwritten again on a stub that stayed with the book. Not only was it a lot of work, it was heavy. Those old checkbooks could weigh a good 6 lbs. when fully loaded. It was this problem that led to the innovation and created the opportunity – how to keep from lugging the thing around, but still get the job done.

At the same time in New York, a guy named Frank was figuring out how to solve the problem of carrying around checks and wads of cash to pay for dinner. He successfully convinced a few establishments to take his Diners Club membership, a paper version of the same idea my grandfather envisioned. From these two men, literally on opposites sides of the country at about the same time, came the idea of charging a purchase, using a card. Many other paper versions were introduced, but it was my grandfather who patented the proverbial plastic raised-numbers with-your-name-on-it version that many of us still have in our wallets today.

It’s this essential element of business – solving a problem with innovation -- that we have seen time and again in successful business models. The very definition of work even describes “activity involving mental or physical effort to achieve a result.” Sounds like problem solving 101, otherwise why work if you were already satisfied with the outcome?

The trouble is, when things are going well and cash flows are positive, businesses get comfortable and lulled into an “everything is okay” mode. But we all know from history that everything is not okay and the signs are telling.

Business stories and case histories abound of companies that forgot they were supposed to be solving problems. Take Sears & Roebuck as an example. Launched in the pre-dawn of the turn of the century in 1893 in response to a growing problem – how to get household goods into the hands of all the Americans who were booming and busting as the territories expanded. A mail order catalog was the perfect answer and Sears rapidly became the preeminent solution and literally, a household name. With Henry Ford came mobility and, as populations started driving and getting out into the world, retail stores were added in 1925. This worked well for over 50 years until retail eventually won out over mail order and the catalog was finally discontinued. By the late 1970s Sears was the largest retailer in North America.

But there were a new set of problems (recession, energy crisis, inflation and interest rates that drove consumer spending to alltime lows) that needed a solution and a guy named Sam had the answer – low-priced goods from new international manufacturers.

And in a quarter of the time it took Sears to reach its peak and literally from the back of a pick-up truck start, Walmart (along with technology threats and an ironic twist – Jeff’s online “mail order” Amazonian business model) would come to completely disrupt the retail institution (and others along the way), leading to bankruptcy and closures that are still unfolding. The issue?

Lack of problem solving or, in modern terms, a failure to innovate, left the business susceptible to disruption.

Both stories beg the question - what problems are we facing today in our business that we are not solving? What are we ignoring that disruptors are seeing opportunity in? In these answers we find the new opportunities for tomorrow. Much like traditional banking is taking dramatic leaps to new platforms and virtual environments, so must the business of factoring contemplate new business models that are designed to ensure relevancy into the future. A few to think about would include: Machine learning and AI: Attend any finance or bankingspecific conference or forum and this is a top discussion point with many sessions dedicated to the idea that we can use algorithms and sophisticated data sets to make decisions. Yet within the factoring community there remains a fairly strong premise that Machine Learning and AI is “a long way out” or “not applicable” or will never “be as customer-friendly” as our traditional factoring models because our industry is too complex to navigate an AI strategy. However, if history is our guide, the familiar sentiment from the late 1990s (there could be no way that something called online shopping would ever replace brickand-mortar businesses) teaches us to be progressive and openminded, even when it might look impossible.

Faster transactions: For the first time in U.S. history, we have more generations in the workplace than ever, bringing very different expectations for each about how to navigate basic business services. However, one thing is for certain; speed is where all functionality is going. Generations X, Y and Z will never know what it means to wait around for butter to melt or anxiously waiting all week for the next episode of your favorite TV show. As

19

THE SECURED LENDER MARCH 2020

FEATURE STORY our world population ages and the younger generations become the new customers, the inherent expectation of speed is built in to the expectation. This means whatever the speed is that your business is currently operating its core function at, already isn’t fast enough to satisfy your customers of tomorrow.

Following the money: When I was seven, the same grandfather mentioned above gathered me into his lap at a family dinner and took a dollar bill from his wallet, handed it to me with a pen and instructed me to write my name on it. I remember everything about that moment as I took the pen and wrote out “Jenny Parker,” in my newly learned and very curly cursive. He folded it and ceremoniously placed it back into his billfold. “Tomorrow I am going to spend that dollar,” he said brightly.

“And then, I want you to take a moment to look at every dollar you ever see from now on – and if you are watching carefully, your money might just come back to you.”

the way through to buying the popcorn at the movies with the kids. These “all in one” business models will encompass creative tech solutions, capture data that can be used to streamline processes and help to create the stickiness that keeps clients coming back. Staying relevant into the future is the key to longterm success, and we’ve seen that strategy unfold on both sides of the equation.

History is a great teacher, but only when we use the lessons to make improvements.

Developing the next generation of financial tools and business processes to quicken core business offerings and better support the ways our clients earn and then spend, will create the ultimate customer experience and ensure relevancy long into the future.

Since 2016 Jennifer Lickteig has held concurrent titles of president of TBS Factoring, LLC and CEO of TBS Capital Funding. During her tenure with TBS, the company has achieved more than $3 billion in sales (more than the combined total of its previous 47year history) as it provides factoring, receivables financing and alternative lending platforms from its Oklahoma City headquarters to small businesses and truck drivers across the United States and Canada.

Faster Transactions: For the first time in U.S. history, we have more generations in the workplace than ever, bringing very different expectations for each about how to navigate basic business services. However, one thing is for certain; speed is where all functionality is going. Generations X, Y and Z will never know what it means to wait around for butter to melt or anxiously waiting all week for the next episode of your favorite TV show.

20

THE SECURED LENDER MARCH 2020

I remember asking him why I couldn’t be the one to spend it and his answer was short and simple:” Because you didn’t earn it.” Then, using going to a movie as an example, he explained how money travels from one person to the next, and how its real value was in the goods and services we received when it leaves us and likewise in the value of what we were giving up when it came back to us. A complex financial model churned down to a lifelong lesson a small child could remember. My grandfather died that same year, but his lessons live on as I now navigate a business that is focused on financial opportunity and alternative lending.

Which brings me to my final concept – following the money.

There are many ways to cement relationships with our clients, and in the alternative lending and factoring spaces there are robust and creative mechanisms that provide real value to clients. But even here, we have work to do. Companies of the future will offer solutions that integrate all facets of a client’s need for financing, from origination and business operations all

Jennifer came to Oklahoma City in 2006 from Southern California while running a large construction company.

She is a four-time CEO and her predecessor companies have earned prestigious awards including both the Oklahoma SBA and National SBA Small Business of the Year, as well as Lickteig being named The Department of Homeland Security National Small Business Person of the Year.

SFNet Compendium of Secured Finance Law NETWORKING INDUSTRY KNOWLEDGE EDUCATION ADVOCACY

The Secured Finance Network Compendium of Secured Finance Law is a time-saving digital tool that enables you to research important legal issues related to secured transactions in any U.S. state within seconds.

In 2019, 14 of the most active states were updated and additional states are being updated in 2020.

Covered topics include: n n n n n n n

Lending Licenses Wage Liens Environmental Liens Processors’ and Repairmen’s Liens Corporate Guarantees Liens Against Personal Property Landlords’ Liens

n n n n n n

Usury Insolvency Laws UCC Prejudgment Remedies Bulk Sales Law Uniform Electronic Transmission Act

Member one-year Subscription: $395 Non-Member one-year Subscription: $595 Visit www.SFNet.com to subscribe.

An association of professionals putting capital to work

370 Seventh Avenue, Suite 1801 New York, NY 10001 212.792.9390

FEATURE STORY

Better Together: Achieving Success By Lenders Working Together

BY DARREN PALESTINE AND MARK POLINSKY

22

THE SECURED LENDER MARCH 2020

Forrest Gump said, “Life is like a box of chocolates; you never know what you are going to get.” Partnering with other lenders can be similar. You don’t know what you are going to get if you jump into partnerships without doing your due diligence and establishing alliances with the best partners.

Takeaways

P

artnerships in lending present a tricky landscape to navigate and we have all had good and bad experiences. There are many things to consider when choosing a partner.

And partnerships can come in different formats, but on a basic level you have your lender and capital provider relationship. As you go deeper into synergistic relationships and different lending products, you have intercreditor partnerships, tri-party partnerships including the client, and other strategic alliances.

DARREN PALESTINE Managing Partner Commercial Finance Partners

However, a few recent cases show that blind reliance on “incorporation by reference” can occasionally have disastrous (and unintended) consequences for secured lenders. These cases do not state that MARK POLINSKY “incorporation by reference” Principal can never be done. Still, the Gateway Trade Funding scrutiny that the courts in these cases applied before narrowly approving, or denying, attempts to validate key deal terms that were allegedly “incorporated by reference” may lead many lenders to question whether the space saving from incorporation by reference is worth the potential risk of having the propriety of “incorporation by reference” challenged at some point in the future in a “hindsight” review.

The major factors to consider in a lending partnership or cooperative arrangement are strategic alignment, ability to work together, and culture. Without all three elements present, the alliance can create a negative environment.

For strategic alignment, the focus is simple: Do the parties have a common goal in assisting a prospect or current client and do they have the same focus on how the partnership will benefit the client (and the respective firms)?

1

Lending partnerships can be tricky, so choose carefully.

2

Major factors to consider in a lending partnership or cooperative arrangement: strategic alignment, ability to work together and culture.

3

Most lenders will face a situation in which a client has additional financing needs or a new prospect requires a first level of financing that would then make them a candidate for your services.

4

Always keep the clients’ needs in mind when choosing a partner.

5

When a partnership is entered into with careful consideration, a lending partnership can result in success for all parties involved.

Partnerships to provide additional value to clients that might not be covered under our own lending criteria: If you have been in this industry long enough, you have inevitably encountered a time when you have a client with additional financing needs that you can’t accommodate or a new prospect who could use a first level of financing that would then make them a candidate for your services. These situations often include inventory financing, purchase order financing, term loans, equipment financing, and other non-AR funding.

When you find yourself in this position, there are a variety of factors you should consider, ensuring you are selecting the best fit for you and the client. The main factors are: n What does the client need and who is best to serve the need? n If the company is not a current client, which firm would be strategically aligned to help you win the opportunity? n What is the method of partnership? Will an intercreditor be necessary? Will a subordination be required? Is there participation? All of these require legal documentation that can be agreed on by both partners. This could halt the process so it is important to know if your legal documents align. n Will partnering with another firm create the best overall fit for the client and what is the goal of the partnership for each party, including the client?

In this case, knowing your partner’s capabilities becomes a critical item when considering whom to bring in for an opportunity. Due to this, it can often be helpful to focus on a select group of regular partners amongst both the direct lending and consulting verticals.

Partnerships to help others provide additional services to their prospective or current clients For lenders who offer a niche product, such as purchase order financing, it is easy to get swept up in the moment when you

23

THE SECURED LENDER MARCH 2020

FEATURE STORY get a call from another lender who has a prospect to discuss with you. However, it is important to ensure you are working with a quality partner because you don’t want harm your own brand or partner on a bad deal.

When you find yourself in this position, there are a variety of factors you should consider, ensuring you are selecting the best fit for your business. The main factors are: n Does the company and the individual you are working with have high character? Do you feel you can trust them? Have you worked with the partner before and have you and your clients had a good experience? n Do they have the ability to work out difficult situations?

You find out how good your partner is in times of difficulty. Are they only out for their interests or will they try to protect all partners? n Flexibility – are they structured in a way that will allow them to be flexible if necessary? n Do they have the financial wherewithal? n Do the have good processes and organization? Is the partner easy to deal with and do they have the systems to ensure the process goes smoothly?

Case study – An example of when the partnership works Recently Commercial Finance Partners turned to Gateway Trade Financing to help with additional financing for a prospective client. Commercial Finance Partners received a referral for a rapidly growing snowboard company looking to capitalize on orders from large distributors and seeking a financing solution that would not only help them build product, but also finance the resulting receivables due from their customers. While Commercial Finance Partners offers accounts receivable funding to our clients; the idea of providing any type of upfront payment to the supplier is out of scope for a normal transaction. While debating on how to fill the need, the idea of purchase order financing was presented to the borrower. Utilizing some of the methodology described, Commercial Finance Partners selected Gateway Trade Funding to review the purchase order financing. Having worked with Gateway as a referral partner before, we felt comfortable with the organizational culture and ability to deliver to our client.

While we hadn’t worked out an intercreditor since the other transactions were agency based, we felt confident we could strategically align for the common goal.

24

THE SECURED LENDER MARCH 2020

Once we made initial progress with the client, we introduced Gateway and immediately the synergies were present. There was a smooth transition which included sharing of information with the client’s permission and we were able to get a mutual comfort with the client while, just as importantly, the client gained comfort with our collective approach. Both Gateway and Commercial Finance Partners then began intercreditor discussions. The initial review of the documents presented

challenges; however, a conference call cleared up the items that needed to be addressed and the document was accepted by all parties, including the client.

The client was on a time crunch to start filling the seasonal orders and both finance companies stepped up to deliver what was conceptualized in the early discussions. Gateway Trade Funding, leveraging the back office and customer credit approvals for Commercial Finance Partners, opened up a letter of credit to the supplier, which allowed the foreign supplier to produce the product with a guarantee of payment. The product was produced, shipped, and then started being delivered to the various distributors and customers. As invoices were generated, Commercial Finance Partners provided the funding on the accounts receivable directly to Gateway per the tri-party agreement with the client. Gateway was able to close out the letters of credit through the funding from Commercial Finance Partners and the client was able to monetize the large bulk sales of products without having to obtain outside cash or utilize important resources that could be better devoted to marketing and further product development.

Working with another lender is often times difficult if a partnership is not selected correctly. You can find yourself at the mercy of another firm’s responsiveness and more critical issues such as underwriting quality, commitment to the transaction, and interaction with the client can lead to disastrous results if not vetted up front. When a partnership includes a common goal, a like-minded culture, an ability to share information as well as a level of operational and organizational trust, the end results are success for all parties, including the client.

Darren Palestine is the managing partner of Commercial Finance Partners, a Florida-based direct lender and loan consulting firm. Commercial Finance Partners provides funding solutions for small-to-middle market companies seeking non-traditional sources of capital and working capital. Through direct lending and partner programs, Commercial Finance Partners is the one-stop shop for any non-bank financing need.

Mark Polinsky is a principal at Gateway Trade Funding, where he is responsible for helping companies grow their business using purchase order financing. Mark offers his clients an unparalleled expertise having walked in their shoes for 25+ years starting, growing, and selling several businesses.

BUSINESS DEVELOPMENT >> FACTORING >> PRIVATE EQUITY >>

BUSINESS DEVELOPMENT

CAREER INSIGHTS

Get Out Your Umbrella

The Definitive Guide to Making It Rain and Growing Your Business

BY JOE ACCARDI With few exceptions, every organization is interested in growth, and it usually falls on the new business teams - the “rainmakers” - to make it happen. Yet I have found over my 30-year career in new business development for middle-market banking institutions, that relatively few organizations have the leadership, complete with the necessary vision and discipline, to do all that it really takes to be a well-oiled growth machine.

There are various levels of “rain” that are available to those seeking growth. I’ve labeled them as follows: cloudy skies with occasional mist; scattered showers; steady rain; and raining cats and dogs. Let’s look at each of these levels and see what is required as progress is made toward substantial growth. (Note: the strategy discussed below is most applicable for institutions focused on middle-market transactions.)

Cloudy skies with occasional mist Perhaps the most basic thing that can be done is simple targetmarket identification. This means knowing the location, industry type, and company size of the business to which you intend to market your products and services. It also means being clear on the types of products that your targeted customers will be seeking.

Another basic is effective, disciplined networking by competent, experienced business development professionals, with people who themselves work in and around your target market. This could include CPAs, investment bankers, private equity investors, attorneys, other lenders, and consultants. I have seen rainmaking over the years by people who understand the need to network with others who are in a position to help you (and just as importantly, whom you can help…more on that a little later) with your target market. The best of these rainmakers are primarily focused externally on key relationships and spend as little time as possible on internal (e.g. operational) matters.

Keys: 1) clear target market 2) effective networking within market

Scattered showers For some heavier, but not necessarily steadier, precipitation, rainmakers must know their deals and be in a position to advocate

>> TRENDS AND OUTLOOK >> MERGERS & ACQUISITION >>

for them. Identifying and addressing the main transaction issues (e.g. credit, collateral, industry) allows one to make the case for a transaction and to assertively support it. Generally speaking, putting a deal solely in the hands of non-incentivized underwriting professionals will limit the chances of getting a deal over the goal line.

It is also important, at this level, that there is a consistent message about who you are JOE ACCARDI and what you’re looking for in

Head of New Business the marketplace. It is critical that the messages conveyed Development People’s United Bank by all team members (including their “elevator speech”) is in alignment with your brochures, pitch books, social media posts, emails, and website.

Keys: 1) have champion for deals 2) consistent identity messages in market

Steady rain Let’s say that you have a well-defined target market; that externally focused new business professionals are networking effectively; that team members are well-prepared to stand up for deals; and that all marketing messages are consistent. Great, you’re off to a nice start toward serious precipitation. At this point, you’ve tackled the easy stuff. If you’re looking for steady rain, it’s time to raise the bar substantially. However, I have seen many times when, at this next level, organizations experience drought.

If you’re looking for steady rain, it’s really important to look at the whole team and not just the marketing and new business development team members. If there are other team members in “growth prevention” mode, most notably those with approval authority, then growth will be difficult. Some of the most important contributors to growth are actually internal team members who understand that there are very few plain vanilla, in-the-box transactions available in the market. Serious growth is achievable only if there is a realistic approach to growth and a collective effort to figure out sensible, reasonably prudent, non-traditional solutions. Note: creativity and a strong credit culture are not mutually exclusive! Experience, imagination, and great skill are required in structuring loans safely and creatively. Some credit and underwriting professionals have such ability, and some don’t; those who do are of great value to the organization and its growth efforts.

A key activity of the most successful new business professionals is what I call “investing in relationships.” If within your network of prospects and referral sources, you are simply telling people what it is you want, your success will be quite limited. Investing in

25

THE SECURED LENDER MARCH 2020

Key Takeaway A holistic review of the business is often necessary: every team member has a role in rainmaking and the growth of a business, and all resources need to be sensibly aligned with growth goals. If your team is open and honest about confronting all these issues above, your arm will tire from constantly holding up the umbrella.

relationships means reaching out to people not when you need or want something from them, but when you want to help them. This investment in relationships by helping others can take many forms; if you’re genuinely interested in, and tuned in, to others, it’s easy to see the possibilities.

Tune in, engage, connect, and invest.

Years ago, I had a colleague who reported that a top prospect just renewed their credit facility for three years with a competitor and, given that, he could now put away the file for two and a half years. He was prepared to shut the two-and-a-half-year window he had to invest in that relationship before the opportunity arose again to pitch for the business. If the mindset of new business development team members is about only short-term loan transaction opportunities, and not investing in relationships over the long term, you’ll not be maximizing your chances for steady rain.

26

THE SECURED LENDER MARCH 2020

this stage is the need for a serious competitive advantage. To get into this stage, leadership must take a hard look at its competitive standing and confront it in a brutally honest way.

There are only three competitive advantages you can have: price (interest rates and fees), product (structure of loans), and CX (customer experience). Competing on price is not a sustainable business model, and very few organizations want to go that route. Structuring loans aggressively can be tricky, especially if the perception is that, in doing so, you’ll be taking on undue risk.

So many organizations resort to the claim that as a competitive advantage, their people make them “relationship/customeroriented.” A great majority of the time, this is hogwash; it simply means that they’re interested in cross-selling as many of their products as possible in order to have a “deeper relationship.”

In a true customer-oriented culture, every process needs to be examined from the customer’s perspective. Organizations would do well to have, at least functionally if not by title, a Chief Customer Officer, who represents customers’ interests in a review of how loans are approved and monitored. There certainly are exceptions, but organizations generally are more internally and processfocused rather than externally- and customer-focused with what they’re doing. This does not help them if they are trying to deliver an extraordinary customer experience and offer it as a competitive advantage.

In addition to having a customer-oriented culture as described above, a highly collaborative culture in general is critical. This means that team members look to give credit rather than take credit, feel comfortable challenging the status quo, and be open-minded to different ways to “skin the cat.”

R.L. Stevenson: “Don’t judge each day by the harvest you reap, but by the seeds you plant.”

Keys: 1) understand market and prudently step out of comfort zone 2) invest in relationships

Raining cats and dogs At this stage of precipitation, an umbrella will not suffice; you’ll need a full raincoat and waterproof boots. Absolutely critical for reaching

In addition to having a customer-oriented culture as described above, a highly collaborative culture in general is critical. This means that team members look to give credit rather than take credit, feel comfortable challenging the status quo, and be open-minded to different ways to “skin the cat.”

Keys: 1) serious competitive advantage 2) extraordinary collaboration.

Joe Accardi is the Head of New Business Development for the ABL Division of People’s United Bank. Feedback welcomed: joseph.accardi@peoples.com

TSL INTERVIEW

Interview with Robert P. Grbic, White Oak Commercial Finance

BY MICHELE OCEJO

Robert Grbic is the president & CEO of White Oak Commercial Finance.

Grbic has more than 30 years of commercial lending experience.

He has been with the company and its predecessor since 2005, previously serving as senior executive vice president and chief credit officer where he was involved in creating a hands-on, best-practices credit culture, as well as helping the Company expand its client portfolio. Before that, Grbic was managing director at Morris Anderson & Associates Ltd., a turnaround-consulting firm. He also co-founded MetSource Capital, LLC, a restructuring and corporate finance firm, working primarily with small- and medium-sized companies. In addition, Grbic has also served at GMAC Commercial Credit, LLC, BNY Financial Corp and Bankers Trust. Grbic is a member of the New York Society of Financial Analysts and the Association for Investment Management and Research. He has served as an instructor for the Finance, Tax and Law Department at the NYU School of Continuing Education. Grbic holds master and bachelor degrees in business administration from Pace University.

Please tell us a bit about your career trajectory.

I’ve worked in the commercial finance space for over 30 years with experience on both sides of the deal sheet, which provides me with a well-rounded outlook on the industry and the intricacies within. Prior to White Oak Commercial Finance (f/k/a Capital Business Credit), I worked for MorrisAnderson and ran my own consulting firm focused on turnaround and restructuring deals, which has proved invaluable in dealing with more complex deals.

Please tell us a bit about White Oak...typical deal size, industries you focus on, etc.

White Oak Commercial Finance provides credit facilities to middlemarket companies between $5-50 million.

As a full-service ABL shop, we offer asset-based lending, fullservice 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.

As an affiliate of White Oak Global Advisors, we have the capacity to pursue larger, more sophisticated deals for our clients and referral sources.

Can you tell us what your main goals for White Oak are in 2020? Any specific ROBERT P. GRBIC goals for the factoring

President & CEO area?

White Oak Commercial

After a strong 2019, we want Finance to maintain our momentum in the marketplace, increase our brand presence in the industry, and deepen our client and partner relationships by delivering results and nurturing long-term engagements with our growing suite of financing solutions. Within our factoring division, we’d like to add non-apparel and clients from emerging industries to the portfolio.

White Oak has been expanding over the past year and recently purchased a portfolio of ABL loans from Veritas Financial Partners. What was the strategy behind this and how does it fit into your overall goals?

We like to look for acquisitions that fit our portfolio objectives and focus on firms that have shown proven success in markets or industries we see opportunities in. The Veritas purchase helps us to increase our national presence and diversify our portfolio.

What do you think are the most pressing challenges facing factors in 2020 and how can these be overcome?

It’s no secret that the traditional retail space is experiencing challenges.

The resulting loss of buyers continues to create market concentrations on the debtor side of factoring. This can be addressed with a deep understanding of a client’s product and value to their customers, clear and frequent communications, and a creative, solutions-based approach to deals that can reliably be fulfilled by White Oak Commercial Finance’s industry experts and expansive product suite.

Michele Ocejo is editor-in-chief of The Secured Lender and communications director for SFNet.

27

THE SECURED LENDER MARCH 2020

TSL INTERVIEW

Interview with Ryan Jaskiewicz of 12five Capital, LLC

BY MICHELE OCEJO

Ryan Jaskiewicz is CEO of 12five Capital, LLC. He started 12five Capital in early 2006 at the age of 23. Jaskiewicz attended University of Illinois at Chicago where he received a bachelor of arts in political science.

Jaskiewicz is married, with three children and lives in La Grange, IL. When he’s not trying to help entrepreneurs get access to the capital they need to thrive, you can probably find him running the Salt Creek trail, as running marathons are his other passion. Mindfulness and meditation are also vital parts of his life and a huge part of his success.

Here he discusses what sets his company apart and the challenges facing the factoring industry.

The 12Five Website talks about being “happily different.” Can you tell us what that means and how it fits with your overall mission?

28

THE SECURED LENDER MARCH 2020

I love this question because “happily different” is one of my favorite core values. “Happily different” means that we choose to be very different from a lot of our colleagues in this industry. That’s not a judgment on everyone else, rather us deciding what was important to us and embracing it. This is easy to do when things are going well, but can be difficult to stay true to when things are tough. You begin to ask yourself, “Should I do it like everyone else?” Truly, it came from when I started the company and I was trying to find a differentiator from the thousands of other finance companies out there.

My cost of capital at that time was quite high, which meant I couldn’t compete on price. This led me to search for what our edge would be. Having grown up in commercial finance, I had a very positive view of its impact on businesses and the lives of the people within those businesses. Interestingly though, as I went to build my network of bankers, CPAs and such, I received grimaces almost every time I introduced myself and my factoring company. It was those responses

that guided me toward our differentiator. Instead of being a lender of last resort, we decided to be a lender of first resort.

Instead of prospecting “bleeding” companies, we went in search of young, growing companies. From there, this idea of being happily different continued as a thread through every decision regarding our business. We embraced doing things differently and RYAN JASKIEWICZ unconventionally, it became CEO our DNA. This feeds our 12five Capital, LLC overall mission of cultivating the passion of our people.

The “people” in this case start first and foremost with the people on our team. A happy team leads to happy clients.

It sounds simple, but it was something that seemed foreign when we decided on being “happily different”.

What are the most pressing challenges facing the factoring industry in 2020 and what can factors do to overcome them? Also, what opportunities do you see on the horizon?

This is always a pressing question and one I ask myself from time to time. That said, I think it is far more productive to look inward at our companies. Sure, we all know about the challenges from new entrants into our markets, retaining great talent in a job seeker’s job market and the ever-present challenge of a client base that can feel like it is churning faster than a tidal wave. While these things are important, I like asking the smaller questions. I read a book one time that talked about “aiming high, but starting at home.” I love this because rather than relenting to some intangible, scary storm on the horizon, we can choose to care about that which is in our control. I love asking questions like “Whom can I develop on my team to reach their highest potential?”, “How can I foster a deeper relationship with XYZ client?”, “How can I be a better leader for my people?”, “Are there small efficiencies that I am missing?” All of these are things I control and can make decisions on that impact my day-to-day.

I also find the question of opportunities a far more enjoyable a question than the former. I think there is real opportunity to be a leader in lending into markets like cannabis and the like. Sure, we aren’t there yet, but as an industry, we should be striving to be at the ready for the moment that we can feel comfortable to legally lend into that market. And on that note, we should be consistently asking ourselves whether

technology or industry changes allow us to lend into markets that historically have been no-nos. This is all a function of not staying stagnant, rather being open to learning, listening and new ways to do things.

Finally, I also see a huge opportunity in the development of the young generation of the workforce. They are finally here, much to the chagrin of many in this industry. If we can flip our mindset, I think there is real value to be had in the development of the brains and creativity of this group of people.

Are there specific industries 12Five concentrates on? What are some of the challenges you see your clients facing lately?

Historically, we have been generalists and industry-agnostic.

We do try to create lending products for certain industry verticals from time to time. We take on these projects as a leadership team starting with research of the why, then attempt launching them with the help of the rest of the team.

This saves bandwidth for our team, which allows us to be extra nimble. Sometimes they work and sometimes they don’t. It’s important not to “fall in love with your darlings” and be willing to kill them early. For instance, this year we are launching a dedicated construction factoring program based on a year-long project from 2019.

In terms of the challenges that our clients are facing, I think the biggest challenge continues to be the easy money that is merchant cash advance companies. We have tried to take ownership of that challenge though, by creating education programs for our clients relating to that product, as well as having a systematized approach to staying in front of our clients and ensuring that they have all the working capital they need. At the end, we think that if we can be proactive in a preventative way, we can save the patient before they get sick.

You started this company ten years ago. What are the most significant changes you have seen during this time?

The most significant change that I have seen is the loss of hair on my head over the last ten years; never thought it would go that fast. Kidding aside, one of the most positive changes I have seen is an increase in our industry’s adoption of technology, which only makes transacting among partners easier. I’ve also seen a bit of an uptick in companies that seem to be putting culture first, which I think is so important for our industry body as a whole.

Your management team recently completed a course focused on mindfulness and mental strength, which also discussed the important of taking care of yourself physically. We know

you are a serious runner. How does all of this contribute to the success of 12Five?

Yes! We just did Compete To Create, which was a fantastic course on what it takes to be a high performer. For a long time, with special thanks to a mentor of mine that you may know well, I have taken the nurturing of my mind, body and spirit very seriously. As a leadership team, we did the course together and it was fun to see how everyone interacted, as well as the different takeaways we each had.

You can really only train your mind body, and your craft. We all seem to do the craft part really well, but it really is a threelegged stool. I can only speak for myself, but when my mind or body is out of alignment, I make less-than-ideal decisions and am not a ton of fun to be around. Ask my wife. I think it’s so important to move around and sweat every day, whatever that means to you. For me, it’s a lot of running, but for you it could be anything. I ran my first marathon in 2007, which coincided around the same time as me starting the company.

Truly, having a daily focus of running has helped me to guide the growth of this company, as it created a rhythm that steeled my focus in so many different arenas. While moving my body is important, working on my mind is just as crucial. For me, having a routine of mindfulness has calmed my mind and allows me to be a better father, husband and leader to the people on my team. The hardest part for me to learn has been the embracing of true rest and recovery. For many years, I was able to outwork anyone and I learned very quickly that it was never sustainable. Taking my rest so seriously, especially sleep, has allowed me to truly be the best version of myself and extract a level of performance from my mind and body that I never really understood. Being able to share these tools with my team and actively encourage them to nurture these parts of themselves is easily the largest part of 12five’s success.

Michele Ocejo is editor-in-chief of The Secured Lender and communications director for SFNet.

29

THE SECURED LENDER MARCH 2020

BUSINESS DEVELOPMENT >> FACTORING >> PRIVATE EQUITY >>

INTERNATIONAL FACTORING

CROSS-BORDER INSIGHTS

The ABCs of International Factoring

Summar Financial’s president and founder offers a primer for young professionals on international factoring, including non-recourse international factoring which protects the importer from the risks of non-payment, collection, and barriers that may exist in different countries.

BY ALVARO OTOYA International factoring or export factoring is a financing tool whereby a company that is selling internationally through open-credit payment terms, monetizes its accounts receivable via a financial institution or factor. The factor becomes the new owner of the invoices and is responsible for the management of collections and claims in cases of default.

Typically, the financing party offers programs that are full-recourse or non-recourse and additional services that range from credit insurance coverage, document collection, and paperwork administration, to management of full accounts receivable and collections.

A company interested in obtaining financing over its international accounts receivable must carefully consider the different programs offered in the industry to determine which best suits its goals of liquidity and balance-sheet effect. Furthermore, the company may also want to evaluate its credit risk policies and procedures to determine if a non-recourse or a full-recourse program is better suited for its needs.

An exporter with a strong credit department might prefer a full-recourse program while one that has no credit department could benefit greatly from a non-recourse program.

30

THE SECURED LENDER MARCH 2020

In a full-recourse international factoring program, the exporter will be responsible for the nonpayment of the factored receivables at any time. Typically, the factor waits to get paid by the customer on the invoice negotiated, but does not perform active collections or accounts receivable management to collect on said invoice, knowing that the company (its client) carries the payment responsibility. If the factor does not get paid when due, it will turn to the company to receive the payment of the outstanding debt.

On a full-recourse factoring relationship, the company will be financially evaluated by the factor or financing institution to determine the repayment risk or capability. If a company wants to enter a fullrecourse factoring program with a pre-determined amount worth of invoices, the factor will have to “extend” a credit limit of up to the same amount to the company. That way it guarantees that the company is capable to fulfill its obligation to pay back if full-recourse is required.

>> TRENDS AND OUTLOOK >> MERGERS & ACQUISITION >>

On full-recourse factoring the company is using a credit limit with the factor, even though it is offering the invoice(s) as collateral to the financing transaction.

Furthermore, the company should reflect a liability on its balance sheet to the factor for money received through the factoring transaction. A fullrecourse factoring program is like a traditional financing relationship in that the company’s credit is evaluated to determine its factoring facility.

ALVARO OTOYA

President & Founder A non-recourse factoring

Summar Financial, LLC program differs from a fullrecourse program, among other aspects, on the fact that the credit responsibility of the international buyer lies on the factor, and not on the exporter, and financial analysis is conducted on the exporter’s clients, not the exporter itself. Summar Financial specializes in nonrecourse factoring on all its international factoring programs.

On a non-recourse program, the exporter will not be responsible for the nonpayment of the factored receivables if it is due to credit issues.

In other words, the company gets financing from the factor, but if its customers or account debtors abroad fail to pay, the factor assumes this risk of nonpayment. Typically, on a non-recourse program, the factor performs active accounts management, follow-up, and controls to make sure payments are done when terms are due. On this type of program, the factor is fully involved in the performance of the invoices because it does not have a recourse right to the exporter if the invoice is not paid.

A factor or financial institution offering a non-recourse factoring program analyzes the exporter’s client’s finances, instead of the company’s, to determine the payment risk or capacity. Then, it defines a credit limit to factor receivables payable by that client. International credit insurance is a fundamental part of this type of program, as credit insurance companies specialize in credit underwriting for buyers around the world. Non-recourse factors, and financial institutions can partner with them to reduce or swap credit risk.

A non-recourse factoring program whereby an exporter will negotiate or sell a determined amount worth of invoices to the factor, does not require the company to be creditworthy of the same amount, or any amount, as the risk of non-payment falls on the client abroad.

The non-recourse factoring facility depends on the aggregated amount of credit lines available to the exporter’s customers and it’s not directly related to the exporter’s financial strength. Therefore, younger companies and scale-ups with shorter operation history can qualify to such programs and receive the huge benefit of partnering with a non-recourse factor. We give them immediate liquidity of their accounts receivable and take care of their aging as if it were our own. This allows them to grow as much as their sales grow since, in addition to getting their bills paid in advance, exporters can disregard the risk of default and the possible contingencies that could occur concerning the credits

assigned to the factor, which can become much more complicated in the field of international trade.

n Immediate financing through partial advance payment of the volume of turnover assigned and pending collection

Lastly, non-recourse factoring allows the exporter to improve its balance sheet because it credits the accounts receivable and increases cash while keeping liabilities the same, so its financial ratios improve.

This is convenient and opposite to how a credit line or full-recourse factoring facility should be recorded on the exporter’s balance sheet.

n Saving of the fixed costs of the exporter associated with the charges to its clients abroad n Reduced fixed assets in customer accounts, due to the early collection of deferred transactions that, when assigned, disappear as a creditor account in the exporter’s balance sheet n Reduces the administrative and managerial burden

Different types of international factoring In international factoring, the financial entity can carry out the entire operation by itself, in the same way as with domestic factoring. In this scenario, the entity partners with credit insurance companies to assume the commercial risk, and manages the collection without intermediaries, operating directly in the debtor’s country. This makes the service much easier for its customers. However, it requires solidity, resources and understanding of both the market where the client operates and the market where its debtors are located.

That is why it can also happen that the factor operates through another financial entity in the debtor’s country. In this case, the financial entity assumes both the classification of the debtor risk and the coverage of the commercial risk, and the factor assumes the financing of the exporter. These two entities act through mutual collaboration agreements, generally within large international associations known as Factoring Chains, which regulate the rules of operation and arbitration in case of conflicts between them. The purpose of Factoring Chains is to facilitate and promote international factoring and to group and connect financial organizations dedicated to international factoring around the world.

International factoring in practice Once the financial due diligence on the exporter – or its clients abroad – has been carried out, the factoring facility has been defined and the contract is signed, the exporter communicates the assignment of its invoices to its clients. As factoring is a payment mechanism widely used in international trade, clients (debtors) do not usually make repairs to this transfer of invoices but, on the contrary, the exporting company that uses this means of funding gives its clients a strong and professional image.

Advantages of factoring for the exporter With international factoring, in addition to covering the risk of delay in the payment, or the risk of final non-payment due to bankruptcy of the buyer, the client does not have to worry about the collection and barriers that may exist in the country of destination of the goods or services, such as language, legislation, and socio-economic customs.

It also offers the possibility that the companies provide their customers with the benefits of buying in open credit terms, and drives away the fear of outstanding debts, or the destabilizing cash flow.

The main advantages of export factoring are, then: n Eliminates the insolvency risk of foreign buyers n It allows for increasing exports

How to increase exports through factoring Factoring can help companies increase their exports by offering a payment method that can be more competitive. This is a tool that allows companies that grow rapidly to adapt to market times, so doing business is easier.

In addition to this, the exporter can reduce its dependency with each of the agents that make up his supply chain and, at the same time, exponentially increase its leverage by having a constant capital flow.

Opportunities for trade between the United States and Latin America At Summar Financial we know the languages, legislations and socioeconomic customs to specialize in offering international factoring for medium-sized companies and scale-ups of Central and South America that export their products and services to the United States.

Global trade dynamics represent a great opportunity for trade between the countries of the continent, as Central and South American exporters can position their exportable offer with added value, and American importers can access a growing variety of products and services that have gained relevance in the United States with trade partners in their same time zone.

The Latin companies that invest in optimizing their operations, in being more productive and being faster to meet the demands and conditions of countries like the United States, are the ones that can take the current fast-paced market changes and turn them into opportunities, instead of observing them as threats.

Summary International factoring is a financing tool whereby a company that is selling internationally through open credit payment terms, monetizes its accounts receivable via a factor. The factor can offer full-recourse or non-recourse programs, and can carry out the entire operation by itself, or operate through another financial entity in the debtor’s country.

With non-recourse international factoring the exporter does not have to worry about non-payment, collection, and barriers that may exist in different countries.

Alvaro Otoya is president and founder of Summar Financial, LLC, a lending provider company in the factoring industry. He majored in economics and is well-versed in credit analysis, financial management, factor accounting and capital raising.

31

THE SECURED LENDER MARCH 2020

BUSINESS DEVELOPMENT >> FACTORING >> PRIVATE EQUITY >>

PRIVATE EQUITY

INVESTMENT INSIGHTS

Maximizing Private Equity Investments Through SaleLeaseback Transactions

BY JACOB SOYKA

After private equity firms take control of a target company through a leveraged buyout, a firm can optimize the balance sheet of the acquired company through a sale-leaseback transaction on their owned real estate holdings. A sale-leaseback can enhance the acquired company’s financial statements by either reducing a portion of existing debt on the balance sheet, increasing equity value or providing unrestricted short-term dry powder to fund additional acquisitions in the future.

32

THE SECURED LENDER MARCH 2020

The leveraged buyout has become essential in the private equity industry as it allows investment groups to acquire target companies using a capital structure of both equity and debt in various forms (ABL, multiple of EBITDA, bank, nonbank, etc.). LBO transactions have continued to increase in frequency as private equity assets under management expand due to more firms entering the market and existing firms raising additional capital. Total assets under management within global PE LBO funds reached roughly $1.78 trillion in 2018, up nearly 11% from 2017.1 Today’s buyout market place is becoming more competitive as the total number of LBO transactions have decreased by 13% from 2017, but reached a transaction value of $582 billion, up 10% from 2017. 2 This competitive LBO market is forcing PE firms to pay a higher purchase multiple, increasing the need to be creative on every investment. To stay competitive, PE firms must maximize the debt paydown and growth of their investments as the multiple expansion becomes harder to 1

McKinsey & Company, Global Private Markets Review 2019, 15.

2

Bain & Company, Global Private Equity Report 2019, 4-10.

>> TRENDS AND OUTLOOK >> MERGERS & ACQUISITION >>

obtain. After PE funds take control of the business, a firm can optimize the balance sheet through a sale-leaseback (“SLB”) transaction on their owned real estate holdings, which can de-risk the investment by freeing up additional cash. An SLB can enhance the acquired company’s financial statements by either reducing a portion of existing debt on the balance sheet, increasing JACOB SOYKA equity value or providing Analyst unrestricted short-term dry Hilco Real Estate powder to fund additional acquisitions in the future.

Seller benefits of a sale-leaseback When buying and selling real estate, an SLB is a powerful transactional tool, providing benefits to both buyer and seller. As the seller in an SLB, ownership of the property is transferred to the new buyer at a negotiated purchase price commonly based on a capitalization rate. At closing, the seller immediately becomes the tenant of the property and now pays rent to the buyer. The seller of the SLB experiences a variety of benefits, including: n Maximizes asset value

The real estate is sold as an investment rather than an extra property on the balance sheet, thus garnering a likely meaningfully higher sale price.

The buyer becomes the lessor upon closing of the purchase contract and will receive a stream of payments from the tenant.

n Flexible lease terms

The seller, who becomes the lessee, has more leverage to negotiate the duration of the lease term, rent payments, and other key terms.

n Retains operational control

The standard lease within an SLB is typically structured as net of all operating expenses (“NNN”), requiring the tenant to pay for real estate taxes, insurance, and repairs and maintenance. The landlord does not intervene, allowing the tenant to use and occupy the property similarly to before the SLB.

n Reduces income tax obligation

Rental payments are now part of operating expenses, which reduces Net Income of the business and creates a tax benefit.

Takeaways 1

Private Equity firms have become more competitive than ever as deal volume has decreased and transaction values have risen in the last three years.

2

The leveraged buyout market is forcing private equity funds to pay higher purchase multiples, further increasing their need for creativity on each deal.

3

As a method of creativity within an acquisition, a sale-leaseback transition on the owned real estate within the target company can provide multiple benefits to the private equity fund depending on their future goals.

4 5

By selling the owned real estate and immediately becoming the tenant of the property, the private equity fund is able to monetize not only on the value of the underlying asset value of the building, but also the value of the cashflows the property will generate over the duration of the lease.

The private equity firm can then use the sale-leaseback proceeds to reduce existing debt levels and increase equity value. The sale-leaseback proceeds can also provide unrestricted short-term dry powder to fund additional acquisitions in the future.

Sale-leaseback effect on investment’s financial statements Upon completing the LBO, the balance sheet of the acquired company is usually fully levered and the acquiring firm has yet to implement improved operating procedures. The investment team at the PE fund understands the risks involved with the increased debt and will endeavor to improve cash flow to pay down debt more quickly through a variety of tactics. However, if the acquired company has owned real estate on its balance sheet, an SLB of the owned property can provide immediate benefits to the acquired company’s financial position. A high-level summary of a recent SLB transaction where Hilco represented the seller demonstrates the potential benefits an SLB has on the LBO of an industrial company with its portfolio of owned properties. With the proceeds from the SLB, the Operating Company Financials ($ in thousands) EBITDA:

$24,000

EBITDA Multiple:

6.0x

Enterprise Value:

$144,000

Net Debt:

$91,000

Net Debt of EBITDA Multiple:

3.8x

Sale-Leaseback

3

Annual Rent (Approximate NOI):

$2,477

Capitalization Rate:

8.0%

Sale-Leaseback Proceeds:

$30,963

McKinsey & Company, Global Private Markets Review 2019, 23.

Sale-Leaseback Proceeds Invested Back Into Acquired Company

EBITDA

Pre SaleLeaseback

Adjustments

Post SaleLeaseback

$24,000

(2,477)

$21,523

EBITDA Multiple

6.0x

6.0x

Enterprise Value

$144,000

$129,138

Less: Net Debt

$91,000

Market Value of Equity

$53,000

(30,963)

$60,038 $69,101

Key Takeaways Market Value of Equity

$53,000

$69,101

Debt/EBITDA Multiple

3.8x

2.8x

Debt/Enterprise Value

63%

46%

acquired company experiences a significant positive impact on the equity value as well as Debt/EBITDA multiple. ABL facilities typically offer lenders greater protections in a liquidation scenario. In addition, ABL facilities often are a critical lynchpin of debtor-in-possession financing facilities (“DIP facilities”) when borrowers are looking to effectuate comprehensive restructurings through chapter 11. As a result, lenders should position themselves to understand and use the chapter 11 process to ensure their debt claims retain, and even gain, protections in bankruptcy.

The rent payment of $2.47M does impact EBITDA as rent is now being expensed out of gross profits; however, the debt multiple is reduced by one point and the value of equity has increased by 30%.

Raising unrestricted capital from a sale-leaseback As the LBO market grows in competitiveness and purchase multiples are further increasing, PE funds are using more and more equity within the capital structures of their acquisitions.

Although larger amounts of equity are needed for buyouts, the LBO market is not slowing, nor is there reason to believe the market will cool off, given the increasing amount of dry powder.

Liquid reserves are reaching record highs and have grown 14% since 2012 despite the slowdown in overall PE fundraising.3 Due to a combination of growth in the number of PE funds in the market and investors moving their money out of the private markets into public markets, PE funds are raising fewer dollars.

A PE fund can achieve increased dry powder by transacting on an SLB with owned real estate of a portfolio company. Looking back at the transaction example above, although EBITDA is reduced by the amount of the rent payment, monetizing the real estate assets provides short-term liquidity in exchange

33

THE SECURED LENDER MARCH 2020

PRIVATE EQUITY

for monthly rent payments. If the annual rent payments were forecasted in a discount model, the rent payments would have a breakeven point of roughly 26 years. To obtain the lump sum from the sale proceeds in the short term, paying rent for operating space is justified for the next 26 years. Given the average PE investment horizon of five years, an exit strategy will be in effect well before the breakeven point. The breakeven point will far exceed the investment horizon in most cases, further demonstrating the enhancements a SLB will have within LBOs.

Protective tools for lenders in chapter 11

Jacob Soyka is an analyst with Hilco Real Estate. He joined Hilco Real Estate’s asset sales team in early 2018 and actively manages the sale of commercial real estate assets. In addition to coordinating deal flow progression, Soyka is actively involved in the research and analysis of real estate markets and comparable properties, ensuring the Hilco team generates and maintains current, comprehensive and accurate valuation data for real estate assets being marketed on behalf of its clients. He can be reached at jsoyka@ hilcoglobal.com.

If an ABL borrower does become a debtor in a chapter 11 case, lenders have a number of options to gain additional protection during the pendency of the bankruptcy case.

In the first instance, the needs of the ABL lenders often are addressed very early in a chapter 11 case. The borrower’s need to use existing cash collateral and obtain working capital to finance, at least in part, the chapter 11 case with postpetition inventory and receivables often results in an ABL facility being refinanced or protected and continued. The following is a discussion of a variety of protections ABL lenders might seek when a borrower wishes to continue an ABL facility during a chapter 11 case.

34

THE SECURED LENDER MARCH 2020

As the LBO market grows in competitiveness and purchase multiples are further increasing, PE funds are using more and more equity within the capital structures of their acquisitions. Although larger amounts of equity are needed for buyouts, the LBO market is not slowing, nor is there reason to believe the market will cool off, given the increasing amount of dry powder.

Maximizing value in the sale-leaseback An SLB can provide significant benefits to the PE fund post LBO by enhancing the financial statements or providing unrestricted capital. Regardless of the benefits, a SLB provides to PE funds the most important part of this transaction --- the ability to generate the highest and best value for the owned real estate assets included within the sale.

As an analyst on the Hilco Real Estate asset sales team, Jacob manages the sale of commercial real estate, leading the disposition of over $100 million in real estate transactions throughout the U.S. Jacob specializes in M&A advisory services, optimizing real estate holdings pre and postacquisition through sale-leasebacks of core properties and disposition of nonessential owned or leased properties.

Jacob graduated from Lake Forest College with a bachelor degree in finance and holds an Illinois real estate brokers license.

BUSINESS DEVELOPMENT >> FACTORING >> PRIVATE EQUITY >>

TRENDS & OUTLOOK

ECONOMIC TRENDS

SOFR and Loans: What’s on Deck for 2020

BY MEREDITH COFFEY

As of January 1, 2020, there are 730 days until the likely end of LIBOR. Will the syndicated loan market be ready? Below Meredith Coffey of LSTA discusses what the loan market and LSTA have been doing to prepare for LIBOR cessation – and what’s on deck for 2020.

Background: Goodbye, LIBOR; hello, SOFR Our survey generated an overwhelming response on how small businesses are feeling in the current economic climate.

A significant majority (65 percent) of executives from smallto-medium enterprises shared their belief that the economy is doing well, with 43 percent expecting it to improve even further next year and 33 percent expecting it to stay at the same level of prosperity. While those numbers are based on perception, they are backed up by hard data; 49 percent of companies surveyed report sales growth over the past year.

Further, 59 percent predict growth over the next year. This forecast includes 66 percent of respondents expecting some of this growth to come from new customers and 60 percent expecting increased demand from existing customers.

But challenges remain...

The London Interbank Offered Rate is the unsecured rate at which banks (theoretically) lend to each other for various terms (one-day, one-month, three-months and so on). However, there actually is not much interbank lending and, therefore, LIBOR as a reference rate sits on a flimsy foundation. Moreover, a number of banks that submit LIBOR quotes would prefer not to do so because i) banks were sued for misquoting LIBOR in the past and ii) determining an accurate rate without actual transactions is difficult. But because LIBOR is the reference rate for some $300 trillion of contracts worldwide and its quick demise would be disruptive, the primary regulator (the U.K.’s Financial Conduct Authority) has gotten banks to agree to submit LIBOR quotes through the end of 2021. After that, banks are likely to stop submitting, LIBOR is likely to end and, therefore, most responsible parties are working to transition away from LIBOR.

>> TRENDS AND OUTLOOK >> MERGERS & ACQUISITION >>

The main U.S. dollar replacement for LIBOR is the Secured Overnight Financing Rate (“SOFR”), a combination of three overnight Treasury Repo rates. SOFR is large and robust; there typically is more than $1 trillion of daily repo trades underpinning the rate.

In contrast, LIBOR typically has less than $1 billion of daily transactions. But, while SOFR is big and robust, it is very different than LIBOR. First, it is an overnight rate, MEREDITH COFFEY not a term rate like LIBOR. However, it is possible to develop a “tenored” LSTA SOFR by either compounding the daily rate or building a forward-looking term SOFR curve from SOFR futures trading. Second, SOFR is a secured risk-free rate, while LIBOR is unsecured and contains an element of bank credit risk. For this reason, the SOFR and LIBOR rates should be different.

For instruments that transition (or “fallback”) from LIBOR to SOFR upon LIBOR cessation, there will need to be a “spread adjustment” to make the rates more comparable.

Transition: Where we’ve been There are two critical components in transitioning from LIBOR to SOFR. First, existing instruments – derivatives, loans, bonds, etc. – that are based on LIBOR will have to switch to SOFR after LIBOR ceases. Second, new instruments will have to reference SOFR instead of LIBOR. The efforts taken by market participants and the Alternative Reference Rates Committee (“ARRC”), the body tasked with transitioning from LIBOR, have focused on achieving these two tasks. So, what have we been doing?

As the nearby timeline demonstrates, much has been done – and much is on deck for this year. SOFR was launched in April 2018; within three months, entities such as Fannie Mae were issuing SOFR-based bonds. By fourth quarter 2018, ISDA announced that, under their protocol, derivatives that needed to transition from LIBOR after its demise would use SOFR “Compounded in Arrears”, a compounding methodology that creates a “tenored” SOFR rate. By April 2019, the Federal Reserve Bank of New York was publishing indicative 1-, 3-, and 6-month SOFR Compound Averages and Forward Looking Term Rates. To facilitate cash products “falling back” from LIBOR to a replacement rate (most likely SOFR), in second quarter 2019 the ARRC published recommended fallback language for syndicated loans, bilateral loans, floating rate notes and securitizations. In the loan space specifically, the ARRC Business Loans Working Group, which is co-chaired

35

THE SECURED LENDER MARCH 2020

TRENDS & OUTLOOK

Key LIBOR Transition Dates April 2018: SOFR launched

by the LSTA, created operations and vendor subgroups to “operationalize” the switch from LIBOR to SOFR. By third quarter 2019, clarity on transition from an accounting perspective (from FASB) and tax perspective (from Treasury) had emerged. By fourth quarter 2019, several bilateral SOFR loans were originated and a $10 billion syndicated SOFRlinked loan for Shell was announced. 2019 was, in fact, a big year for marquee SOFR events.

4Q18: ISDA identifies SOFR Compounded in Arrears for Fallbacks

Transition: Where we’re going in 2020

4Q2019: $10B SOFR-linked loan syndicated

The pace will only accelerate in the coming year as the timeline to LIBOR cessation shortens. In the loan space, two critical efforts need to be nailed down. First, we would be well advised to shift from “amendment” fallbacks to “hardwired” fallbacks. Second, the market needs to start originating SOFR loans (or, at least, loans that embed an option to switch to SOFR). Fortunately, work is underway to get us there.

4Q19-1Q20: Operationalization clarity from loan vendors

Fallbacks

3Q20: SONIA cash products to stop LIBOR issuances

Credit agreements generally do have fallbacks describing how a loan would transition to a replacement rate when LIBOR ceases. There are two approaches. The “hardwired” approach generally states that, when LIBOR ceases, the contract falls back to SOFR plus a spread adjustment. However, most loans are relying on the “amendment” approach, which generally i) has the agent and borrower identify a replacement rate and possible spread adjustment and ii) permits required lenders a five-day negative consent period to object to the proposal.

If required lenders reject the proposed rate, the loan will fall back to a Prime-based rate while the agent and borrower submit a new proposed rate. While the amendment approach maximizes flexibility for the borrower to pick a replacement rate (and for lenders to reject it), it has a number of shortcomings, including executability, economic uncertainty and potential for market disruption.

First, executability: There are over 10,000 U.S. dollar LIBOR loans outstanding, according to Bloomberg. While a number of loans may be amended in short order after LIBOR ceases, thousands more may not get their amendments done quickly, forcing borrowers to pay a Prime-based rate for a period of time.

36

THE SECURED LENDER MARCH 2020

Second, economic uncertainty: Because we know SOFR rates (and will know spread adjustments soon), the economics of a hardwired fallback will be known and markets can adjust.

In contrast, the outcome of every fallback amendment is unknown and therefore lenders and borrowers will not be able to forecast their interest rates. Importantly, there could be gamesmanship. Powerful companies may force lenders to accept uneconomic terms, while underperforming companies will be at the mercy of their lender group and may have to pay up to have their fallback amendment approved.

Third, potential market disruption: Because loans with hardwired fallbacks will have modelable cash flows, the

April 2019: Indicative SOFR Compound Averages and Term Rates published 2Q19: ARRC Loan, FRN and Securitization Fallbacks published June 2019: ARRC Business Loans Operations Workgroup launched 2-3Q2019: Accounting and tax clarity emerge

1Q20: ISDA launches LIBOR Fallback Indicative Spread Adjustments 1Q20: LSTA releases SOFR “Concept Credit Agreement” 1H20: ARRC launches SOFR Index and official Compound Averages 2H20 : Hardwired fallbacks emerge in loans/accelerate in CLOs

secondary market will be able to value these loans efficiently.

The cash flows of loans with amendment fallbacks will be less certain, potentially leading to uncertainty discounts in the secondary.

Clearly, there are market-wide benefits for switching to hardwired fallbacks. But how do we get there? Three preconditions may be necessary: i) the economics of hardwired fallbacks should become clearer, ii) SOFR should be operationalizable, and iii) the potential benefits of certainty outweigh the benefits of flexibility. We think these will emerge in 2020.

First, economics: We now have 20-plus months of SOFR rates to observe, the FRBNY has been publishing indicative compound SOFR and forward-looking term SOFR for nearly a year and, as the timeline demonstrates, the FRBNY plans to publish official compound SOFR rates in first half 2020. In addition, ISDA will publish their indicative spread adjustments for LIBOR fallbacks in first quarter 2020. This means that, for derivatives at least, we will soon know both SOFR and the spread adjustment for contracts that fallback from LIBOR. The economics will be clear.

Second, operationalization: The LSTA and ARRC BLWG Operations Subgroup have been running whiteboarding sessions for months to determine exactly how SOFR loans can be operationalized. At least one vendor has announced it has an operational solution and we believe others will follow quickly. Moreover, the UK has announced there should be no more Sterling LIBOR issuances – including loans! – after third quarter 2020 (see timeline). Loans use the same systems for Sterling and Dollar LIBOR, and SONIA (the Sterling replacement rate) and SOFR would operationalize similarly.

Thus, the earlier deadline for SONIA will accelerate the

operational feasibility date for SOFR.

Onward

Third, certainty vs. flexibility: While borrowers have preferred the flexibility of the amendment approach, we believe that the market has increasingly accepted that SOFR is the fallback rate for syndicated loans. As borrowers become familiar with SOFR – and internalize the downside risks in the amendment approach – we believe that the hardwired approach will become more palatable.

While we have our work cut out for us in 2020, we also have a roadmap to get it done. We know what we need to do (develop economic certainty, documents and systems) and we have a plan to do so. In turn, what might have seemed an insurmountable task 18 months ago appears to be more doable now. That is, of course, if everyone works together to get us to the obvious solution.

For these reasons, it is realistic to think that hardwired loan fallbacks will emerge later in 2020.

New loans Of course, even a hardwired fallback is an imperfect solution.

It would be far preferable to have new loans originated on SOFR or with a SOFR option so that no fallback is necessary.

The FRN market has acknowledged this and more than $300 billion of SOFR FRNs have been issued.

For banks to start originating SOFR loans en masse, there are several preconditions.

First, there must be loan systems that can operationalize SOFR. Second, there must be SOFR loan documentation. And, third, there must be borrower (and lender) borrower appetite for SOFR loans. Happily, all three of these prerequisites are emerging. As mentioned above, banks and vendors are assiduously working to operationalize SONIA and SOFR. The fact that Sterling LIBOR loans should not be originated after third quarter 2020 means that we will have systems that can handle SOFR this year. To address documentation needs, the LSTA is developing SOFR Concept Credit Agreements, which can be used as a basis for market discussions or templates for new documentation. Finally, Shell Corporation already indicated an appetite for a ($10 billion) SOFR-linked loan. We believe that as more companies understand the economics of SOFR and internalize the risk of overstaying on LIBOR, they will begin to ask for SOFR options in their loans.

Meredith Coffey is executive vice president of the Loan Syndications and Trading Association (LSTA), and runs Research Department and co-heads the LSTA’s regulatory and CLO efforts, which help facilitate continued availability of credit and the efficiency of the loan market. In addition, Ms. Coffey heads efforts to analyze current and anticipated loan market developments, helping the LSTA build strategy and improve market efficiency, and providing commentary through weekly newsletters, periodic conferences and webcasts. Ms. Coffey and the analyst team also engage market participants, press and regulators on issues and developments in the global loan market.

Ms. Coffey has a B.A. in economics from Swarthmore College and a graduate degree in economics from New York University.

We now have 20-plus months of SOFR rates to observe, the FRBNY has been publishing indicative compound SOFR and forward-looking term SOFR for nearly a year and, as the timeline demonstrates, the FRBNY plans to publish official compound SOFR rates in first half 2020.

The LSTA is a member of the ARRC itself, co-chairs the ARRC Business Loans Working Group and its Operations Subgroup. To educate our members, the LSTA hosts weekly LIBOR Live Q&A calls. For more information on LIBOR, please write to us at liborinformation@lsta.org.

37

THE SECURED LENDER MARCH 2020

BUSINESS DEVELOPMENT >> FACTORING >> PRIVATE EQUITY >>

M&A

ACQUISITION INSIGHTS

Sellers Beware!

Three Crucial Terms To Review In Your Buyer’s Acquisition Financing

BY EMILY STORK During the frenzied period before execution of an acquisition agreement, a seller will be overwhelmed with pressing tasks, so the terms of the buyer’s financing may not be front of mind. There is good reason for this since it is not the seller’s debt and many of the financing terms will apply only after the acquisition closes.

But there are some terms of a buyer’s financing that it is crucial for sellers to review in order to ensure that closing of the deal is as smooth as possible. This article will discuss in-depth three of those crucial terms.

Conditionality Sellers should align the conditions to the financing with the conditions to the acquisition as closely as possible. This limits the chances of a situation in which the parties have completed all conditions to close the acquisition, but the transaction cannot close because the buyer’s financing is unavailable due to extra conditionality. (The question of which party bears the risk of such a situation will be hashed out in the purchase agreement, but, regardless of whether there is a financing out, it is still a poor outcome for a seller to invest significant resources into an acquisition that never closes.) By way of example, consider the target material adverse effect condition (referred to as an MAE).

The definition of an MAE in an acquisition agreement typically has more exceptions and a more limited scope and duration than in a loan agreement. But, in order to limit conditionality, the definition of target MAE for purposes of the MAE condition to initial funding should mirror the definition in the acquisition agreement.

38

THE SECURED LENDER MARCH 2020

More generally, it is important to keep financing conditionality as tight as possible within the bounds of reasonableness. Sellers should endeavor to strike or narrow conditions to the financing which are vague or broad or give lenders significant discretion. An example would be a condition to financing that there be no MAE in the lender’s discretion. With this condition, there would be potential daylight between the MAE condition for the acquisition and the MAE condition for the financing, which would decrease funding certainty.

Another example is when a term sheet provides that a financing is subject to “customary conditions”. Sellers should push for lenders to instead specify these customary conditions. Also, the financing term sheet should state that there are no conditions other than those explicitly specified.

Sellers should seek to have a buyer’s financing term sheet include “SunGard” provisions. Typically, a financing is conditioned on the accuracy in all material respects of all representations and

>> TRENDS AND OUTLOOK >> MERGERS & ACQUISITION >>

warranties on the closing date. But SunGard clauses provide that, with respect to representations and warranties as to the target, funding is conditioned on only the accuracy of a limited set of such representations and warranties, specifically those that, were they not accurate, would be material to the lender and would give the buyer a right to not close under the purchase agreement.

EMILY STORK These representations and

General Corporate and warranties vary depending on

Finance Attorney the transaction, but typically

Holland & Hart LLP they include corporate existence, authority, enforceability, no conflicts, solvency, status of liens, anti-terrorism/anti-money laundering and, in some cases, financial covenant compliance. By limiting and specifying these representations and warranties, SunGard provisions enhance funding certainty. SunGard provisions also replace the condition that security interests on the loan parties’ assets be perfected at closing with more limited collateral requirements, which again enhances funding certainty by decreasing conditionality.

Collateral requirements Closing of a secured loan is typically conditioned on perfection of liens on the applicable assets. But completing all the actions necessary to create and perfect such liens by closing can be difficult, particularly in the case of an acquisition financing where the acquiror and target are separate until closing. Collateral tasks such as mortgages, control agreements, delivery of physical collateral, etc., can require a longer time period than that between signing and closing of the acquisition agreement, and certain collateral tasks may be impossible to complete during that period (e.g., delivery of physical collateral of a target that is in the possession of target’s existing lender to secure the target’s existing debt). Sellers should check the collateral requirements that are conditions to closing to determine whether they are reasonable in light of the desired closing timeline.

The decreased funding certainty caused by broad collateral perfection requirements inspired the SunGard collateral requirement clauses mentioned in the prior section that limit collateral perfection conditions to specified tasks. Those tasks vary depending on the transaction but often are limited to the filing of UCC financing statements, the recording of intellectual property security agreements and, in some cases, delivery of the certificate representing equity of the target. The borrower is still obligated to perform the remaining collateral perfection tasks but is given a specified period of time after closing during which to complete them.

Takeaways 1

There are certain terms of a buyer’s acquisition financing to which sellers should pay attention.

2

The conditions to the financing should align with the conditions to the acquisition as closely as possible.

3

The collateral requirements that are conditions to the financing must be realistic in light of the desired closing timeline.

4

Sellers receiving deferred payments must review certain terms of the buyer’s facility, including covenants, delayed draw loan conditions and prepayment terms.

5

Even if there is no financing out, no seller wants to put significant resources into a deal only for it to not close due to the financing not closing. Review of the terms of a buyer’s financing can reduce the chances of that and make execution as smooth as possible.

By specifying the collateral perfection steps that must be taken, SunGard clauses improve funding certainty and execution of the acquisition.

Deferred payments The consideration for many acquisitions includes deferred payments. Sellers receiving deferred payments, particularly payments made from the proceeds of a delayed draw loan under the buyer’s facility, must review certain substantive terms of the buyer’s facility. The buyer’s facility will be subject to covenants restricting the borrower’s activities, e.g., a debt covenant (note that deferred payments are typically treated as debt under a loan agreement). Sellers must confirm that the deferred payments are carved out from any such covenants that would otherwise restrict making of the payment. Sellers can mark up the term sheet to include a sentence to the effect of ‘Notwithstanding anything to the contrary in this term sheet, deferred payments in the aggregate amount of $[_] under [DESCRIBE ACQUISITION AGREEMENT] shall be permitted under this facility’.

If the deferred payments are to be made from the proceeds of delayed draw loans under the buyer’s facility, sellers must also examine the conditions to such loans. Ideally there will be limited specific conditions, which will increase the likelihood of buyer being able to incur the loan. Sellers should be aware that lenders frequently condition the borrowing of delayed draw loans on compliance with a leverage ratio, so sellers may need to confirm that, based on pro forma projections, the borrower is expected to comfortably hit this ratio.

In addition, sellers also must confirm that mandatory prepayment provisions aren’t triggered by any additional debt to make deferred payments. Also, because deferred payments are treated as debt, sellers should consider priority of payment (and, if such payments are secured, priority of liens) among the deferred payments and any other debt of the buyer and should ensure that such priority is properly spelled out in the term sheet.

Emily Stork is a general corporate and finance attorney at Holland & Hart LLP with sophisticated expertise representing both borrowers and lenders in a variety of finance transactions.

This publication is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal or financial advice nor do they necessarily reflect the views of Holland & Hart LLP or any of its attorneys other than the author.

This publication is not intended to create an attorney-client relationship between you and Holland & Hart LLP. Substantive changes in the law subsequent to the date of this publication might affect the analysis or commentary.

Similarly, the analysis may differ depending on the jurisdiction or circumstances. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.

The decreased funding certainty caused by broad collateral perfection requirements inspired the SunGard collateral requirement clauses mentioned in the prior section that limit collateral perfection conditions to specified tasks.

39

THE SECURED LENDER MARCH 2020

CRUCIAL CONVERSATIONS

Do you think a recession is likely this year? Why or why not?

Crucial Conversations poses a timely question to industry executives.

BY EILEEN WUBBE

40

THE SECURED LENDER MARCH 2020

AVI LEVINE Vice President Star Funding, Inc. It’s a hard question to answer in our current environment without getting political. I am not a political person, and I’m certainly not an economist. However, politicians and economists were never able to predict past recessions, so maybe I have a shot! The question is, will we learn from our past to avoid it?

Let’s take a look at some “reasons” of our past recessions. They include tightening of monetary policy in response to inflation (could happen) a steep decline in GNP and domestic product demand (I don’t think so), high oil prices (who knows?), ending a war, the dotcom bubble (tech is calling the shots for the foreseeable future) and the credit crisis (I like to think we learned from our mistakes until the next big corporate fraud takes us down hard).

Most of the above created a recession in groups of two and three major issues hitting at once, creating a perfect storm. Or it was an overstated reaction to an upcoming issue. I like to think with new technology, greater transparency, and more checks and balances in place we are able to avoid what could be the next recession.

Will there be a contraction in the economy? Probably. Has Amazon shut down a lot of smaller businesses? Yes. And that will continue to hurt many of us. So, will there be a recession this year? No, probably not and probably not

2021 or 2022.

The next recession, in my opinion, will come from the College Education Bubble (I may trademark that). As we continue selling a traditional education at exorbitant prices, we are creating a bubble of young Americans being educated in ways that just don’t apply to what the future is bringing. We need a greater focus on learning practical life skills through high school, and we need young adults to be introduced to specific trades at an earlier age.

HOSS NOURI Senior Vice President, Originations PNC Business Credit

NATALIE LEWIS Collateral Analyst Wells Fargo Capital Finance I believe a recession is currently unlikely, but possible. Earnings are slowing, but that seems pretty characteristic of late cycle behavior. The trade war seems to not be causing real fear, as markets have been making new highs for the last two quarters; however, the potential for further escalation does weigh on current sentiment.

Consumer confidence rebounded in July 2019 after declining in June 2019 on the heels of an escalation of trade tensions with China. While we are still currently growing, that growth has slowed as our government has been trading economic growth for strategic positioning. I think that the administration would potentially ease trade war tensions if ISM data started confirming GDP contraction entering recession territory.

I think the game has changed in a way that the central banks are able to stack the other side of the scale to keep everything flattish in recessions. Negative interest rates, Quantitative Easing, these are huge tools that CBs seem to be more willing to apply lately to keep things from truly dropping.

Both the Fed and the presidential administration can adjust course if the economic data starts point too far south.

While economic growth may slow over the next 12 months, I would say a recession is unlikely without a strong catalyst.

PNC is forecasting economic growth throughout 2020, only a 30 percent probability of recession. However, risks to the outlook are weighted to the downside. There are an increasing number of economic and political variables that could shift the economy toward a near-term recession. Although the Phase One deal between the U.S. and China has reduced the likelihood of recession this year, trade is still a big wild card, and how it plays out will be a major determinant of where the economy goes in 2020. More broadly, monetary-policy mistakes, geopolitical risks, and continued weakness in manufacturing, including the problems at Boeing, are downside risks to the outlook. Barring those factors, the household sector is in solid shape, the labor market remains healthy, housing is making a modest contribution to economic growth, and rising federal government spending is also a positive. Hence, the base case is that the economy continues to grow this year, although at a slower pace than in 2019.

However, the slow run-rate makes it more vulnerable to random shocks and/or policy missteps.

Eileen Wubbe is senior editor of The Secured Lender and TSL Express.

41

THE SECURED LENDER MARCH 2020

SFNET MEMBER PROFILE

An American Dream How an Entrepreneurial Founder Found His

BY MARY LEE-WLODEK

42

THE SECURED LENDER MARCH 2020

MICHAEL KIANMAHD Executive Vice President Maxim Commercial Capital, LLC If the Iranian Revolution of 1979 had not occurred, Maxim Commercial Capital might not exist. Behzad Kianmahd, Maxim’s Chairman and CEO, had moved to the United States in 1970 to attend high school. He was in his final year of The University of Akron’s MBA program when his parents, who were in Iran, alerted him that diplomatic relations between the U.S. and Iran had been severed due to the Iran hostage crisis. Fearing religious and political persecution, they needed to leave Iran as quickly as possible.

“It was a scary time, especially for families that were geographically separated like mine,” Behzad reflected.

“It was unclear whether I would be allowed to return to Iran, or if my parents would be able to get out. Fortunately, the U.S. recognized the gravity of the situation and authorized my family to move here despite the anti-Iranian rhetoric building around the hostage crisis. They packed suitcases and traveled to America, leaving their home and business behind not knowing if they would ever return.”

After helping his parents and younger siblings settle in Los Angeles, where many Jewish-Iranians settled after the revolution, Behzad’s next challenge was figuring out how to provide for his immediate family. Within a few months, he partnered with a few friends and

borrowed money to purchase an ARCO gas station in a growing Los Angeles suburb. The gas station provided cash flow and time for Behzad to thoroughly research his next career move.

A year later, he bought an apparel business which he and his brothers expanded both vertically and horizontally into an international success.

“I had an entrepreneurial drive that took me across the world looking for opportunities, only making me more curious about new challenges,” Behzad said. “With a family of my own, including four children, I wanted to build a sustainable future in America.

Meanwhile, I recognized that I needed to diversify as the apparel industry was moving domestic manufacturing to Asia.”

Behzad’s passions led him to invest in real estate, biotechnology, consumer packaged goods and finance companies. While running a niche finance company focused on single-asset equipment financing, Behzad saw an opportunity building in late 2008. The Great Recession had squeezed banks, tightening access to capital for small and mid-sized business owners (SMBs). Behzad cofounded Maxim Commercial Capital in November 2008 to fill this void for SMBs needing new equipment, additional liquidity or debt refinancing.

As Maxim grew, Behzad recruited his son, Michael Kianmahd, who joined the firm in 2012 from JP Morgan’s Real Estate Banking group. Michael’s mandate was to help institutionalize the firm while supporting its growth, expand its products and build new markets.

Today, Michael is Maxim’s executive vice president, supporting all aspects of the company’s operations, deal origination and access to capital.

It turns out Behzad’s vision back in 2008 was a good one. Over its 11-year history, Maxim has solved the financing needs of over 6,000 SMBs nationwide by providing hard asset-secured financing from $10,000 to $3,000,000, secured by heavy equipment or real estate.

“The numbers are quite compelling,” Michael shared. “There are 30 million SMBs in the U.S. According to the 2019 Federal Reserve Small Business Credit Survey, 64% of them reported they have faced financial challenges, with over two thirds of them solving those challenges by accessing personal funds. The opportunity to make an impact on these statistics while developing personal relationships with our customers is the best way I can pay homage to what this country made possible for my family and many others.”

“I lived those statistics when I was starting out in the early 1980s,” Behzad added. “I know what it’s like to have an opportunity, but no capital. Our mantra at Maxim Commercial Capital is to serve those entrepreneurs and business owners in need of capital by being creative and focusing on the collateral rather than credit scores or years in business.”

Today, Maxim’s financing programs are organized into four segments: real estate financing, heavy equipment financing, structured financing and truck financing. Each program leverages referral partners to source borrowers and has unique attributes that result in value-added financing for Maxim’s customers.

Maxim’s heavy equipment and truck financing programs are

designed for speed. Approvals and fundings can be as fast as one to two days for borrowers seeking to finance or lease heavy equipment such as yellow iron, agricultural equipment, semi-trucks and vocational trucks.

Alternatively, Maxim’s real estate and structured financing programs are more highly structured, with each financing tailored to meet a borrower’s specific needs. For instance, Maxim’s Structured Financing program is popular among borrowers who want to refinance existing debt or pursue growth opportunities and have available collateral spanning both heavy equipment and real estate.

“Borrowers benefit greatly from our ability to think creatively and broadly about their capital needs,” Michael explained. “Whether a borrower needs liquidity to capture an immediate opportunity, complete an asset purchase, or consolidate more expensive debt, we typically can structure a deal. Wrapping in equipment, real estate collateral, and even personal assets, demonstrates our solutionsdriven approach.” Particularly popular is Maxim’s differentiated ability to take junior liens on real estate, enabling borrowers to keep lower-cost senior loans in place.

Collaborating with other lenders for the mutual benefit of borrowers has been a growing aspect of Maxim’s success. The company has continued to build relationships with complementary lenders, including asset-based lenders, factors and banks.

“Some of our most unique customers were referred to us by an asset-based lender or factor, or needed working capital from an asset-based lender or factor on top of our hard asset-secured capital,” Michael stated. “It’s certainly a big win knowing you’re being a value-added lender, not only by providing capital to a company, but by referring the company to an additional lender to optimize its capital structure.”

“There is nothing I love more than witnessing good people overcoming adversity by working hard, being resourceful and making a difference,” Behzad shared. “It reminds me of my family’s story and motivates me by representing how the American Dream is here to stay.”

In fact, the idea that the American Dream is achievable by anyone willing to try is a core aspect of Maxim’s culture. A shortage of capital should never get in the way.

Mary Lee-Wlodek, president of Proactive Marketing, Inc., is a strategic marketing consultant for professional services firms. She applies over 30 years of experience to establish concise brand identities, marketing strategies, communications plans and business development programs for financial services firms, law firms, consulting businesses and other elite B-to-B service providers. Mary has advised businesses ranging from start-ups to multi-billion companies during her career as a marketing consultant, investment banker and commercial lender. She earned her MBA from UCLA Anderson School of Management and her B.A. in Economics from Stanford University.

43

THE SECURED LENDER MARCH 2020

PUTTING CAPITAL TO WORK

Internex Capital Provides Integrated Security Services With a Second Lease on Life

BY AMY ORSER

44

THE SECURED LENDER MARCH 2020

AMY ORSER Risk Associate InterNex Capital A line of duty injury changed the direction New York City Police Sergeant Alan Schissel had planned for his life. In his 30s at the time, he returned to police service after his injury - only to be offered early retirement.

Alan stood at the crossroads of his life, his long-term career unexpectedly thrown off track. He had a young family to support and was uncertain about the future. As he considered his options, Alan knew that whatever he did next, he wanted to stay close to his New York City roots and keeping people safe. Growing up in Brooklyn and now raising his young family in New York, he had built an intimate knowledge of the five boroughs and had developed a vast network of personal and professional relationships with the people in it, many from diverse cultures.

Before long, Alan created Integrated Security Services, a company specializing in private investigative and security services. In an era – this was the mid-nineties – where police departments across the country were stepping up in their role in homeland security, drug trafficking and gang violence, Alan’s vision was for Integrated Security Services to supplement the local police to serve schools and communities throughout New York City – in many ways just as he used to do while an active member of the NYPD. As he embarked on cultivating an identity and service style for Integrated, he observed that many security companies played on the fears of their customers to sell their services, but Alan believed in running Integrated Security Services in a way that empowered his clients. Instead, he set out to offer security

alternatives without perpetuating fear. He believed in the core values of transparency and empowerment. Alan sought to inform his clients by arming them with information and statistics to allow them to better manage their security needs. He worked closely with schools, property managers, and community associations and found opportunities to get to know the very families of the students and residents he protected.

It did not take long before Integrated Security Services’ reputation began to travel far and wide. Alan’s first-hand experience built over the years as a police officer, his compassionate and transparent approach, and the well-trained and highly reliable team of security personnel and investigators he had put together became known throughout the city. He coordinated security during the highly publicized visit of Pope John Paul II to New York City’s Central Park in 1995. Whether it was securing the Rita Hayworth Alzheimer’s Gala at the famed New York Waldorf Astoria, or working with Oprah Winfrey’s security team at the International Emmy Awards, these high-profile events established Integrated as a premier event security firm. As interest in Integrated’s services grew in the new millennium, tragic events such as 9-11, Super Storm Sandy and mass shootings across the country, now had large corporations and municipalities seeking Alan’s direction on their emergency readiness. Institutions like The Depository Trust Company, Warner Brothers, DHL Global Forwarding and the Metropolitan Transit Authority, to name a few, were now clients of Integrated.

lenders. “It was difficult to find someone who would answer your questions or even know the nature of your business,” he said.

It was at this point that Alan’s long-time bank introduced him to InterNex Capital. “I was impressed by Alan, his long-standing relationships with many customers, and his genuine care for his community,” said Lin Chua, president, CFOO & head of capital markets at InterNex Capital. “We believed that InterNex was well placed with our revolving line of credit to support Alan’s strategy to rebalance his business back toward more traditional community and mid-sized security assignments as opposed to one-off high-profile large security projects.”

Through InterNex’s Velocity platform, Alan now receives instant and full transparency on his line of credit – from fees to the calculation of his available funds. Velocity’s Real-Time Borrowing Base ensures the business receives cash seamlessly online, sometimes within as little as ten minutes of invoicing or receiving payments. Velocity makes it easy for Integrated Security Services to confirm customer payments and pay down its revolving line of credit facility, creating cash on-demand. Velocity’s business intelligence tools provide analytics that empower Integrated Security Services to better match project planning to available cash. Bottom line: InterNex delivered as it had promised – not only in pricing, but also in customer support.

Alan Schissel with Internex team members, Amy Orser, Ashley Trexler, Lin Chua and David Nelson

As Integrated Security Services grew, larger projects started to dominate Alan’s time and put financial strain on the business. Highprofile security projects require significant upfront investment in planning, personnel and related assets. These initial costs included the wages of many of his team. Alan had built Integrated Security Services from the ground up and felt personally responsible for the lives of his employees. “I told myself, I am not built for failure. I do not give up,” Alan said.

Alan’s financing solutions at that time included banks and factors.

But they did not provide him with the financial headroom he needed when he needed to change strategy when some larger corporate clients left after being acquired. As the financial strain on Integrated Security Services increased, and factors and banks failed to provide solutions, Alan turned to predatory lenders.

Predatory lenders provided Alan with instant cash, but he learned quickly that he had been misled by their marketing claims. He received little to no visibility on pricing and always ended up paying much more than what he was originally led to believe. Worse still, once he became a customer, he received little to no customer service from the predatory

Since moving to InterNex a year ago, Integrated Security Services has successfully realigned its business, allowing Alan to focus on his private school clients and community patrols. The firm is once again thriving and expanding. For Alan, the best part about InterNex is that he has a relationship with real people at InterNex. “InterNex took the time to understand my business and my changing needs as my business evolved,” Alan said. InterNex has increased the size of Integrated Security Services revolving line of credit facility multiple times as his business has grown. This was managed in a careful and timely manner to ensure that both Integrated’s funding needs were addressed, while not overextending their financial position or exposing them to related transactional risks.

The funding relationship between Integrated Security Services and InterNex Capital has been so successful because both companies’ values are aligned – values based on integrity, transparency and empowerment of the customer in their communities.

Amy Orser is risk associate at InterNex Capital.

45

THE SECURED LENDER MARCH 2020

SFNET CHAPTER CONNECTIONS

SFNet South Florida Chapter: The Economy in 2020 SFNet’s South Florida Chapter kicked off the new year by discussing what to expect in economic trends for 2020. The meeting was held on January 22 at Deer Creek Country Club.

The speaker was Dr. William Luther, Professor of Economics in the College of Business at Florida Atlantic University.

BY MAX TOLEDO

46

THE SECURED LENDER MARCH 2020

MAX TOLEDO VP, National Sales Director Bridgeport Capital Dr. Luther earned his Ph.D. from George Mason University and is an expert in monetary econom-ics and alternative currencies. Here issummary of his thought-provoking comments on the state of the economy and trends for 2020.

Economic trends in 2020 – Dr. William Luther Output: Dr. Luther states that output is fundamentally driven by two things: 1) the available factors of production and 2) the level of technology that we have. Factors of production are physical capital and human capital: the plant, tools, equipment, available labor and the extent that the labor is educated.

The level of technology, or what economists call total factor of productivity, is the ability to combine that capital and labor to generate output. What is ultimately driving output is Total Factor of Productivity, directly, but also indirectly through our decisions to accumulate and use physical and human capital.

The data of real gross domestic product (GDP) and total factor of productivity shows that about 80% of the fluctuation in real GDP can be explained by the fluctuation in total factor of productivity.

Three components of total factor of productivity growth

3. Monetary policy

Dr. Luther focuses in on three big things in the U.S. economy today that affect total factor of productivity growth: secular stagnation, structural policy, and monetary policy.

A failing financial system: In January of 2008, the Fed began extending loans to financial institutions – bailouts.

1. Secular stagnation Secular stagnation is the idea that economic growth has been falling over time. 1960s real GDP growth was 4.5% on average, fell to 3.24% in the 1970s, 3% in the ‘80s and ‘90s, 1.91% in the 2000s when, of course, we had a big economic downturn, and then over the last decade, 2.29%.

Given our past growth and the understanding that there is secular stagnation – what is a reasonable growth rate to predict? An unconditional forecast is that real GDP will go down 2%. Rarely are we making up policies that would increase the real GDP growth rate by 2% or more.

2. Structural policy In the U.S. at the moment, under the Trump administration, there are two big structural policies that we should be thinking about.

Trade war: Beginning in January 2018, the U.S. started putting some tariffs in place. In June, July and September of 2018 it started specifically putting tariffs on products coming from China.

There is no question – these tariffs have reduced the amount of imports and are reducing the variety of goods that are available to American consumers.

The net cost of these trade restrictions to the economy is called the “deadweight loss” by economists. If we assume that these tariffs that are in place at end of December of 2018 persist and we assume we don’t find any other ways of reducing the costs of dealing with these tariffs, we are going to incur deadweight losses over the year of about $16.8 billion – not a lot of money in a $20 trillion economy.

Fortunately, it looks like this is coming to an end. On January 15 we had the first wave of the trade agreement with China. We should expect the Trade War to be a headwind to reduce economic growth perhaps below that original forecast Deregulation: The second big structural reform of the Trump administration has been deregulation. Excessive regulation causes us to jump through additional and unnecessary hoops wasting time and resources, affecting productive production. Also, many regulations that we have are written by large incumbent industries who craft regulations that come at the expense of small innovative upstart industries. We should expect deregulation to have a positive effect on economic growth.

In September of 2008, Federal Reserve officials had two concerns:

Inflation: From January 2008 to October 2008 at the same time that they were making those loans to key financial institutions, they were also selling their treasury holdings.

The net effect of that policy was not to expand the Fed’s balance sheet. But that fall the Fed still saw a lot of failing financial institutions, as well as dwindling treasury holdings.

Cleverly, it had Congress move a policy option scheduled for 2011 up to 2008: the ability to pay interest on reserves. By paying interest on reserves, the Fed could massively increase its balance sheet by creating reserves at the banks, and then it could pay those banks not to lend those reserves out.

What is the effect of that policy in terms of economic growth? If you believe that the Federal Reserve is just as capable of allocating credit as private banks are – no effect. But if you believe that those private banks are able to allocate credit more efficiently, then, as the Fed’s balance sheet expands - we are getting a worse allocation of credit, so that creates a small, but negative, effect on real GDP growth.

Where does that leave us for real GDP growth? n Secular stagnation – the unconditional forecast was around 2%.

That’s going to anchor our expectations for real GDP growth for the year; n Structural policy – Protectionist policies are a negative. The deregulatory policy is a positive and certainly bigger than the protectionist policy is negative, so we should expect that structural policy is going to be a positive; n Monetary policy in terms of creating a headwind for the economy is going to be negative, but we have been doing this policy for eight years now, so some of that effect is already included in our unconditional forecast.

With all of that in mind, Dr. Luther comes up with an estimate that’s somewhere between 2 % and 2.4% of GDP growth, but his own opinion is that growth will be around 2.2% for the year – better than we could expect on average.

Max M. Toledo is past president of SFNet’s South Florida chapter, and currently serves on the Board of Directors. He is the executive vice president and national sales director of Bridgeport Capital. Max has over 25 years of knowledge and experience in the financial services industry. Bridgeport Capital is a premier factoring company that offers flexible, lowcost solutions to a wide variety of companies across the United States. Max is active in a variety of industry organizations. He has been a speaker at the IFA’s annual conference, is the past Florida Chapter President for the TMA and a member of SFNet and IFA. Max can be reached at 954-345-5797 or max@bridgeportcapital.com.

47

THE SECURED LENDER MARCH 2020

The 2019 Secured Finance Market Sizing & Impact Study The Authoritative Tool for the Secured Finance Industry to Plan, Benchmark, & Raise Capital The Secured Finance Foundation, in conjunction with Ernst & Young, has conducted the first of its kind Secured Finance Industry Market Sizing and Impact Study for the purpose of benchmarking, strategic planning, attracting capital and assisting in advocacy efforts on behalf of the industry.

Through primary and secondary research, the study dimensions the size and scope of the commercial marketplace for secured lending and its related products and services. Part primer, part data compilation and part analytical assessment, the study provides the reader with a detailed view into the highly interconnected segments of this network and their collective impact on capital deployment and economic development. The findings dimension an industry that is far-reaching, influential, thriving and presenting significant growth opportunities for its participants to expand their served and available markets.

VISIT WWW.SFNET.COM AND DOWNLOAD YOUR COPY TODAY!

SFNet Education Focus 20/20 Networking Industry data Education Advocacy

SFNet’s new education program provides a well-rounded foundation for a successful career in secured finance. We have partnered with industry professionals to create classes across multiple discipline tracks, each with an eye to real-world application.

Our program can be approached in one of two ways:

1

Widen your focus: take all the core classes to develop a complete understanding of a specific product discipline

2

Streamline your focus: then choose the track most relevant to your functional goals

Visit SFNet.com and explore the Education section to learn more. If you have questions about Education Focus 20/20, contact Nora Walls at nwalls@sfnet.com.

An association of professionals putting capital to work

370 Seventh Avenue, Suite 1801 New York, NY 10001 212.792.9390 www.SFNet.com

SPARK OF

GENIUS With Hilco Global, you get more than a backseat driver. You get the industry leader in automotive appraisals. Each year, we conduct more than 250 appraisals for the automotive industry - with asset values ranging from $100,000 to $1billion.

We can help you become Asset Smarter at www.HilcoGlobalAssetSmarter.com.

Contact Gary Epstein at 847.418.2712 or gepstein@hilcoglobal.com

VA LUATION + MO N E T I Z A T I O N + A D V I S O R Y