TSL May 2018

Representing the Asset-Based Financing, Factoring & Supply Chain Finance Industries Worldwide May 18

The Anatomy of a

IN THIS ISSUE

ANATOMY OF A DEAL: SYNDICATED P12 FINANCING AN EQUIPMENT LESSOR P16 ENTREPRENEURIAL P20

Deal Issue

THE CUMULUS MEDIA DECISION: WHEN A COVENANT BASKET BECOMES EXCLUSIVE P24

TSL Q&A

SCOTT

WINICOUR & MANUEL

HENRIQUEZ P29 SECRET SAUCE OF ASSET-BASED LENDING P30 DEPARTMENTS COLLATERAL THE CFA BRIEF WHAT WOULD YOU DO? REVOLVER

Always on.

Count on us for insightful legal counsel.

We understand your business goals and ďŹ nancing objectives, while shedding light on the deal process.

SOPHISTICATED. KNOWLEDGEABLE. PRACTICAL. CREATIVE. Let us enlighten you.

We provide counsel on a wide range of financings, including: Senior secured

Unitranche

Unsecured

Mezzanine debt and warrants/equity kickers

Cash flow Asset-based First lien/second lien

Distressed Equity co-investments

Contact: Michael A. Jacobson National Head of Commercial Finance 312.902.5443 | michael.jacobson@kattenlaw.com

www.kattenlaw.com AUSTIN | CENTURY CITY | CHARLOTTE | CHICAGO | DALLAS | HOUSTON | IRVING | LOS ANGELES | NEW YORK | ORANGE COUNTY | SAN FRANCISCO BAY AREA | SHANGHAI | WASHINGTON, DC | LONDON: KATTEN MUCHIN ROSENMAN UK LLP | ATTORNEY ADVERTISING

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

The Leader in Asset-Based Lending and Factoring Software

NovaCS.Net Factoring System Stratus.NET Factoring System Nova Commercial Lending

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

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

We need an experienced lender that truly understands the complexities of our business and industry.

Dan Tortoriello, Executive Vice President, and Jeff Goldrich, President and Chief Executive Officer, North Mill Capital LLC

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

North Mill Capital LLC provides asset-based loans and factoring facilities to businesses with borrowing needs of up to $30 million. When President and CEO Jeff Goldrich needed a lender to support the company’s growth, he called on us. Our Lender Finance team quickly structured a $115 million senior secured credit facility so that North Mill Capital could better serve its borrowers and stay ahead in its industry.

When you set goals for where you want to take your business, we’ll work hard to help you get there. Learn how we can work together to move your business forward at wellsfargocapitalfinance.com/northmill. © 2018 Wells Fargo Capital Finance. All rights reserved. Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lending services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries. IHA-4028601

DS-Concept Changes Name to Tradewind and Expands Services DS-Concept, a global provider of trade finance solutions for small- and medium-sized enterprises, has changed its name to Tradewind. The firm, a recognized leader in international export factoring, decided on the change in order to illustrate its prominent role in financing cross-border transactions, which resemble trade winds on the globe. Like the conductive climate its namesake’s currents provide for trade, Tradewind propels commerce worldwide, with its network of more than 20 offices on 4 continents.

Along with its growing presence in markets around the world, Tradewind, a privately owned company, is expanding its services. In addition to non-recourse export factoring, it will offer inventory, ABL and structured trade facilities and will place more focus on its supply chain

finance programs. The move comes at a time when supply chain financing is emerging as a turnkey solution in the way business transactions are conducted. In an age of advanced digital infrastructures, such as blockchain, that make the payment process more secure and automated, Tradewind’s integration of the latest technologies will keep it at the forefront of international trade finance.

In 2017, Tradewind opened offices in Iceland, India and Peru, a nod to its global reach and ability to outfit SMEs with the resources they need to thrive in influential markets. It is mobilizing to enter additional territories rich in potential, such as other Latin American countries, and will continue to service its clients with the same international expertise and on-the-ground support in place in its existing territories.

Along with the new offerings, Tradewind remains dedicated to tailoring flexible deal structures for its clients, combining non-recourse export factoring with full supply chain finance and other solutions as seen fit. Customers will benefit from Tradewind’s ability to accommodate a range of deal sizes at more competitive prices, and the company, more than ever, is positioned to cater to larger-scale financing needs.

The firm has a strong legacy of providing easier access to funding than banks, as well as scalable and off-balance sheet financing, and will sustain this functionality under the Tradewind name while aiming to enhance client satisfaction. Its full-service suite of products, including credit protection, collection services, and financing structured in all major currencies, gives SMEs the tools they need to compete in the global marketplace.

CROSS-BORDER TRADE FINANCE SOLUTIONS TO CREATE LIQUIDITY AND FACILITATE INTERNATIONAL GROWTH

ACCELERATED CASH FLOW

CREDIT PROTECTION

EXPORT AND IMPORT FINANCE

COLLECTIONS AND REPORTING

FULL SUPPLY CHAIN FINANCE

contact@tradewindfinance.com www.tradewindfinance.com

BANGLADESH BULGARIA CHINA GERMANY HONG KONG HUNGARY ICELAND INDIA PAKISTAN PERU TURKEY UAE USA

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

Volume 74, Issue 4

May 18

FEATURES 12 Anatomy of a Deal: Syndicated A JPMorgan asset-based lending executive provides highlights of a recent deal and how working together with both internal and external team members is key.

By David Berkowitz

12 16 Anatomy of a Deal: Financing an Equipment Lessor

Matt Tallo of Capital One details a deal highlighting the importance of relationship building with both the borrower and a lender’s various partners within the industry. By Matt Tallo

20 Anatomy of a Deal: Entrepreneurial

Siena Lending Group details a recent deal and how collaboration is essential to success. By Myra Thomas

24 The Cumulus Media Decision: When a Covenant Basket Becomes Exclusive

Wade Kennedy of McGuireWoods analyzes the federal court finding against Cumulus Media including the judge’s unusual reasoning.

By Wade M. Kennedy

24

16 29 Q&A with Scott Winicour and Manuel Henriquez of Gibraltar Business Capital and Hercules Capital Earlier this year, Hercules Capital, Inc. (NYSE: HTGC) (“Hercules”) announced the completion of a deal to acquire Gibraltar Business Capital, an industry leader in providing small and mid-market businesses with capital in the form of asset-based lending and factoring solutions.

By Michele Ocejo

30 Secret Sauce of Asset-Based Lending Bruce Sprenger of MB Business Capital speaks with Mike Sharkey, president, MB Business Capital and CFA past chairman, and Rick Simons, senior vice president, MB Business Capital, about their secrets to success.

By Bruce Sprenger

DEPARTMENTS 6

Letter From CFA’s CEO, Rich Gumbrecht, discusses the integral role of relationships in commercial finance.

8

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

33

What Would You Do? In this edition of What Would You Do?, the Chief Credit Officer of Overadvance Bank is underwriting a loan to a temporary staffing company that outsources the majority of its payroll functions to a third-party professional employer organization. Without having visibility into the prospect’s largest operating expense (i.e., payroll-related expenses incurred by the professional employer organization), the Bank considers its options. By Dan Fiorillo and Jim Cretella

35

The CFA Brief 35 40 44 46

Among CFA Members Among CFA Education Foundation Members CFA Chapter News Calendar

46

Advertisers Index

48

Revolver Jay Stone of Hilco Receivables discusses the “deal revolution” and the growth of unconventional partnership solutions in challenging times.

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

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

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

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

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

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

The Secured Lender, magazine of the assetbased financial services industry (ISSN 0888255X), is published 8 times per year (Jan/Feb, March, April, May, June, September, October and November) $65 per year non-member rate, and $100 for two years non-member rate, CFA members are complimentary, by Commercial Finance Association, 370 Seventh Avenue, New York, NY 10001. Periodicals postage paid at New York, NY, and at additional mailing offices. Postmaster, send address changes to The Secured Lender, c/o Commercial Finance Association, 370 Seventh Avenue, New York, NY 10001.

letter from

i

THOUGHTS FROM CFA AND TSL STAFF

n a world where one can easily go all day without speaking to a human and still accomplish the necessities of life, commercial fi nance remains a business that, whether delivered digitally or manually, is based on relationships.

In the past, we’ve covered the need to build a solid relationship with borrowers, but in this issue, our Anatomy of a Deal issue, we also emphasize the importance of the relationships that exist between all of the parties who come together to bring a deal to fruition.

Lenders and their service provider partners have shared a symbiotic relationship for as long as commercial finance has existed. Just as the relationship between lender and client is based on trust and specialized knowledge, so is the relationship between lender/attorney or lender/ appraiser, to give just a couple of examples.

The Commercial Finance Association recognized service providers’ integral role in our ecosystem by inviting them to become CFA members as of January 1, 2018. The response has been

enthusiastic, with 25 organizations now enjoying full benefits of membership, and strengthening their already vital connections.

CFA is committed to fostering robust communities of interest in every functional discipline or stage of your career. To this end, we are hosting two events you’ll want to get on your calendar.

In June, CFA is pleased to introduce Idea Exchange, our all-new members-only, invitation-only working session event targeted to mid-upper level professionals in distinct operating disciplines. Unlike other panel discussion-format meetings, this highly focused deep-dive will feature peer-to-peer interactive conversations on relevant, high-impact issues moderated by leading experts.

With six distinct tracks, two general session keynote speakers, one luxury yacht opening-reception dinner cruise (bring your spouse/significant other!) and countless crucial conversations, the CFA Idea Exchange is sure to be one of the most productive and memorable industry events of the year. Please contact Kayla Stypulkoski at kstypulkoski@cfa.com.

Although nominations for CFA’s 40 Under 40 Awards will be closed by the time this issue is mailed, I hope you will join us for our first-ever young professional summit and in honoring the achievements of this up-and-coming cohort at The Pierre Hotel in New York City on September 20. For details visit www.cfa.com/40Under40.

Speaking of achievements, on page 12 David Berkowitz of JPMorgan kicks off the Anatomy of a Deal issue by providing highlights of a recent transaction and how good old-fashioned hard work and teamwork are keys to success.

Matt Tallo of Capital One details a deal highlighting the importance of relationship building with both the borrower and a lender’s various partners within the industry in Anatomy of a Deal: Financing an Equipment Lessor on page 16.

On page 20, Siena Lending discusses a recent entrepreneurial deal and how collaboration is a key to success.

Wade Kennedy of McGuireWoods analyzes the implications of federal court finding against Cumulus Media including the judge’s unusual reasoning in The Cumulus Media Decision: When a Covenant Basket Becomes Exclusive on page 24.

Earlier this year, Hercules Capital, Inc. announced the completion of a deal to acquire Gibraltar Business Capital, an industry leader in providing small and mid-market businesses with capital in the form of asset-based lending and factoring solutions. On page 29, TSL editor-in-chief, Michele Ocejo, speaks with Manuel A. Henriquez, founder and CEO of Hercules, and Scott Winicour, CEO of Gibraltar Business Capital, to discuss the acquisition and what’s next for their organization.

In Secret Sauce of Asset-Based Lending on page 30, past CFA Chair Bruce Sprenger of MB Business Capital, speaks with Mike Sharkey, president, MB Business Capital and also a CFA past chair, and Rick Simons, senior vice president, MB Business Capital, about their secrets to success. Hint: It has a lot to do with those relationships mentioned above.

I hope to see many of you at our upcoming events and welcome your feedback on this issue of TSL as well as any of our other endeavors.

“The Commercial Finance Association recognized service providers’ integral role in our ecosystem by inviting them to become CFA members as of January 1, 2018. The response has been enthusiastic,

6

with 25 organizations now enjoying full benefits of membership,

Warm regards,

and strengthening their already vital connections.”

Richard D. Gumbrecht CFA CEO

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

You know something called H.R. 1628 Section 112 might change everything.

N o one knows your business better than you. And with how quickly healthcare changes, you also know that you have to evolve with it. MB’s expanded healthcare team is here to offer your business creative ideas on how to stay on top of changing healthcare regulations and technology to better help the people you care for.

MB Financial Bank Member FDIC

collateral INDUSTRY NEWS

THE INDUSTRY IN BRIEF

8

Gordon Brothers Names Chris Carmosino President of Valuation Practice Gordon Brothers, the global advisory, restructuring and investment firm, announced that Chris Carmosino has joined the company as president, Valuations. Carmosino has over 30 years of commercial banking experience and joins the firm from Citizens Business Capital where he led the asset-based lending unit.

“As a long-time leader in the assetbased lending industry, Chris is uniquely positioned to understand the needs of our clients and evolve the business,” said Ken Frieze, chief executive officer of Gordon Brothers. “I look forward to his leadership, as we continue to grow our valuation practice across our industry-leading platform”.

“It’s an honor to join such a wellrespected firm,” Carmosino stated.

“I look forward to working with a first-class team, building on Gordon Brothers’ strong heritage of asset valuation and disposition, and continuing to provide the market leading insight lenders rely on,” he added.

Carmosino will replace retiring Valuations president Rick Schmitt, who assumed leadership of the group in 2015 following Gordon Brothers’ acquisition of AccuVal, a leading industrial appraisal company Schmitt founded and led for 30 years. Frieze commented, “Uniting AccuVal’s industrial capabilities with Gordon Brothers’ historical strength in retail and consumer products formed the world’s leading appraisal practice. I thank Rick for his leadership, and wish him the best in his future endeavors.”

Gordon Brothers is the world’s largest appraisal firm serving the asset-based lending industry, with the most ASA-accredited appraisers. The company also maintains the largest database of industrial asset values and liquidation results. The firm has valued over $1 trillion of assets.

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

White Oak Signs Agreement to Acquire LDF Group White Oak Global Advisors, LLC on behalf of its institutional clients (collectively “White Oak” or the “Company”), announced that White Oak has agreed to expand its asset-based lending platform to serve clients in the U.K. and Europe through the acquisition of LDF Group (“LDF”), a U.K.-based finance company providing asset finance, business loans, commercial mortgages and education leases to small and middle-market companies. Established in 1986, LDF is an industry leader and one of the largest independent finance providers for small businesses in the U.K. “Europe represents a large opportunity for White Oak, and we are excited to grow our presence and activity in the region by welcoming LDF into the White Oak family,” said White Oak CEO, Andre Hakkak. “LDF has been on an incredible growth trajectory, completing over £500 million of financing to small businesses across the U.K. in 2017 alone, and we are confident that the business will continue to grow with the backing of White Oak.” In acquiring LDF, White Oak will have over 22,000 active loans across 10,000+ direct clients in the U.K. SME market, a national sales force in excess of 100 personnel across a variety of channels, a position in the market where it is recognized as one of the major non-bank providers of SME capital and a fully functional platform in the SME lending space, incorporating headquarters in Ewloe, Wales and four additional offices across England and Scotland: Stewarton, Manchester, London and Southampton. Together, LDF and White Oak will provide small businesses and underserved middlemarket companies across the U.K. with financing solutions to support their growth and working capital needs.

White Oak is pleased to welcome the senior leadership of LDF led by managing director Peter Alderson and all 220 members of the LDF team and believes their expertise will allow White Oak to achieve further success and scale in the U.K. both through delivering new working capital products and developing their business in the European market.

“LDF will continue to provide the same level of support and service to its clients under the same model, now backed by more resources to deliver more financing, products and opportunities to entrepreneurs and small businesses throughout the U.K.,” said Alderson. “It also gives us the opportunity to look to the wider European market to develop our reach and presence. We are delighted to have found in White Oak a partner that shares our values and our keen focus on client success.”

“This is the first step to expand the White Oak platform in the U.K. I am excited to welcome such accomplished professionals in LDF to White Oak and expand our business across Europe,” said White Oak head of Europe, Tom Otte. “As economies continue to grow, there is an increasing need for the types of financing we provide to help smaller companies achieve their next evolution of growth.”

“Peter and the LDF team have done a tremendous job building the business to the size, scale and capability that it is today, and it has been a pleasure working with them over the last five years. We look forward to seeing the business continue to go from strength to strength under White Oak’s leadership,” said Richard McDougall, partner at Cabot Square Capital LLP. The transaction is subject to regulatory approval from the UK’s Financial Conduct Authority and is expected to complete within the next few months.

CIT Group Inc. announced the appointment of Jerry Younts to its Commercial Services team as a senior business development officer. Younts will be responsible for offering factoring and asset-based financing services to furniture, textile, floor covering manufacturers and importers, and other clients, primarily in the Southeastern United States.

“CIT is continuing to build a bestin-class team to provide factoring and other financing options to Southeastern manufacturers and importers,” said Mike Hudgens, Southeast regional manager for CIT’s Commercial Services group. “We are pleased to welcome Jerry to our lineup of experts.”

Younts has had a long and successful career as a factoring professional and is well known to core companies in the market. At one time or another, he has held senior leadership positions at some of the most recognized companies in the factoring industry.

Most recently, he was employed as a senior vice president at BB&T Commercial Finance, and has prior experience at Bridge Bank, Accord Financial, Capital Business Credit, and Barclays Commercial Corporation.

CIT’s Commercial Services business is a national leader in factoring, credit protection, accounts receivable management and other financial services. Key customers include consumer products manufacturers, dealers, retailers and resellers in a range of industries, such as apparel, footwear, furniture, technology and more.

Patrick Bickers Named New Head of Citizens Business Capital Team Citizens Bank announced that Patrick Bickers will lead its Business Capital team. As one of the nation’s leading asset-based finance providers, Citizens Business Capital specializes in providing highly structured assetbased loans tailored to each client’s specific objectives.

Citizens Business Capital offers expertise and a breadth of options: revolving credit facilities; fixed or floating rate term loans; syndicated loans in conjunction with a dedicated asset-based finance Capital Markets team; “hybrid” asset-based capital structures combined with cash flow term loans that allow companies to borrow beyond the value of collateralized assets; structures that include options such as First In Last Out (FILO) loans that “stretch” the collateral value; and Prime and LIBOR interest rate options.

Bickers succeeds Chris Carmosino, who has led Citizens Business Capital since 2009 and is leaving Citizens to pursue other opportunities.

“The Citizens Business Capital team has been very successful at bringing great ideas to clients and providing solutions that help them reach their potential,” said Donald H. McCree, Citizens vice chairman and head of Commercial Banking. “Pat is well-positioned to draw on his experience and network to bring thoughtful and tailored solutions to our Citizens Business Capital clients. We thank Chris for his leadership and wish him all the best.”

A graduate of the University of Kentucky, Bickers has a long and successful track record of advising and managing key client relationships and is a proven leader. He joined Citizens in 2014, following leadership roles at both SunTrust Bank and CIT.

Citizens is a trusted strategic and financial advisor, consistently delivering clear and objective advice.

The Citizens Commercial Banking approach puts clients first by offering great ideas combined with thorough market knowledge and excellent execution to help our clients enhance their business and reach their potential throughout their business life cycle.

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $152.3 billion in assets as of December 31, 2017. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. Citizens helps its customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer banking, Citizens provides an integrated experience that includes mobile and online banking, a 24/7 customer contact center and the convenience of approximately 3,300 ATMs and approximately 1,150 branches in 11 states in the New England, Mid-Atlantic and Midwest regions.

Consumer banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In commercial banking, Citizens offers corporate, institutional and not-forprofit clients a full range of wholesale banking products and services, including lending and deposits, capital markets, treasury services, foreign exchange and interest rate products, and asset finance.

INDUSTRY NEWS

CIT Group Appoints Jerry Younts New Senior Business Development Officer

THE SECURED LENDER MAY 2018 9

WHEN TIMING IS CRITICAL AND RELIABILITY OF A CLOSE IS A MUST,

IS THERE

EXPORT | IMPORT | BRIDGE FINANCING

offering financing solutions to businesses utilizing its own capital as well as through its Delegated Authority granted by both the SBA and EXIM Bank

www.ExWorkscapital.com info@exworkscapital.com 312.443.8500

opens

LONDON OFFICE How has the availability of finance for importers and exporters been effected by the uncertainties of Brexit?

The new London office of ExWorks Capital is experiencing a significant volume of enquiries from European businesses struggling to access working capital to fund cross border business to and from the UK. This is fundamentally due to the uncertainty in the banking sector over the final outcome of Brexit, and how it might effect trade flows and customs duties. Though any impact is likely to be phased in over several years, this could still hit some sectors hard.

The Banks themselves are also worried about their ability to passport services post Brexit, and this is adding to the drought of liquidity. Hardest hit are SMEs and small corporates which have increasingly become marginalised by the mainstream Banking community, particularly for businesses that export or import goods.

How is ExWorks Capital positioned for responding to the needs of SMEs and fast growing businesses?

As an ‘Alternative Lender’, ExWorks Capital is able to decisively respond to funding requests within very short timescales. This is particularly important when decisions are needed promptly by trading businesses trying to win new business and grow into new markets; there is nothing worse than a “slow no”. Most clients that approach us have already exhausted the more traditional channels of access to working capital and have been let down at the last minute.

ExWorks has a refreshing approach to meeting the liquidity demands of its clients by taking time to fully understand their

The London team has a combined experience of over 120 years within the finance sector. The vast majority of these years consist of complex structured finance experience at director level.

What types of businesses and funding solutions does ExWorks support?

Most of our Clients would fit into the broader description of SME’s, i.e. with annual revenues of up to £30m. However, we are able to fund businesses with much larger revenues. We are particularly strong in Trade and Transactional Finance, where more challenging jurisdictions are involved, for instance Sub Saharan Africa and the Far East. We have financed transactions across all of the main continents and in a wide range of sectors; ranging from Energy, Waste, Mining and Commodity Trading through to Manufacturing and Service Industries. ExWorks can lend against all forms of asset including intangibles and inventory, as well as the more traditional receivables and plant and machinery.

How does ExWorks deal with the complications of cross border financing especially given the challenges of Brexit?

As experts in cross border trade, we have wide experience of financing transactions to and from all corners of the world. A deep understanding of local trading issues and more complex structured finance products enables us to assist our clients trade safely and profitably. Our transactional approach to our underwriting and bespoke solution delivery means that we can quickly respond to changing environments such as Brexit, and offer our clients truly flexible financing.

Short decision making chains and proactive client management are the keys to offering the best service and support.

needs and deliver the most flexible solution. www.ExWorkscapital.com | ukinfo@exworkscapital.com | +44(0) 2038 484 380

EXWORKS CAPITAL UK CHRIS ASH ACIB UK MANAGING DIRECTOR cash@exworkscapital.com

Professionally qualified banker and an expert in structured transactional and commodity finance.

MATTHEW J.P GODDARD FLD SENIOR DIRECTOR mgoddard@exworkscapital.com

Wealth of experience in the trade and export finance, asset finance and asset based lending sectors.

BEN BOATENG SENIOR DIRECTOR bboateng@exworkscapital.com

Extensive experience in the mid-market cross border asset based lending and leverage finance banking sectors.

PETER KIRKHAM DIRECTOR pkirkham@exworkscapital.com

Held several CEO roles while managing companies back to financial health before moving into private equity.

EXWORKS CAPITAL US MATTHEW STANLEY MANAGING DIRECTOR mstanley@exworkscapital.com

25 years of experience in the commercial finance industry, primarily focusing on the middle market.

Anatomy

Deal of a

Syndicated

BY DAVID BERKOWITZ A JPMorgan Asset-Based Lending executive provides highlights of a recent deal and how working together with both internal and external team members is key.

12

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

The Anatomy of a Deal is a study in teamwork as it requires several different parties to execute an asset-based lending solution. Bankers, service providers and borrowers work together to discover and identify solutions to capital structure, operational and strategic obstacles that are acceptable to constituents with overlapping, but distinct, goals. For example, when considering the use of financing proceeds, business owners often focus on strategic flexibility around investment of and return on capital, acquisitions and divestitures, and optimal leverage.

Management teams often focus on reporting/monitoring requirements, maximizing liquidity and default remedies. Further, within a management team, a CEO may focus on strategic flexibility while a CFO may focus on operational flexibility. A J.P. Morgan deal team then collaborates to identify, customize and deliver integrated products and services that solve current and anticipated problems and challenges. External service partners bring specific expertise in valuation, due diligence and loan documentation. These partners coordinate with the J.P. Morgan deal team to minimize redundancy through collaboration, to provide an efficient and, hopefully, pleasant experience for the Borrower, and satisfy the needs of the Lenders.

J.P. Morgan ABL recently closed a cross-border, asset-based credit facility and equipment line; together with domestic and international treasury, merchant card processing, commercial and purchase cards, foreign exchange and interest rate swap products for a United States-based ecommerce retailer (the “Company” or “Client”). Critical to winning this new client from a competitor was establishing credibility as a trusted advisor through a sustained calling effort and relationship building with the Company and its owner, a financial sponsor. Relationship building was a multi-year and multi-faceted effort, with relationships at operational management (i.e., Controller and VP Finance), senior management (i.e.,

CEO and CFO) and ownership (financial sponsor senior management and deal team). At all levels, the relationship building focused on establishing credibility, exploring capabilities and demonstrating J.P. Morgan’s ability to execute. This approach provided for effective discovery of the Client’s needs and sensitivities, and alignment with operational requirements and strategic initiatives through an iterative process. Done correctly, the term sheet is not the end product of marketing, but a vehicle to explore the deal team’s understanding of client needs and fit with the bank’s products and services. An interactive dialogue and feedback loop is established, focusing on specific outcomes — integrated banking products and services that efficiently solve problems and accelerate opportunities — and does not devolve into a race to the bottom on pricing and structure.

The Company has operations in the United States, United Kingdom and Germany, and each operation has unique needs and capital requirements. The J.P. Morgan deal team, including domestic and international commercial and investment banking product experts and relationship bankers, worked collaboratively to understand and prioritize the Client’s needs, in the context of credit capacity and requirements for integrated products and services.

The Company’s short-term, intermediate and long-term goals and objectives were identified and considered as part of J.P. Morgan’s value proposition of a long-term banking partnership. Near-term objectives included refinancing existing debt to achieve lower cost of capital and maximizing global borrowing capacity. Intermediate goals included supporting organic and external growth opportunities.

Long term goals included return of capital and exit scenarios. In the context of the Company’s goals and objectives, J.P. Morgan needed to customize our products and services to meet specific needs: The credit facility needed

THE SECURED LENDER MAY 2018 13

to accommodate seasonal borrowing needs, vendor terms and in-transit inventory, and flexible reporting and monitoring that were not overly burdensome or expensive. Cross-border needs included different growth rates, working capital requirements and tax considerations. Our Client sought to drive efficiency through an integrated suite of banking products, including a commercial card program that also supported vendor payments, automated disbursements and comprehensive

gations had to have global expertise and be cost-effective. Legal advice and diligence, conducted by experts in the United States and internationally, was instrumental in closing the transaction.

Our external partners were instrumental in navigating cross-border issues and interpreting diligence results. By way of example: Understanding international priming liens in the context of commercial experience, and determining appropriate eligibil-

Key to executing this complex transaction was trust and experience with external partners. Due diligence and loan documentation occurred across time zones and continents with a laser focus on cost management.

Collaboration was essential to executing on a timely basis without undo expense. This collaboration included regular conference calls with different deal team configurations, a dataroom tailored to protect confidentiality while efficiently sharing data, and process organization that flexed as needed. reporting, and global treasury and borrowing capabilities.

J.P. Morgan partnered with worldclass service providers to complete asset valuations, due diligence and loan documentation. Domestic field examinations were completed by internal examiners, who partnered with a third-party provider to complete international field examinations.

Domestic and international machinery and equipment, and inventory valuations were also completed by the firm conducting the international field examination, which minimized expense and maximized efficiency. Specialized internal real estate teams completed real estate diligence and valuations with external partners. Similarly, vendors providing insurance review and key manager background investi-

14

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

ity and reserve requirements, was a collaborative effort between J.P. Morgan ABL’s United States and United Kingdom offices, internal and external diligence teams and legal counsel.

Key to executing this complex transaction was trust and experience with external partners. Due diligence and loan documentation occurred across time zones and continents with a laser focus on cost management. Collaboration was essential to executing on a timely basis without undo expense. This collaboration included regular conference calls with different deal team configurations, a dataroom tailored to protect confidentiality while efficiently sharing data, and process organization that flexed as needed.

Executing an integrated, crossborder, asset-based credit facility is

a complex, multifaceted process that can at times be confusing. Critical to successful execution is effective client communication at each function, forged during relationship development and fostered through execution.

This important client win demonstrates the J.P. Morgan value proposition: solving client needs better, faster and more cost effectively to make banking simple. How do we do this?

J.P. Morgan puts the client at the center of everything we do. Incentivizing employees, developing and delivering products and services, and organizing our business units – everything revolves around our clients. But we cannot do this alone, and key to our success is partnership with trusted service providers who share our unrelenting client focus. TSL David Berkowitz is an executive director at JPMorgan Asset Based Lending (“JPM ABL”) responsible for originating and structuring asset-based loans ranging from $5 million to $1 billion across a variety of industries. His 20+ years of experience include deal sourcing and loan origination, fixed income and equity analysis, portfolio management, trading, distressed investing, project management, financial modeling and business development.

Berkowitz’s education includes a MS Finance and BS International Business from the University of Colorado. He has earned the right to use the Chartered Financial Analyst designation and holds the Series 7, 79 and 63 securities licenses.

l

RedRidge Diligence Ser vices Opens London O f f ice RedRidge Diligence Services was founded on one basic principle – Diligence is complex, client service is not. We address issues quickly, without sacrificing quality, and maintain integrity in all aspects of our work. We are issues focused, not compliance driven.

We solve problems working in real-time. By maintaining flexibility in our scope and deliverables, we tailor our expertise to our clients’ diligence needs.

asset based lending

quality of earnings

specialty finance

Accounts Receivable Inventory Equipment Transactional Trade Finance

Buy-Side Sell-Side Forecast Review

Securitization Consumer Finance Lender Finance

MATT REED mreed@redridgefg.com

AMANDA ROBERTS aroberts@redridgefg.com 1 CO R N H I L L | LO N D O N | EC 3V 3N D

www.redridgeds.com

CORY RYAN cryan@redridgefg.com

Anatomy

Deal of a

Financing an Equipment Lessor Matt Tallo of Capital One details a deal highlighting the importance of relationship building with both the borrower and a lender’s various partners within the industry.

BY MATT TALLO

16

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

Deals differ in the details, but they are always located at the intersection of two stories: the lender’s and the borrower’s. Capital One’s story is straightforward. Capital One has long been known as one of the largest credit card issuers in the United States. However, through a series of commercial bank acquisitions in the 2000s as well as organic growth, Capital expanded to provide a full range of banking products to commercial clients.

One of the fastest-growing lines of business within the commercial bank is the Financial Institutions Group (“FIG”) which provides senior secured debt financing and other services to a number of consumer and commercial finance sectors. One of the sectors that FIG has targeted for growth is our Secured Business Credit platform, which focuses on providing senior secured financing and other ancillary products to equipment finance companies, asset-based lenders, factors, and small business lenders.

Pawnee Leasing Corporation (“Pawnee”) has its own story. Founded in 1982, Pawnee provides equipment leases and loans to small businesses across the U.S. It focuses on businessessential equipment, or equipment that is fundamental to the core operation of its lessees’ businesses. The equipment it finances ranges widely, including restaurant equipment, construction equipment, titled vehicles, medical and manufacturing equipment. Since 2006, the Colorado-based company has operated as a whollyowned subsidiary of Chesswood Group Limited, a publicly listed company on the Toronto Stock Exchange. As of Dec. 31, 2017, Pawnee had gross financial receivables of approximately US$400 million, making it Chesswood’s largest subsidiary.

In the years since the acquisition, Pawnee’s business strategy has evolved to adjust to an ever-changing market. Historically, Pawnee had specialized in providing leases and loans of up to $50,000 to start-ups and

companies that had recovered from past credit issues (‘C credits’). In 2008, it moved up the credit spectrum to include providing financing to ‘B credits’, firms with a track record of two or more years, and raised its financing cap to $75,000. Having demonstrated its ability to manage this transition, Pawnee expanded its product offering even further in 2015 to include ‘A credit’ leases and loans, which are eligible for up to $200,000 in financing. In 2018, Pawnee’s A credit portfolio is expected to become its largest asset class.

Pawnee’s rationale for the change was clear-cut. It depends on a national network of more than 600 independent wholesale brokers to source its originations. Although returns from its original historic business model were excellent, it was a niche business, representing only 10 to 15 percent of a typical broker’s deal flow. If Pawnee were to grow, it had to secure a greater share of the originator’s wallet. By moving upstream to B credits, it accounted for about 25 to 30 percent of an originator’s deals. When it added A credits, it captured the whole wallet, becoming, in effect, a one-stop shop for a broker’s production.

Finding Common Ground Capital One’s and Pawnee’s stories came together in 2017 when Pawnee was looking for a more efficient way to finance its A credit portfolio. For many years, Pawnee and Chesswood have had a senior revolving facility with a syndicate of U.S. and Canadian regional, national, and international banks that financed all of Pawnee’s contracts—regardless of the customer’s credit profile. However, that facility was designed primarily for Pawnee’s B and C credit segments.

Given Pawnee’s move to originating higher quality/lower risk paper in 2015, it needed a dedicated facility for its A credits—one with a higher advance rate and pricing commensurate with the lower-risk profile of these specific assets. Pawnee envisioned a non-recourse term facility that would

fund a one-time sale of a portion of Pawnee’s A credit portfolio to a new special purpose entity (SPE) that had no recourse to Pawnee. The term facility would be self-liquidating, with repayments coming from the cash flows of the leases and loans that would be made over the remaining term of the assets in the SPE. In early 2017, Pawnee’s financial advisor began working jointly with the company to put together a management presentation to source a new credit facility for its A credit paper.

The advisor followed up in June 2017 by reaching out to its contacts in the lender finance world including insurance companies, hedge funds, and banks. Pawnee ultimately signed nondisclosure agreements with a dozen potential lenders and allowed six to provide term sheets, narrowing its choices to three before selecting Capital One in mid-August 2017.

When Capital One received the call from Pawnee’s advisor in June 2017 and reviewed the presentation, we knew that this was an opportunity we needed to pursue. Pawnee had an excellent reputation, and we had met with Barry Shafran, president and CEO of Chesswood, a number of times over the years, so we were familiar with Pawnee. We signed a nondisclosure agreement and, after we reviewed the material in the presentation, we forwarded Pawnee a preliminary term sheet outlining a high-level structure, with details of the structure to be worked out following a meeting with the company.

In July, the Capital One deal team traveled to Fort Collins, Colorado to visit Pawnee and meet the management team, which included Pawnee president Gary Souverein and chief financial officer Mike Prenzlow. We liked the fact that the four-member senior management team had been working together for a combined 62 years. We were also impressed with the sophistication of its platform, internal controls, amount of historical performance data maintained, finanTHE SECURED LENDER MAY 2018 17

cial reporting quality, as well as the performance of the collateral. We left the meeting feeling that this was a deal that we not only could do, but we needed to do.

Part of being a good lender includes being a good listener. After hearing what Pawnee’s needs were during our visit, the deal team discussed several potential structures before settling on the one we felt provided a solution to Pawnee’s needs. We proposed an amortizing term loan that was structured to resemble an asset-backed securitization.

All things being equal, the key to Capital One’s decision to pursue the transaction—and Pawnee’s decision to choose Capital One as a lender— boiled down to the personal relationships that developed between the people working on the transaction and Capital One’s ability to deliver a customized financing solution. Both teams felt comfortable dealing with the other as both sides understood that there is often some “give and take” in order to get the transaction over the finish line. So often in stories like this, trust is the deciding factor.

A Diverse Cast of Characters Once Capital One and Pawnee came to an agreement on the deal structure, the number of participants in the process multiplied. Capital One brought in its own outside counsel to draft the transaction documents and Pawnee brought in its outside counsel to review and negotiate the transaction documents. In Pawnee’s case, the company required a transactional attorney with expertise in securitization to represent the company, a corporate attorney to ensure that the agreements conformed with all of Pawnee’s corporate requirements and received the requisite corporate approvals, and a Canadian attorney to represent Chesswood’s public-company interests and make sure that there were no matters that might impact Chesswood’s existing financing obligations or shareholders.

18

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

Aside from the basic blocking and tackling involved in reviewing and executing the legal documents, there were other issues that needed to be addressed and other parties were brought into the transaction to help address them. The transaction required a back-up servicer be in place at the time of closing the loan.

The back-up servicer would have the power to assume the servicing function and make collections on behalf of the SPE if circumstances prevented Pawnee from servicing the SPE’s assets. The transaction also required a custodian to take possession of all required original documents related to the leases, including titles on vehicles and UCC filings for the equipment used as collateral for the loan.

Seven Weeks of Aggressive Multitasking The mandate letter was signed on Aug. 17, 2017, and the deal closed on Oct. 13, 2017. In the interim, it was Capital One’s responsibility as the agent on the transaction to establish a timeline, coordinate the activities of all participants, and monitor each step needed to move the deal forward. Capital One immediately held a kick-off meeting with all the parties and set a target date for closing so that we all were working toward the same timetable.

Attorneys from both sides worked to create the SPE. They made sure the operating agreements were properly structured and that there was a clear understanding about which leases and loans would be transferred to the SPE. Capital One worked with the Pawnee team and its advisor to select a portfolio of credits that would mirror Pawnee’s larger A credit portfolio by credit score, state concentration, industry concentration and equipment type. Mother Nature threw a slight wrench into the selection. At the end of August, Hurricane Harvey slammed into the Gulf Coast of Texas, and two weeks later Hurricane Irma pummeled Florida. Although Pawnee had a relatively small portion of its A credit portfolio in FEMA-designated

disaster areas, we discussed eliminating certain contracts to reduce the exposure of the pledged portfolio to a lower level.

All told, Pawnee replaced just a small number of contracts out of the total assigned to the SPE. In mid-September, Capital One sent its internal audit team to conduct an intensive audit of Pawnee, which included going through its operations, talking to its managers, checking its files, and evaluating its control processes. The goal was to ensure Capital One was comfortable with Pawnee’s internal controls, its operating and credit policies were being followed, as well as audit the collateral that Capital One was going to finance to ensure the lease contracts fit the eligibility criteria Pawnee and Capital One agreed to in the term sheet.

Concurrently, Capital One’s derivatives team met with Pawnee to discuss hedging requirements for the transaction. Given the interest-rate mismatch between Pawnee’s fixed rate leases and loans and the floating rate funding provided by Capital One, we needed to make sure that Capital One, as lender, as well as Pawnee, as residual interest owner, was protected from any potential decline in cash flow from the assets resulting from increases in funding costs.

The End of One Story and the Beginning of Others In terms of this particular deal, the Capital One and Pawnee stories will continue to intersect. Pawnee reports that that the transaction has met their corporate goals, the servicing of the loan has gone smoothly, and they value working with the same members of the Capital One team after closing that they did before.

Both parties are pleased with the results of the mutually beneficial beginnings of their relationship. TSL Matt Tallo is a managing director in Capital One’s Financial Institutions Group and leads the Secured Business Credit team.

IDEA EXCHANGE

New York Marriott Downtown June 18-19, 2018

Crucial Conversations In Secured Lending The CFA is pleased to introduce our all-new, members-only, invitation-only, working session event targeted to mid-upper level professionals in distinct operating disciplines. Unlike other panel discussion format meetings, this highly focused deep-dive will feature peer-to-peer interactive conversations on relevant, high-impact issues moderated by leading experts.

With six distinct tracks, two general session keynote speakers, one luxury yacht opening reception dinner cruise (bring your spouse/significant other!) and countless crucial conversations, the CFA Idea Exchange is sure to be one of the most productive and memorable industry events of the year.

IDEA EXCHANGE TRACKS - Credit & Portfolio Management - Executive Sales & Marketing - Legal - Private Debt - Operations and Technology - President & CEO

KEYNOTE LUNCH SPEAKER Wayne Super Managing Director Capital Markets, Cisco Capital TOPIC: How Blockchain Will Change Financial Services Only executives from CFA member companies and invited guests are eligible to participate in the Idea Exchange.

TO INQUIRE ABOUT ATTENDING CONTACT:

visit community.cfa.com/ideaexchange to learn more

Kayla Stypulkoski, Program Coordinator Commercial Finance Association Ph: (212) 792-9395 kstypulkoski@cfa.com

Anatomy

Deal of a

Entrepreneurial

Siena Lending Group details a recent deal and how collaboration is essential to success.

BY MYRA THOMAS

20

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

The retail industry continues to experience seismic shifts in the way products are produced and in how they eventually end up in the consumer’s hands. It’s a volatile business sector, but such volatility has not just been localized with the retailer itself, rather cascading throughout the entire supply chain systemically. Given the rate at which the industry has experienced considerable change, in some cases, it has become a category that’s fallen out of favor with lenders looking to provide conventional and cash flow loans. But retail and those companies that sell into the channel have become of particular interest for secured lenders, who use the borrower’s assets as collateral for a loan. That’s a win-win for both parties.

According to Nick Payne, director at Siena Lending Group, secured lenders allow borrowers to access capital and, in some cases, more capital than they would otherwise be able to under a traditional cash flow structure. For capital-intensive businesses, this can be a critical decision point. But assetbased lenders are especially aware of the risks associated with lending to a company that sells into the retail channel. Payne adds that the key to risk mitigation is in the underwriting and collateral management by the lender, both of which are proprietary to each lending institution.

The anatomy of the deal is a rather complicated one, requiring multiple parties to facilitate the transaction and satisfy the borrower, as well as the lender. So, collaboration is essential, with many experts working together to effect a close. A simple deal might include the lender and possibly two, if there is an incumbent, as well as a field examiner, one or more appraisers, an investment banker or consultant, lender’s counsel and borrower’s counsel. Some transactions have even more parties involved.

The Changes in the Retail Vertical Siena Lending Group recently closed a transaction with an Illinois-based

THE SECURED LENDER MAY 2018 21

furniture designer, assembler and distributor, involving 11 separate institutions to see the deal to close.

Without any one of these groups, says Payne, the company would still be with their existing lender, constrained by a credit facility that was too restrictive to meet the needs of the business.

With almost 20 years in operation, the company grew through both acquisition and organically by using their sophisticated and tailored sales approach to meet the needs of their clients. But the changes in working capital and inventory optimization in the retail industry, disrupting supply chains across the globe, put into motion a need for additional capital at the company.

Historically, retailers would purchase as much inventory as they deemed reasonable in order to take advantage of volume discounts. This practice has fallen out of favor, since inventory would end up sitting in warehouses and on shelves for longer periods, tying up the company’s precious working capital. Payne notes, “We’ve seen a shift in thinking among retailers that now place a premium on reducing their overall inventory count at any given time, so they’re leaning more heavily on methods such as drop shipment of goods directly from their vendors to their customers.” With more and more consumers opting to buy their products online, usually at a discount compared with what they would pay if they were to make the same purchase at a traditional brick and mortar store, retailers have had to pivot in order to remain profitable.

Siena’s client and the myriad of other vendors higher up or lower on the supply chain were not immune to the shifting sands in the retail space. “The company knew it was time to change their model, much of the heavy lifting had already been done, but they needed additional liquidity to continue to execute on their plan,” Payne notes. Before the company came to Siena, the company’s original lender refused to increase their line of credit. Management engaged an

22

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

investment bank to find a new source of capital that was more flexible than what was being provided by their existing bank. They immediately put together a strategy to take the company to market to seek out a new credit facility that best positioned the company to execute on its new vision.

Understanding the Players While Siena was involved early on and even submitted a term sheet, the company opted to go with a much more attractive offer from a bank. “The pricing and the structure were aggressive, making the bank seem like the right choice – the vast majority of companies and advisors in their shoes would have done the same,” says Payne.

“However, after a few months of diligence, the bank was unable to get the loan approved through their credit committee.” Luckily, the business and its advisor had capital providers familiar with the company that were still interested. This included Siena.

After Siena dissected the situation and responded swiftly with a capital structure that satisfied the needs of the company, the investment bank and the company promptly chose to move forward with Siena. “We were able to get comfortable with the exposure using our own proprietary underwriting methods and by having a deeper knowledge within the industry than maybe some of our peers,” Payne notes. Siena was able to provide incremental liquidity to the business by “throwing out the ABL playbook”, and lending on the WIP and in-transit inventory amongst other mechanical tweaks to a traditional ABL structure.

After execution of the term sheet, Siena moved quickly into diligence.

The company responded to all of Siena’s requests in a timely fashion and a field examiner was on-site within a week. “Fortunately, for both parties involved, the appraisals had already been commissioned by the bank that took the initial crack at the refinancing and were performed by one of the largest and most well-known valuation firms in the country,” says Payne.

“So, we deemed them acceptable. This was critical in our objective to pursue an expedited close.” With the field exam, appraisals, and credit memo prepared by underwriting in-hand, Siena received approval from its credit committee. The final step involved the borrower’s legal counsel and Siena’s law firm working together to draft closing documents. After a couple weeks of negotiation, both sides reached a deal and Siena wired the funds—much-needed capital to keep the furniture business competitive.

The Increasing Complexity Certainly, the anatomy of the deal has changed in the past decade, says David Grende, Siena’s president and CEO. “They’ve become more complex, whether it’s the complexity of capital structures, tranching, intercreditor issues, unitranche, or intangible lending,” he says. Deals now involve more professionals than ever before, with investment bankers, appraisers, diligence specialists, lawyers and many others working in tandem with the asset-based lender. Today, it takes expertise and strong industry connections to coordinate and collaborate with the many parties involved in a deal.

Those connections are key for secured lenders. Payne adds, “What makes Siena a good facilitator are its people and its processes. Our relationships within the industry are every bit as strong as they are deep.” Inevitably, as with any deal, unexpected hurdles do sometimes appear along the way, such as weaker valuations than expected on the collateral. Fortunately, experienced and effective asset-based lenders can leverage their years of experience and ties to industry partners to correctly and efficiently overcome those hurdles and deliver a solution that gets the company where it needs to go. TSL Myra Thomas is an award-winning editor and journalist with 19 years’ experience covering the bank and finance sector.

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

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

www.cfa.com

The Cumulus Media Decision:

When a Covenant Basket Becomes Exclusive

BY WADE M. KENNEDY

24

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

Wade Kennedy of McGuireWoods analyzes the federal court finding against Cumulus Media, including the judge’s unusual reasoning.

In the world of debt finance, borrowers and lenders rely on the covenant “baskets” in their credit agreements to permit various actions by the borrowers that otherwise would be prohibited by the broad restrictions typically contained in the negative covenants. These activities are often fundamental to running the business and include making investments, selling assets, granting liens and incurring or refinancing debt.

These activities, however, can only be undertaken in conformity with the negative covenants and other restrictions contained in a borrower’s applicable credit agreements. Particularly in the context of larger credit facilities with multiple tranches of debt (revolving facilities, term loan B facilities, etc.), these baskets can become important in not only permitting ordinary course activities of the borrower, but also in exceptional circumstances of determining the scope and nature of restructuring and refinancing debt of borrowers who find themselves in distressed situations.

This was the circumstance confronting the borrower and its various debt holders in the recent Cumulus Media decision handed down by the U.S. District Court for the Southern District of New York (the “Court”).1 The company, Cumulus Media Holdings, Inc. and Cumulus Media Inc. (collectively, “Cumulus” or the “Company”), proposed a restructuring of its debt that essentially would have allowed the holders of certain unsecured senior notes (the “Senior Notes”) to exchange their obligations for equity and new secured revolving debt ranking equally with the Company’s existing senior secured term loan (the “Term Loan”). The holders of the Term Loan (the “Term Lenders”) and the agent under the Company’s credit agreement (the “Credit Agreement”) opposed the proposed restructuring.2 The Court sided with the Term Lenders and concluded that the proposed refinancing was not permitted under the Credit Agreement. In doing so, the Court relied primarily on a determination that the negative covenant basket permitting the Senior Notes and “Permitted

Refinancings” actually prohibited the Company from incurring other debt with the same refinancing purpose under other negative covenant baskets in the Credit Agreement. The Court read the basket permitting the Senior Notes (and permitted refinancings) as the only debt that the Company was allowed to bear in respect of the Senior Notes, notwithstanding the existence of separate baskets that might otherwise permit debt to refinance the Senior Notes. This “negative inference” in the Cumulus decision is unique and, if applied more broadly in interpreting such baskets in the future, will compel changes in how (at least certain) negative covenants are understood and ultimately drafted.3 As discussed below, the ultimate result seems correct, but practitioners may have concerns about the reasoning the Court used in reaching it.

Whether this decision will survive appeal (if any) or is adopted in other cases remains to be seen, but certain conclusions can be drawn from the reasoning employed that may inform drafting and structuring decisions today.

Summary The general facts surrounding the Cumulus Media decision are as follows.

In a motion for summary judgement, the Court was asked to determine whether a proposed restructuring (the “Restructuring”) violated the negative covenants in the Company’s Credit Agreement. JPMorgan Chase Bank, N.A. acted as administrative agent under the Credit Agreement (the “Agent”) and the case was initiated as a suit by the Company against the Agent for failing to approve the Restructuring.

The Credit Agreement included two facilities secured on a pari passu basis by essentially all assets of the Company: (1) the Term Loan, with an outstanding balance of approximately $1.81 billion and (2) a secured revolving facility (the “Revolver Facility”) of up to $200 million, which was then undrawn (due to a maximum leverage limitation (the “Leverage Limitation”) which the Company could not meet). The Credit Agreement

THE SECURED LENDER MAY 2018 25

also provided for an optional secured incremental revolver facility (the “Incremental Facility”) that could be exercised with the agreement of the participating revolving lenders. Total assets of the Company were approximately $1.45 billion, so, even without the obligations under the Revolver Facility, the Term Loan was materially undersecured.

The Restructuring was designed to retire all $610 million of the Senior Notes, using $305 million of secured loans under the Revolver Facility ($200 million existing plus $105 million of the Incremental Facility) and certain equity to be issued. The Restructuring was to be implemented through the following process: (i) Commitments of the existing lenders under Revolver Facility (unfunded) would be assigned to the holders of the Senior Notes; (ii) The “new” revolving lenders would then amend the Credit Agreement to, among other things, remove the Leverage Limitation; and (iii) The Company would exercise the Incremental Facility and then borrow a total of $305 million of secured loans under the increased Revolver Facility, which would be used (together with certain equity) to repay and retire the unsecured Senior Notes.

The end result of the Restructuring would be that the Term Lenders would be further diluted in their collateral position by the additional $305 million of secured revolving debt and the holders of the Senior Notes would have a material portion of their obligations converted to senior secured debt.4 Specifics of the Dispute The principal basis of the dispute (and the arguments presented by the parties) revolved around the negative covenant regarding “Restricted Payments”, in this case a Restricted Payment consisting of prepayment of debt under the Senior Notes. Section 8.8 of the Credit Agreement generally prohibited any prepayment of debt but included a basket

26

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

under clause (j) permitting “any refinancing of the Senior Notes or any Permitted Refinancing thereof permitted pursuant to the terms [of the Credit Agreement]” (emphasis added). Use of the lowercase “any refinancing” rather than the defined term “Permitted Refinancing” created the loophole through which the Company wished to implement a refinancing of the Senior Notes that was arguably not a “Permitted Refinancing”.5 The Company asserted that the proposed borrowings on the Revolver Facility were within the scope of “any refinancing…permitted hereunder” because, first, the draw under the Revolver Facility was clearly permitted under Section 8.2(a) of the Credit Agreement (post-amendment) and second, the repayment of debt was permitted as a “general corporate purpose” under the use of proceeds provision of Section 3.2 of the Credit Agreement. The position underlying this argument was that, if the Company could construct piecemeal the components of a refinancing not otherwise prohibited under the Credit Agreement (debt permitted to be incurred under one section and permitted to be used to repay debt under another section), whether the refinancing was a “Permitted Refinancing” was irrelevant (the Company asserting that this is what the parties intended in using the lowercase “refinancing”).

On the other hand, the Term Lenders and the Agent argued that the language of Section 8.8 of the Credit Agreement (the general prohibition on repayment of other debt, including the Senior Notes) only allowed a refinancing and repayment of the Senior Notes if the refinancing itself was permitted elsewhere under the Credit Agreement and nowhere was such a refinancing specifically allowed (other than as part of a “Permitted Refinancing”). The Term Lenders argued that a reading of the general use of proceeds section as an independent basis for permitting repayment of the Senior Notes would have rendered other specific limitations of Section 8.8 meaningless. As an example of this, they noted that Section 8.8(j)(ii)

included an additional basket for repayment of the Senior Notes if a Leverage Ratio of 5:00 to 1:00 was met (even if not a “Permitted Refinancing”). Based on the Company’s argument, such payments could be made so long as revolving loans generally were permitted under Section 8.2(a) (requiring only a 4.00 to 1.00 Leverage Ratio), making this additional basket meaningless.6 In essence, the Term Lenders agreed that the Company could incur the Revolving Loans under Section 8.2(a); however, it was prohibited from using that debt to repay the Senior Notes under Section 8.8(j).7 The position underlying this argument is that the intent of the parties should be determined by reading the agreement as a whole so that no material provision is nullified, and that this reading made clear the intent of the parties to limit refinancings of the Senior Notes solely to “Permitted Refinancings” (since no other specific provision expressly allowed any payment of the Senior Notes as part of any other refinancing).

After a recess and considering both oral arguments and supporting briefs, the Court concluded that the Restructuring would violate the Credit Agreement, in essence reaching the conclusion sought by the Term Lenders. But instead of relying on the payment restrictions in Section 8.8(j)(i) (the focus of the Term Lenders argument), the Court based its decision on the incurrence restrictions under Section 8.2. Specifically, the Court found an implicit restriction in Section 8.2(h) (only briefly mentioned in oral arguments)8 which permitted “Indebtedness of the Borrowers in respect of the Senior Notes . . . and any Permitted Refinancing thereof.” The Court determined that Section 8.2(h) encompassed the sole and exclusive debt that could be incurred in respect of the Senior Notes and, thus, such debt was limited to only the Senior Notes and “Permitted Refinancings” thereof. By implication, the Court reasoned, no other debt refinancing the Senior Notes was permitted to be incurred by the Company, even if such debt was permitted elsewhere in Section

8.2. So, rather than relying on the absence of a provision specifically permitting the repayment portion of proposed refinancing, the Court pointed to Section 8.2(h) as prohibiting the incurrence portion of the proposed refinancing, even if permitted as revolving loans under Section 8.2(a) of the Credit Agreement.9 In the Court’s reasoning, the use of proceeds of such debt apparently became determinative as to whether such debt could be incurred.

Not only is this approach contrary to the position advanced by the Term Lenders10, but it was the primary basis for the Court’s decision despite the existence of other available rationales.11 Later in its decision, the Court did go on to essentially integrate an argument that the repayment portion of the refinancing was not permitted. Specifically, the Court determined that reading the general use of proceeds provision in Section 3.2 to override its reading of the specific limitations in Section 8.8 rendered Section 8.8 meaningless and was not proper.

It expressly refused to agree with the Company’s position that it could cobble together disparate provisions that permit the various components of the proposed refinancing (incurrence in one provision and use of proceeds under another) and therefor such action was “permitted.” This approach was viewed by the Court as a means of avoiding a fundamental restriction intended by the parties.12 Because of the blurred distinction between the incurrence of debt permitted under customary debt negative covenants and the purpose for which that debt is incurred, the decision poses real concerns for understanding negative covenant baskets and whether they are to be read as exclusive or collective in nature.

General Implications for Debt Negative Covenant Interpretation The principal problem with this decision is the Court’s attempt to bridge a disconnect between the negative covenant restricting incurrence of debt (step one of any refinancing) and the negative

covenant restricting repayment of debt (step two of any refinancing). If the intent was that no debt be incurred to refinance the Senior Notes other than a Permitted Refinancing, such restriction would almost certainly be set forth in Section 8.8 (which specifically addresses repayment), not Section 8.2 (which addresses incurrence). Had the repayment restriction been drafted to prohibit any “repayment of the Senior Notes other than a Permitted Refinancing (or a subsequent Permitted Refinancing thereof)”, the Court would not have had to look elsewhere to determine the intent (and find a limitation on the proposed refinancing as a whole). Unfortunately, rather than relying on the argument presented by the Term Lenders (e.g., that there was no other “refinancing” payment permitted elsewhere in the Agreement), the Court relied on the novel view that the incurrence of debt permitted under one basket prohibited the incurrence of debt for the same purpose under another basket.

The first take-away from this decision is that it should be read in a limited fashion, to apply only to baskets that restrict both the debt incurred and the use or application of such debt to a “permitted refinancing”.13 In that context, the Cumulus decision would seem to provide a basis for arguing that baskets allowing certain debt and “permitted refinancings” or similar defined terms are exclusive and, without more, prohibit the incurrence of other permitted types of debt under other baskets to refinance the debt described. Typical covenant baskets that may include “permitted refinancing” or similar terms include: (i) revolving debt under the subject credit agreement, (ii) senior or subordinated notes or separate term loan B facilities, (iii) specific scheduled debt, (iv) capital leases and permitted purchase money debt, and (v) debt acquired in connection with acquisitions.

As a drafting matter, care should be taken to prevent these provisions from

being unduly limiting. Two potential approaches would be: (A) specify the intent that all debt baskets are non-exclusive, particularly when referring to permitted refinancings, and rely on the restricted payment covenant to control when such debt can be used to repay other debt; or (B) assume the debt baskets may now be interpreted as exclusive to the extent they refer to “permitted refinancings” and, consequently, provide language to the contrary in specific appropriate circumstances.14 The first approach is likely the simpler, better option and more closely aligned with current assumptions about how negative covenant baskets are intended to operate. In fact, this approach has been implicitly adopted in many term B loan credit agreements which contain a provision in the debt negative covenant section stating that the borrower may classify debt as being incurred under various baskets in order to be permitted under the covenant. Either approach, however, should avoid confusion about the effect of negative covenant baskets and how permitted refinancings are treated.

Consensus seems to be that the Court reached the right conclusion regarding the proposed Restructuring, both regarding the intent of the parties that a “Permitted Refinancing” be the sole means of refinancing the Senior Notes and the fact that the general use of proceeds provision should not be viewed as superseding specific restrictions on use of funds to repay junior or unsecured debt. The argument put forward by the Company would have required the Court to find that the ability to incur general revolving debt, when read with a typically broad permitted use of proceeds, could supersede a specific provision restricting refinancing and repayment of certain debt.15 In this sense, the Court reached the right result albeit based on problematic reasoning. It is not clear why the Court relied on reasoning not principally put forward by either party,

THE SECURED LENDER MAY 2018 27

but given the speed in which the decision was rendered (same day as oral argument) and the context in which it occurred (a refinancing that provided no incremental cash benefit to the Company and elevated an existing unsecured tranche of debt into a secured position to the detriment of another tranche of debt), we think the Court reached the correct conclusion.16 TSL Wade Kennedy is a partner in McGuireWoods and the head of the firm’s asset-based lending group. He focuses his practice on representing lead financial institutions in complex syndicated credits to asset-based and leveraged borrowers.

He has significant experience documenting asset-based credit facilities in the context of sponsor-driven acquisitions, unitranche facilities and working capital, high yield/term debt and first lien/second lien transactions. In addition, his practice encompasses representing national financial institutions in single and multicurrency credit facilities, cross-border financings and other leveraged finance and cash flow transactions.

Kennedy is also a co-coordinator and instructor for the Banking and Finance department’s Associate Training Program.

He is a regular presenter at various firm and client educational programs, including, most recently, “Current Developments in First Lien/Second Lien Intercreditor Agreements” and “Bankruptcy and Restructuring Issues in Asset Based Credit Facilities and Intercreditor Arrangements”.

Kennedy also provides pro bono representation of various educational and environmental organizations in formation and financing matters and application for tax-exempt status.

Kennedy is serving as chair of the CFA Education Foundation Governing Board Development Committee.

Cumulus Media Holdings Inc. and Cumulus Media Inc., v. JPMorgan Chase Bank, N.A., et al, No. 1:16-cv-09591-KPF (S.D.N.Y. 2017) (“Cumulus”).

2 The Term Loan and the existing revolving facility (then unfunded) were documented in a single amended and restated 1

28

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

credit agreement and the Senior Notes were issued under a separate existing indenture.

3 The Court also considered other arguments for and against permitting the proposed refinancing (including a provision found to restrict the ability of the Company to amend the Credit Agreement in any manner adverse to the Term Lenders), but the focus here is on the principal arguments put forward by the parties and the basis of the decision as it relates to the negative covenants in Article 8 of the Credit Agreement.

4 Note that the Credit Agreement contained a provision that would have made the Term Loans due and payable in full on an accelerated basis if the Senior Notes remained outstanding as of a certain fast approaching date, therefore the Company was highly motivated to find a way to replace and retire the Senior Notes before that date. This was the context in which the Restructuring was proposed and the dispute among the parties arose.

5 The Court found a number of deficiencies in characterizing the Restructuring as a “Permitted Refinancing”.

6 With respect to the argument that the general use of proceeds permitted repayment of the Senior Notes, the Court stated, “If that’s the case then why -- why -- have subsection 8.8(j)([ii]) at all? For that provision to have any meaning it must exist to limit other provisions of the credit agreement such as Section 3.2.” See id. at 79.

7 See id. at 44.

8 See id. at 48-50.

9 This amounted to a “use of proceeds” test for incurrence of debt. As the Court stated, “Section 8.2[(a)]’s permission that Cumulus borrow under revolving credit facility and/or an incremental credit facility does not allow also that Cumulus may use those funds to refinance the senior notes in a refinancing that would not qualify as a [Permitted Refinancing]. Any attempt to do so would conflict with Section 8.2[(h)] because it would leave Cumulus to bear an indebtedness related to refinancing of the senior notes that is not a [Permitted Refinancing].” See id. at 74.

10 See id. at 44

The Term Lenders advanced at least one other argument that would have resulted in the same conclusion. They argued that Section 8.16 (prohibition on the Borrower amending debt documents) prohibited any amendment to the Credit Agreement that was materially adverse to the Term Lenders and therefore the amendment removing the Leverage Limitation required Term Lender consent. See id. at 48-50.

12 “What Cumulus wants me to do is extract, to pluck assorted provisions out of context, string them together in a way that may permit this refinancing but actually undermine and indeed violate the remainder of the agreement and I am not going to do that.” Id. at 80-81.

13 Expanding the reading to all debt baskets that limit in some way the use to which such debt may be put is likely too broad of a reading of the Cumulus holding. The Court was clearly focused on the fact that “Permitted Refinancing” was a defined term with specifically limited scope. See id. at 71. Baskets permitting purchase money obligations or capital leases would seem to be self-limiting.

Similarly, application of the rationale in this decision to general baskets with no limited purpose makes almost no sense at all.

14 For example, if a revolving facility is intended to be available to refinance existing scheduled debt or acquisition debt (to the extent otherwise limited to “permitted refinancings”), it may be prudent to expressly provide for repayment from other permitted baskets (i.e., “Debt outstanding on the closing date listed on Schedule [ ], and Permitted Refinancings thereof or refinancings from indebtedness otherwise permitted under this Section [ ]).”

15 See id. at 45.

16 There are certainly other interesting lessons from the Cumulus decision, including (i) the dangers of broad cross references to actions permitted elsewhere in an agreement, (ii) proper division of voting requirements between revolver lenders and term lenders and (iii) appropriate limitations on assignment of senior debt to junior debt holders, but the focus here has been the “negative inference” with respect to debt baskets.

11

Q&A with Scott Winicour and Manuel Henriquez of Gibraltar Business Capital and Hercules Capital

BY MICHELE OCEJO

Earlier this year, Hercules Capital, Inc. (NYSE: HTGC) (“Hercules”) announced the completion of a deal to acquire Gibraltar Business Capital, an industry leader in providing small and mid-market businesses with capital in the form of asset-based lending and factoring solutions.

Hercules is the leading and largest specialty finance company focused on providing senior secured venture growth loans to high-growth, innovative venture capitalbacked companies in a broad variety of technology, life sciences and sustainable and renewable technology industries.

Here, Manuel A. Henriquez, founder and CEO of Hercules, and Scott Winicour, CEO of Gibraltar Business Capital, discuss the acquisition and what’s next:

From the point of view of both Gibraltar and Hercules, what made this acquisition attractive?

WINICOUR: Gibraltar was formed in 2010 when I led the management buyout of Gibraltar Financial Corporation, an assetbacked commercial financing company that dates back to 1951. The company subsequently changed its name to Gibraltar Business Capital, as it is known today.

We’ve grown the business from a small local shop to a well-known nationwide ABL player. And by late 2017, we had reached an inflection point; to continue our pace of growth, we needed a partner that had deeper access to capital.As an entrepreneur and innovator himself, Manuel and his team understood where we were, and more importantly, where we wanted to go.

HENRIQUEZ: Since 2003, Hercules has committed more than $7.3 billion to over 410 companies; the company partners with entrepreneurs and venture capital firms seeking growth capital financing.

For Hercules, the acquisition of Gibraltar represented a unique opportunity to invest in one of the leading established assetbased lenders in the country. Scott had a vision for the company, and through his leadership, he established a stellar team, a strong brand, and a solid product that were very attractive. An infusion of capital

Manuel A. Henriquez, Founder and CEO of Hercules

Scott Winicour, CEO of Gibraltar Business Capital

will accelerate growth for Gibraltar. And we believe our investment in Gibraltar, as a portfolio company of Hercules, will potentially expand the types of financing options available to our current and future clients.

and our products will stay the same.

WINICOUR: Hercules was built to provide financing to innovative, high-growth companies, like ours. Our entrepreneurial approach and vision for growth align seamlessly.

What changes do you envision for Gibraltar as a result of joining Hercules Capital?

For example, lending to new industries or expanding geographically?

WINICOUR: The acquisition provides Gibraltar significant access to capital – it empowers our growth and amplifies our commitment to deliver value-added assetbased lending and factoring services to our customers with smart, creative financing solutions that have been the hallmark of our success. And now, we have the potential to take on some of the larger deals we are asked to propose on and that we see on the horizon.

To pursue new and larger opportunities, we have increased our marketing and business development team. With the recent addition of two new business development executives, Gibraltar now has regional representation nationwide.

The company’s foundation was in place prior to the acquisition, so, beyond the infusion of capital, I don’t anticipate any material changes. We have the platform and the people to scale. Our brand, our people,

Gibraltar’s focus is on small to mid-market companies. What is the future for Gibraltar and the ABL industry?

WINICOUR: After news of the acquisition was made public, we heard from scores of people including investors, current referral partners, and clients – all sharing positive feedback. Everyone was pleased with the outcome and excited about the future. And for our employees, that sentiment rang especially true. Our team is excited that their day-to-day remains the same, but now they have even greater opportunities to grow in their career.

Gibraltar strives to help business owners and their advisors execute on their plans, at their pace, no matter what the circumstance. And in today’s market, clients are seeing an opportunity and taking action. My team has seen an increase in activity among new borrowers and experienced more customers requesting credit line increases.

We’ve seen more opportunities compared to this time last year. Clients are looking to gain access to working capital beyond what a traditional bank can provide, so asset-based lending will continue to thrive. There are positive signs of growth in our industry. And we’ll be here, better prepared than ever, to help our clients achieve their goals. TSL Michele Ocejo is editor-in-chief of The Secured Lender and director of communications for CFA.

THE SECURED LENDER MAY 2018 29

Secret Sauce

of Asset- By Bruce Based Sprenger Lending Bruce Sprenger of MB Business Capital speaks with Mike Sharkey, president, MB Business Capital and CFA past chairman, and Rick Simons, senior vice president, MB Business Capital, about their secrets to success.

30

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

Mike Sharkey, president, MB Business Capital and CFA past chairman, and Rick Simons, senior vice president, MB Business Capital.

I

n some ways the assetbased lending (ABL) market has changed significantly in the last 40 years – and in other ways not so much.

Two professionals who have gone through the ups and downs together over the last 40 years are Mike Sharkey, president, MB Business Capital, and Rick Simons, senior vice president, MB Business Capital. There were times that their paths were parallel and times when not, but the mutual respect between these seasoned “ABL’ers” never waned.

“I began my career in financial services with GE Capital Corporation as a field examiner and loan officer and moved on to Manufacturers Hanover Commercial Corporation where I served as senior loan officer,” said Sharkey. “From there, I joined StanChart Business Credit* and within four years became president.

After that acquisition, I held the position of president and CEO of LaSalle Business Credit, where I helped build the group into the fifth largest asset-based lending

company in the United States. During my tenure at LaSalle, I also served as executive vice president for LaSalle Bank and ABN AMRO. From July 2008, until the merger with MB Financial Bank in 2014, I was president of Cole Taylor Business Capital and executive vice president of asset-based lending. Today, I am the president of MB Business Capital.”

Early in his career, Sharkey connected with Rick Simons. Simons says, “I started out my career as a field examiner at GE with Mike Sharkey. I then moved to account management at various companies, obtained a law degree and through a few stops, ultimately joined LaSalle Bank. It was at LaSalle that I reconnected with Mike after 20 years. The years we had spent working and learning together early in our careers made it very easy for us to work together and do outstanding work at LaSalle. After LaSalle was acquired in 2008, our paths joined together for a third time at Cole Taylor Bank, which merged with MB Business Capital in 2013.” At MB, Simons is a director of Portfolio Management, mainly responsible for applying his skills

THE SECURED LENDER MAY 2018 31

in overseeing a large asset-based lending portfolio.

With these career backdrops, what is so special about these work intersections and makes them worthy of commentary?

Sharkey states it simply as, “There are people in our life that are pillars, always there and you can always trust and count on them. Rick is one of my pillars.

When I met Rick at GE, we learned the true roots and basics of ABL and we are still using those skills today. We have many shared experiences and com-

able,” says Sharkey. Both Sharkey and Simons point out that they are only one example of the many relationships within MB Business Capital that have expanded throughout the years with many employers. “There are many examples of people that we work with at MB that we worked with at other places, and it has led to a strong group that thrives on these unique relationships to foster an efficient and successful work environment. Our current employer, MB Business Capital, has core corporate values that support our views. Integrity,

So what is that “secret sauce” that has led to such great success of these two professionals and has earned the respect in our industry? Sharkey simply states, “It is our people, who are loyal and respected in all our relationships and create the path we daily challenge ourselves and our teams to walk.” mon values when it comes to portfolio and customer management. I truly believe one of the reasons MB Business Capital is so successful is the fact that I can travel to meet prospects and key partners with confidence as my ‘pillars’ run the business. We know ABL, we are reliable, consistent, we are calm for our customers in times when they may have problems and we are tried and true asset-based lenders.”

Yet there is clearly more than this professional expertise and respect for each other. Along the way, Simons and Sharkey successfully built ABL businesses with the help of other “pillars” supporting the mission of their employer.

That engagement of teamwork, loyalty and mutual respect are hard to duplicate and Sharkey likes to think it is the “secret sauce” behind the success for many years of these teams, stating, “These team relationships not only are based on teamwork, but also a true friendship and occasional humor, that makes the job more fun and enjoy-

32

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

high performance, keen customer focus, mutual respect, open communication and enthusiasm that are truly in line with our philosophy,” Sharkey says.

There is one additional aspect of this story, and Simons hits it home when speaking about the days at GE when they first met. “Mike had an entrepreneurial style that was very different from other auditors I worked with. That entrepreneurship has allowed our successes and challenges to be obtainable,” he shares. Simons also likes to comment about a phrase that Sharkey considers part of our brand success, “We have no hard and fast rules, but like to think we employ our vast experience and skills to each situation to come up with the best solution for our clients and our shareholders.”

So what is that “secret sauce” that has led to such great success of these two professionals and has earned the respect in our industry? Sharkey simply states, “It is our people, who are loyal and respected in all our relationships

and create the path we daily challenge ourselves and our teams to walk.” TSL Bruce Sprenger is group president, Midwest region, responsible for developing new markets, marketing activities of the ABL group and advising on customer cross border opportunities. His experience spans 35 years and virtually all aspects of commercial finance.

Sprenger is a past Chairman of the Commercial Finance Association (CFA) and is a permanent member of the organization’s Executive Committee. Sprenger has provided training on asset-based financing principals both in China and Mexico on behalf of CFA and the World Bank.

He holds a B.S. in finance from Valparaiso University and completed the Wharton School Institute Executive Program. He has continued his education in marketing at Northwestern University’s J. L. Kellogg Graduate School of Management.

Disclosure: The views and opinions expressed in this video are solely those of the author and do not represent the view of MB Financial Bank, its Board of Directors, employees or shareholders.

The information in this article has been obtained from sources deemed reliable; however, we do not guarantee its accuracy. This information is not intended to be legal, investment or tax advice and should not be relied upon. MB Financial Bank, N.A. and its affiliates do not provide legal or tax advice. You should review your particular circumstances with your legal and tax advisors.

Member FDIC

what

i

WOULD YOU DO?

n this edition of What Would You Do?, the Chief Credit Officer of Overadvance Bank is underwriting a loan to a temporary staffing company that outsources the majority of its payroll functions to a third-party professional employer organization. Without having visibility into the prospect’s largest operating expense (i.e., payroll-related expenses incurred by the professional employer organization) , the Bank considers its options.

Who’s the Boss?

Lucky Labor, a regional staffing company that provides temporary office workers, is in need of a larger credit facility to accommodate the recent and projected growth of its business.

Lucky Labor’s current lender cannot accommodate Lucky Labor’s request to increase its existing credit facility from $30,000,000 to $50,000,000.

So, Lucky Labor approached Overadvance Bank about the possibility of the Bank refinancing Lucky Labor’s existing credit facility with a larger facility.

Lucky Labor has been in business

for over a decade and is fairly profitable. While Lucky Labor’s recent growth has been primarily fueled by acquisitions of smaller staffing companies, rather than through increased customers and sales, Lucky Labor’s management is very experienced and well respected within the staffing industry. As such, the Chief Credit Officer is generally supportive of the proposed credit facility.

Not surprisingly, payroll expense is, by far, the largest operating expense of a staffing company. When financing a staffing business, the Bank has engaged a third-party tax monitoring service to confirm that the staffing company borrower has timely filed all of its payroll returns with the IRS, and has timely made all required payroll tax payments to the IRS. A few days before the Bank’s credit committee meeting is scheduled to consider final approval of the proposed credit facility to Lucky Labor, the Chief Credit Officer receives a copy of the payroll tax report prepared by the third-party tax monitoring service engaged by the Bank to investigate Lucky Labor. To his surprise, the report shows that Lucky Labor has not actually made a payroll tax payment to the IRS for the past three years.

Confused, the Chief Credit Officer calls his head underwriter, who explains that Lucky Labor does not actually remit payroll tax payments directly to the IRS. In fact, Lucky Labor is not even the employer of record for the temporary labor that it places with its customers. Rather, Lucky Labor outsources virtually all of its human resources functions, including payroll and workers’ compensation, to a professional employer organization called Back Office Inc. Bank Office, in turn, pays the payroll

directly to the temporary labor, and also reports and remits payroll tax directly to the IRS, under its own EIN. The Chief Credit Officer is concerned. The Bank will not be able to monitor Back Office, an outside third party, the same way it would Lucky Labor. He wonders, for example, what might happen if Back Office fails to remit the payroll or pay the payroll taxes? To complicate matters, because the Bank will not have much, if any, visibility into Back Office, the Bank might not even know there is a problem until it is too late. If you were the Chief Credit Officer of Overadvance Bank, what would you do?

Let’s start with the basics. A professional employer organization, or a PEO, is a company that serves as an outsourced human resources department for another company. Staffing and other companies are increasingly contracting with PEOs for the PEO to take over some of its “employer duties”, such as the payment and reporting of payroll tax, and worker’s compensation insurance.

As the Chief Credit Officer notes, when a borrower uses a PEO, it can be difficult to monitor the borrower’s payroll tax deposits and filings, as the PEO is unlikely to allow its client’s lender to have any special or enhanced visibility into the PEO. Of course, late or non-payment of payroll taxes can be costly both for a lender and its borrower. For instance, an IRS lien will prime a secured lender’s prior perfected lien with regard to any advances made or collateral created after 45 days from the earlier of when the tax lien is filed or the lender obtains notice of the tax lien.

In the typical PEO arrangement, the PEO contractually assumes its client’s (e.g., Lucky Labor’s) obligation to remit and report payroll taxes.

THE SECURED LENDER MAY 2018 33

what would you do?

“While he is concerned with the lack of visibility into Back Office, or any other PEO for that matter, he knows that, like any other service provider, some PEOs are more reputable than others.

As such, for the Bank to get comfortable with this deal, it will need to conduct additional due diligence on Back Office.”

34

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

However, as the Chief Credit Officer correctly assumes, a failure of Back Office to remit payroll taxes could result in an IRS lien against Lucky Labor, even if Back Office contractually agreed to assume that obligation and even if Lucky Labor already paid those taxes to Back Office.

So what should the Chief Credit Officer do in this case? As mentioned above, he knows it is very unlikely that Back Office will agree to allow the Bank to have any special visibility into Back Office or to provide the Bank with periodic reporting. However, he also knows that businesses of all types are increasingly engaging the services of a PEO for some or all human resources functions. As such, the Chief Credit Officer is determined to find an acceptable solution.

While he is concerned with the lack of visibility into Back Office, or any other PEO for that matter, he knows that, like any other service provider, some PEOs are more reputable than others. As such, for the Bank to get comfortable with this deal, it will need to conduct additional due diligence on Back Office.

The additional due diligence might include determining whether Back Office is licensed under state law (where applicable) and whether it is an accredited PEO by either the IRS or by a reputable third party, such as Employer Services Assurance Corporation. Accreditation by the IRS would be especially significant, as the Chief Credit Officer seems to recall recent legislation which would protect clients of an IRS-accredited PEO from liability to the IRS should such PEO fail to remit payroll taxes received from the borrower/client. The Chief Credit Officer also recommends to his underwriters that they obtain references, from both borrowers and other lenders, for any PEO that a staffing

company borrower wishes to use.

We hope you enjoyed the column and, of course, are always interested in your feedback. As such, if you have any scenarios you would like to see discussed in a future column, please let us know at Dfiorillo@otterbourg. com or Jcretella@otterbourg.com. TSL Dan Fiorillo and Jim Cretella are Members of the law firm Otterbourg P.C.

the cfa brief AMONG CFA MEMBERS

CFA NEWS IN PRINT

Celtic Capital Corporation: Larry Artman has joined as senior vice president – client development. Artman’s career spans over 30 years in the asset-based lending community and has held senior sales and portfolio positions for institutional and privately held entities. Artman brings an impressive track record of helping small to mid-sized non-bankable companies obtain viable working capital solutions to fund growth. He will lead Celtic Capital’s business development efforts in Georgia, Alabama, Florida, North and South Carolina. Artman can be reached at (678) 215-3773 or lartman@ celticcapital.com.

CIT Group Inc. (NYSE: CIT), a leading provider of commercial lending and leasing services, announced three additions to its Equipment Finance division’s Office Imaging sales team to increase support for office imaging manufacturers and independent dealers.

“These newly created positions reinforce the success we are experiencing with our vendor integration services and with FlexAbility, our advanced deal-structuring and invoicing system,” said Michael D’Errico, commercial leader for Office Imaging. “All these offerings provide important commercial and operational benefits for office imaging manufacturers and dealers, better enabling them to improve customer experience, boost efficiency and lower operational expenses.”

Karen Madden was named a vice president supporting the Konica Minolta account for CIT. Previously, she was a relationship manager with U.S. Bancorp’s Office Equipment Vendor Services where she guided Konica Minolta initiatives across their direct and dealer channels.

Scott Plemmons joins CIT from Xerox Global Imaging Solutions (GIS), and will support independent dealers in western states. At GIS, Plemmons most recently served as market director and sales manager for southern Oregon, after previously working as a branch manager and general manager.

In addition, Callie Calimlim will coordinate business with Toshiba branches in the West. Calimlim has held sales and business development positions with a wide range of office imaging, technology, broadcasting and e-commerce companies. Calimlim joins Mary Perrone, who supports Toshiba branches in the East and Midwest, to comprise the CIT team supporting Toshiba overall.

The Equipment Finance division is part of CIT’s Business Capital organization and works with manufacturers, franchisors, distributors, resellers, dealers and systems integrators to finance their equipment, software and services to commercial customers.

Founded in 1908, CIT (NYSE: CIT) is a financial holding company with approximately $50 billion in assets as of Dec. 31, 2017. Its principal bank subsidiary, CIT Bank, N.A., (Member FDIC, Equal Housing Lender) has approximately $30 billion of deposits and more than $40 billion of assets. CIT provides financing, leasing, and advisory services principally to middle-market companies and small businesses across a wide variety of industries. It also offers products and services to consumers through its Internet bank franchise and a network of retail branches in Southern California, operating as OneWest Bank, a division of CIT Bank, N.A.

CIT Group Inc. (NYSE: CIT) announced that it has named Sarah L. F. McAvoy to the Corporate Treasurer position, effective March 19. In this role, McAvoy has responsibility for all aspects of treasury, including capital and liquidity management, balance sheet management, interest rate risk management and oversight of the investment portfolio. She will report to CIT Chief Financial Officer John Fawcett.

“Sarah brings extensive treasury, banking and capital markets experience to CIT as we continue to implement our plan to optimize capital levels, better manage overall funding costs and improve profitability,” said Fawcett.

“We continue to build momentum and make progress on our strategic plan, and Sarah will be instrumental in continuing to drive a number of our capital and funding initiatives.”

McAvoy had a 24-year career in capital markets and treasury positions at Bank of America prior to joining CIT. Most recently she was the Global Funding Executive in Corporate Treasury, and prior to that she served as the head of domestic funding for the bank. Earlier in her tenure she had various positions in the Corporate Investments Group and the Global Markets division in the equity, fixed income and derivatives areas.

She began her career at J.P. Morgan in the Commodity Derivatives Group.

McAvoy succeeds Ken Brause as CIT’s Corporate Treasurer.

Coral Capital Solutions announced it has expanded its Midwest operations and has appointed industry sales veteran Bob Hinson regional sales manager, VP, to manage new business in the region. Based in Chicago, IL, Hinson draws on more than 35 years of valuable experience in business development, marketing, sales and finance. In his pivotal role as vice president, regional sales manager in the Mid-West, Hinson will

THE SECURED LENDER MAY 2018 35

the cfa brief

primarily focus on developing financing solutions for management teams and business owners seeking acceleration of growth and expansion of their businesses.

“Bob has a long and distinguished career within the factoring community.

His expansive knowledge and management background will add considerable bench strength to our expanding MidWest client base helping educate and support businesses about the tremendous benefits in alternative funding” stated Jim Bertie, chief operating officer of Coral Capital. Bob’s responsibility is to build Coral Capital’s relationship with community and regional banks, lenders, workout groups, accountants, attorneys, financial advisors and other referral sources and to provide financing solutions for businesses ranging from early stage and fast growing companies to businesses in distress that need a funding source for a turnaround.

Prior to joining Coral Capital, Hinson has held senior level positions in the factoring and asset-based lending community. Most recently, Hinson worked as vice president and regional sales manager at Bay View Funding. Prior to his tenure at Bay View, Hinson worked as vice president for Ares Management, f/k/a/Keltic Financial Services, providing ABL facilities to middle-market companies throughout the US. Hinson earned his Bachelor of Arts in business management from Roosevelt University, Chicago, IL and can be reached at bob@coralcapitalsolutions. com or office (847) 398-6874 or cell (847) 909-2213.

Crestmark is pleased to announce promotions in its Crestmark Equipment Finance (CEF) division. Thomas (Tom) Rutherford has been appointed division president, and James (Jim) Recker is division chief operating officer (COO) and general counsel.

36

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

Both Rutherford and Recker will report to Mick Goik, Crestmark president and chief operating officer, and both will be based at the company’s corporate offices in Bloomfield Hills/Troy, Michigan.

“I have great confidence in this leadership team. Their combined expertise provides a great resource to the lease finance industry… and to Crestmark,” said Goik. “Tom and Jim have been instrumental to the division’s success and they will continue advancing it to new strategic heights. Our goal is to grow CEF from a $300 million leasing company to a $1 billion program, by assisting all sizes of business with lease financing.”

Rutherford said, “Jim and I are really looking forward to helping with the continued growth of the leasing division; and the good things ahead for Crestmark.”

In October 2014, Crestmark acquired Bloomfield Hills-based TIP Capital. The division was renamed Crestmark Equipment Finance to serve as its equipment leasing division. At that time, Rutherford was named senior vice president/chief operating officer of CEF and oversaw the business operations and lease funding activities of the division including credit, syndications and asset management departments. Recker was named senior vice president/executive vice president, general counsel, where he was responsible for all aspects of the division’s legal, human resources and lease documentation processes.

Rutherford co-founded TIP Capital in 1999 and served as chief operating officer. He has 30+ years of experience in sales, marketing and operations, with over 25 years in technology financing.

Prior to joining TIP Capital, Rutherford was the director of syndications for AT&T Capital Systems Leasing, responsible for the placement, syndication and management of a diverse portfolio of equipment financing transactions. Before that, he was a regional business manager of the

asset management team at CMI Corporation.

Rutherford received his undergraduate degree in biology from the University of California – San Diego and an MBA from Wayne State University. He also has held Series 7 and a Series 63 Securities licenses.

Recker joined TIP Capital in 2000 and served as its executive vice president and general counsel. He has more than 20 years of legal experience unique to the equipment leasing industry. Before joining TIP Capital, Recker was senior vice president and chief counsel for AT&T Capital Systems Leasing, and was responsible for legal matters and additional business responsibilities. Before that, he focused on portfolio acquisitions and capital-raising activity within the equipment leasing industry for the law firm of Sidley & Austin. Recker received a bachelor’s degree in business administration and a law degree from the University of Michigan.

Far West Capital was recently named as one of the 2018 Best Companies to Work for in Texas. The awards program was created in 2006 and is a project of Texas Monthly, the Texas Association of Business (TAB), Texas SHRM and Best Companies Group.

“It’s an honor to be named one of the ‘Best Companies to Work for in Texas’, said Cole Harmonson, CEO and co-founder of Far West Capital. “We know that our people are our most valuable asset and we’re proud to share this award with our team who makes Far West Capital such a great place to work.”

This statewide survey and awards program was designed to identify, recognize and honor the best places of employment in Texas, benefiting the state’s economy, workforce and businesses.

The 2018 Best Companies to Work for in Texas list is made up of 100 companies.

Far West Capital has been recognized as

#39 on the list.

Companies from across the state entered the two-part survey process to determine the Best Companies to Work for in Texas. The first part consisted of evaluating each nominated company’s workplace policies, systems, philosophies, practices, and demographics. The second part consisted of an employee survey to measure the employee experience. The combined scores determined the top companies and the final rankings.

The list of the 100 Best Companies to Work for in Texas and how they rank was revealed for the first time at the Texas Association of Business (TAB) Best Companies to Work for in Texas Awards Dinner and Celebration on March 8 at the Circuit of the Americas, Del Valle. For more information on the Best Companies to Work for in Texas program, visit www.BestCompaniesTX.com.

FSW Funding: Melissa Huckins has been hired as senior vice president of operations. Huckins’ past experience at FINOVA Capital Corporation (FINOVA) as VP of Treasury encompassed managing debt and cash management units, including risk management, debt capital markets, accounting, trading and bank relations.

At FINOVA, Huckins demonstrated skills in managing a team of professionals to finance a capital structure and improve operational efficiencies, utilizing technology solutions and proactive problem solving. For the past nine years Melissa has worked as a financial advisor where she built up a successful practice serving families, business owners and corporate executives.

Huckins has a Bachelor of Science in accounting from Millikin University and a Master in business administration from Arizona State University. Huckins also serves on the board of directors of the Phoenix Conservatory of Music, board of directors of the Phoenix

Children’s Hospital Foundation Leadership Circle and is a former board trustee (Treasurer) of the Arizona Foundation for the Future of Nursing.

“We have searched for over a year to find the right candidate and are very fortunate to have Melissa join the FSW team.” said Robyn Barrett, founder and managing member of FSW Funding. “We expect FSW’s operational processes and client customer service to greatly benefit under her management.”

FSW Funding is located at 4530 East Shea Blvd., Suite 142, in Phoenix. To learn more about FSW Funding and its factoring services, visit fswfunding.com or call 602-535-5984.

FSW Funding, formerly Factors Southwest, L.L.C., is headquartered in Phoenix, Ariz. and is a leading factoring firm that offers flexible and affordable lines of credit to small and mid-size business-tobusiness and business-to-government companies.

Gordon Brothers, the global advisory, restructuring, and investment firm, announced enhancements to its business development team within its valuation group across North America. These new appointments strengthen the group’s business development footprint across the Northern, Midwestern, and Western regions of the U.S. as well as Canada, complementing its presence in the Northeastern, Mid-Atlantic, and Southeastern U.S. “We’re excited to announce these new additions to our business development team to provide the broadest coverage of any appraisal firm in North America,” stated Frank Grimaldi, senior managing director of North American Sales for Gordon Brothers’ valuation practice.

“All of our new additions are prior commercial and industrial appraisers.

They will bring practitioners’ knowledge of the appraisal process and values di-

rectly to our clients,” stated Ken Frieze, CEO of Gordon Brothers. “It’s exciting to see talent developed and promoted internally,” he added.

Based in Chicago, Ryan Ray’s client base has expanded to include all of Illinois, Ohio, and Western Pennsylvania.

Ray has been active as an appraiser and business development officer in the Midwest region for over 15 years. He holds his Uniform Standards of Professional Appraisal Practice (USPAP) certification.

Based in Toronto, Mosana Khan will provide business development support for clients across all of Canada. Khan is a native Canadian and has experience as an industrial inventory appraisal analyst with Gordon Brothers. He holds a master degree in economics from the University of Waterloo.

Based in Milwaukee, Eliot Kaufmann will be responsible for the Northern region as well as some portions of the Midwest (North Dakota, South Dakota, Nebraska, Kansas, Minnesota, Wisconsin, Iowa, Missouri, Michigan, Indiana, and West Virginia). Kaufmann served as a senior appraiser of machinery and equipment and holds his Uniform Standards of Professional Appraisal Practice (USPAP) and American Society of Appraisers (ASA): Introduction to Machinery and Equipment Valuation certifications.

Based in Los Angeles, Jordan Henrich was appointed in October 2017 to provide business development coverage for Gordon Brothers in the West (California, Oregon, Washington, Nevada, Idaho, Utah, Montana, Wyoming, Alaska, and Hawaii). He previously worked as a senior consumer products and industrial appraisal analyst and holds his Uniform Standards of Professional Appraisal Practice (USPAP) certification.

Based in Austin, Aaron Walton has been promoted to managing director in recognition of his continued success in client service. Walton has added Arizona to his client base and will continue to

THE SECURED LENDER MAY 2018 37

the cfa brief

cover his existing Southwestern territory (Colorado, New Mexico, Texas, Oklahoma, Arkansas and Louisiana).

Michael D. Sullivan will continue to serve the Mid-Atlantic. Fran Garvin will continue to serve the Northeast, and Conrad Lauten will continue to serve the Southeast. They work alongside seasoned business development leadership, Frank Grimaldi and Rick Ferron, who both work across the U.S. and Canada.

Gordon Brothers also maintains valuation practices across Europe, Asia, Australia and South America. It became the largest appraisal firm serving the asset-based lending industry in the world following its 2015 acquisition of AccuVal. Since 1903, Gordon Brothers (www. gordonbrothers.com) has helped lenders, operating executives, advisors, and investors move forward through change.

The firm brings a powerful combination of expertise and capital to clients, developing customized solutions on an integrated or stand-alone basis across four service areas: valuations, dispositions, operations, and investments.

Whether to fuel growth or facilitate strategic consolidation, Gordon Brothers partners with companies in the retail, commercial, and industrial sectors to put assets to their highest and best use.

Gordon Brothers conducts more than $70 billion worth of dispositions and appraisals annually. Gordon Brothers is headquartered in Boston, with 25 offices across five continents.

Mitsubishi UFJ Financial Group, Inc. (MUFG): Maureen Sullivan was hired as managing director and head of Supply Chain Finance for the Americas. She began her new assignment on March 26, and will divide her time between Chicago and New York.

Sullivan joins MUFG from HSBC, where she was head of Solutions Structuring, responsible for receivables,

38

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

commodity finance, and supply chain finance. She also launched a variety of strategic fintech partnerships while at HSBC. Before working at HSBC, Sullivan spent six years with Bank of America as North American Trade sales head; nearly four years at J.P. Morgan as global trade finance product manager; and 14 years at Citigroup, where she held several positions including Global Trade finance product manager.

Sullivan will report to Jon Lindenberg, MUFG’s deputy head of Investment Banking for the Americas.

“Maureen’s leadership capabilities and experience make her a natural choice to manage MUFG’s Supply Chain Finance business,” said Mr. Lindenberg.

“Her demonstrated success on a widerange of global banking platforms will undoubtedly add value for our clients, all of whom are seeking innovative, tailored solutions to best manage their supply chain finance needs.”

Named one of the Chicago Business Journal’s Women of Influence for 2016, Sullivan earned a B.S. degree in finance from Indiana University’s Kelley School of Business.

MUFG’s Supply Chain Finance group offers account receivables and payables solutions for both buyers and sellers that allow for their respective shortterm credit needs.

Headquartered in New York, MUFG Americas Holdings Corporation is a financial holding company, bank holding company and intermediate holding company with total assets of $154.6 billion at December 31, 2017. Its main subsidiaries are MUFG Union Bank, N.A. and MUFG Securities Americas Inc. MUFG Union Bank, N.A. provides an array of financial services to individuals, small businesses, middle-market companies, and major corporations. As of December 31, 2017, MUFG Union Bank, N.A. operated 361 branches, comprised primarily of retail

banking branches in the West Coast states, along with commercial branches in Texas, Illinois, New York and Georgia, as well as 19 PurePoint Financial Centers and one international office. MUFG Securities Americas Inc. is a registered securities broker-dealer which engages in capital markets origination transactions, private placements, collateralized financings, securities borrowing and lending transactions, and domestic and foreign debt and equities securities transactions. MUFG Americas Holdings Corporation is owned by The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Mitsubishi UFJ Financial Group, Inc. The Bank of Tokyo-Mitsubishi UFJ, Ltd. is a whollyowned subsidiary of Mitsubishi UFJ Financial Group, Inc., which is one of the world’s leading financial groups.

Monroe Capital LLC: Karin Kovacic has joined the firm’s originations team as managing director, East Coast region.

Kovacic joins Ben Marzouk and Lee Stern in the firm’s New York office. Prior to Monroe, Kovacic was a senior vice president at Alcentra Capital Corporation, focusing on business development and deal origination. Before Alcentra, she led CBIZ, Inc.’s growth, business development and marketing efforts in the New York Metropolitan area. Prior to CBIZ, Karin spent four years as vice president at Fifth Street Capital, where she was responsible for Northeast region deal origination and marketing and business development efforts.

“We are very excited to add Karin to the Monroe Capital originations team,” said Tom Aronson, managing director and head of originations of Monroe Capital. “Karin has an accomplished career of over 15 years providing financing solutions to middle-market companies and brings with her many great relationships and a wide range of experience across multiple industries. She will help us continue to grow our robust direct

origination platform that we have built throughout the U.S.” Kovacic is a board member and executive committee member of the Association of Corporate Growth (ACG) Global, as well as chairman of the ACG Connecticut Chapter.

Monroe Capital LLC (Monroe) is a private credit asset management firm specializing in direct lending and opportunistic private credit investing. Since 2004, the firm has provided private credit solutions to borrowers in the U.S. and Canada. Monroe’s middle-market lending platform provides senior and junior debt financing to businesses, special situation borrowers, and private equity sponsors. Investment types include unitranche financings; cash flow, assetbased and enterprise value-based loans; and equity co-investments. Monroe is

committed to being a value-added and user-friendly partner to business owners, senior management, and private equity and independent sponsors. The firm is headquartered in Chicago and maintains offices in Atlanta, Boston, Dallas, Los Angeles, New York, and San Francisco. Monroe has been recognized by Private Debt Investor as the 2017 Lower Mid-Market Lender of the Year; Global M&A Network as the 2017 Small Middlemarkets Lender of the Year; M&A Advisor as the 2016 Lender Firm of the Year; and the U.S. Small Business Administration as the 2015 Small Business Investment Company (SBIC) of the Year.

North Mill Capital: Mike Stoffield has joined North Mill Capital as senior field examiner for the Midwest region.

Stoffield has over 24 years of experi-

Unlock the

of your clients’ equipment.

Lacking in cash flow but have equipment? 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!

586-726-5637 | info@uticaleaseco.com | www.uticaleaseco.com

Finance with collateral, not credit.

ence auditing for banks and finance companies. He graduated from Marquette University with a degree in finance and from the Keller Graduate School of Management with an MBA. “Mike is a great addition to our team,” said Betty Hernandez, chief credit officer, “He will be instrumental in assisting North Mill in our continued path to grow in the Midwest.”

He can be reached at MStoffield@ NorthMillCapital.com and (262) 2270202.

Rod Landis has joined North Mill Capital as vice president/business development officer in the Northeast, covering New England and upstate New York. He brings with him over 20 years of banking and related experience in asset-based lending, commercial lending and leveraged loans.

Landis was previously with local banks in New England working in their Asset-based Lending division as a business development officer, relationship manager, senior underwriter, as well as participating in credit-training programs. Over the last four years, he has worked with companies in the manufacturing, wholesale/distribution, food/beverage, consumer products, and services industries. Landis also worked as an analyst at an investment management firm.

Rod currently serves as President of the New England Commercial Finance Association, is a Chartered Financial Analyst (CFA), and is a member of the Turnaround Management Association (TMA) as well as the Association for Corporate Growth (ACG). He received his MBA from Boston University and his B.S. from UC Berkeley.

“New England has always been a good market for us,” said Dan Tortoriello, EVP and COO of North Mill Capital, “We look forward to Rod continuing to expand our presence in that region.”

THE SECURED LENDER MAY 2018 39

the cfa brief

Opus Bank: Jim Haney, a 32-year banking veteran, has joined Opus Bank as executive vice president, head of commercial banking and has been appointed to Opus’ Executive Committee.

Stephen H. Gordon, chief executive officer and president of Opus Bank, stated, “We are very proud to have Jim Haney join Opus to lead our Commercial Banking team and as a member of our senior executive team. Throughout his banking career, Jim has experienced considerable success in building, growing, and leading commercial banking teams on the West Coast. This success stems from Jim’s entrepreneurial approach, which mirrors Opus’ approach of partnering with clients by providing the capital funding, tailored solutions, and strategic advice necessary to enable their long-term vision, act on their business strategy, and achieve their goals.” Gordon added, “We look forward to Jim’s anticipated success as Opus grows its relationship-based commercial banking franchise.”

Haney joins Opus most recently from City National Bank (CNB), a subsidiary of Royal Bank of Canada (RBC), where he served as senior vice president and regional manager – Los Angeles Metro Region since 2006. While at CNB, Haney was responsible for offices with approximately $1.5 billion in loans outstanding, $2.4 billion in loan commitments, and $2.4 billion in core deposits. From 2002 to 2006, Haney served as senior vice president, Los Angeles market director for Citibank Commercial Banking. From 1998 to 2002, Haney served as the Los Angeles market manager for Commercial Banking at California Federal Bank (CalFed) until its acquisition by Citibank in 2002. From 1996 to 1998, Haney served as Director of Business Banking for CalFed, and since 1985 served in various capacities at Bank of America, including Commercial Banking, Business Banking, Retail Banking and Sales Management.

Prior to joining Bank of America, Haney

40

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

spent four years in the securities industry. Haney holds a Bachelor of Science degree from the University of Utah.

Opus Bank also announced that Adam Russell has joined as senior managing director – Commercial Banking. Russell, a 30-year banking veteran, is responsible for expanding Opus’ commercial and corporate client base in Southern California’s Inland Empire.

Jim Haney, executive vice president, head of Commercial Banking, stated, “We are pleased that Adam has joined Opus to expand our Southern California Commercial Banking coverage into the dynamic Inland Empire market. Adam is a uniquely experienced banker deeply connected to the region through his 30 years in banking, his board service, and as an educator.” Haney added, “We anticipate that Adam’s years of experience and considerable success providing debt financing and treasury management solutions to mid-sized businesses and middle-market corporations in the Inland Empire will be impactful, as Opus Bank continues to grow its market presence and relationship-based commercial banking franchise.”

Russell joins Opus Bank most recently from Community Bank headquartered in Pasadena, where he served as first vice president, team leader and relationship manager since 2016. While at Community Bank, Russell was responsible for managing and growing a portfolio of middle-market commercial clients in the Inland Empire. From 2013 to 2016, Russell served as vice president, business development at City National Bank, where he focused on Commercial and Industrial Lending in the Inland Empire market. From 2011 to 2013, Russell served as senior vice president, regional commercial banking manager for Wedbush Bank, where he was responsible for launching and growing the commercial banking loan production office in the Inland Empire. From 2005 to 2011, Russell

served as market president at Mutual of Omaha Bank, where he established and led the bank’s commercial banking office in the Inland Empire. From 1997 to 2005, Russell served as vice president, Commercial Banking at California Federal Bank (CalFed), and Citibank, subsequent to its purchase of CalFed in 2002. Russell began his career in 1988 with Bank of America. Russell currently serves as Vice Chairman of the Board of Directors of Enterprise Funding Corp., a Redlands, California-based Certified Development Company for the U. S. Small Business Administration, as well as Chair of the Business Alliance at California State University, San Bernardino. Additionally, Russell has served as an adjunct professor of finance at California State University, San Bernardino since 2012.

Russell holds a B.A. from the University of California, Los Angeles and an M.B.A. from the University of Southern California.

People’s United Bank , N.A. a subsidiary of People’s United Financial, Inc. (NASDAQ: PBCT), announced that Bradley Weaver has joined People’s United Business Capital (PUBCAP) as senior vice president, responsible for new business originations in Pennsylvania, Southern New Jersey, Delaware and Maryland. In this role, Weaver will focus on providing senior secured asset-based loan facilities to borrowers requiring between $5 million and $50 million.

Weaver will be based in the suburban Philadelphia King of Prussia office, and brings more than 25 years of secured lending experience to PUBCAP. His prior roles included various new business development positions with Webster Business Credit, First Niagara Bank, PNC Bank and Commerce Bank.

“Brad brings the experience, proven track record and an extensive contact network to the Asset-based Lending Group, which will support our efforts to

build and grow our business in Pennsylvania, and expansion south into Delaware and Maryland,” said Mike Maiorino, executive vice president and president of People’s United Business Capital.

Weaver is currently the vice president of the Commercial Finance Association, Philadelphia Chapter, and a member of the Association for Capital Growth. He received a B.S. in business management from The Pennsylvania State University.

People’s United Bank, N.A. is a subsidiary of People’s United Financial, Inc. (NASDAQ: PBCT), a diversified financial services company with $44 billion in assets. People’s United Bank, founded in 1842, is a premier, community-based, regional bank in the Northeast offering commercial and retail banking, as well as wealth management services through a network of over 400 retail locations in Connecticut, New York, Massachusetts, Vermont, New Hampshire and Maine.

TD Bank, America’s Most Convenient Bank®: John J. Lim as senior vice president, business development officer in Asset-based Lending. Based in New York City, he is responsible for delivering ABL financing solutions to new and existing middle-market and mid-corporate clients in New York, New Jersey and Pennsylvania.

Lim has 14 years of experience in banking, finance and lending. Prior to joining TD Bank, he served as a Corporate Banking business development officer at Citizens Bank, covering metro New York. Lim started his career at Citibank in New York.

“The upper Mid-Atlantic region is an important market for TD Bank,” said Jeffery W. Wacker, managing director - head of business development for Asset-Based Lending. “Together with John’s expertise, we look forward to building on the tradition of providing legendary service for our customers.”

A New York City resident, Lim is a

member of the Association for Corporate Growth (ACG) and the Commercial Finance Association (CFA). He is a graduate of Columbia University.

TD Bank, America’s Most Convenient Bank, is one of the 10 largest banks in the U.S., providing more than 9 million customers with a full range of retail, small business and commercial banking products and services at more than 1,200 convenient locations throughout the Northeast, Mid-Atlantic, Metro D.C., the Carolinas and Florida. In addition, TD Bank and its subsidiaries offer customized private banking and wealth management services through TD Wealth®, and vehicle financing and dealer commercial services through TD Auto Finance. TD Bank is headquartered in Cherry Hill, N.J. www.tdbank.com TD Bank, America’s Most Convenient Bank, is a member of TD Bank Group and a subsidiary of The Toronto-Dominion Bank of Toronto, Canada, a top 10 financial services company in North America.

The Toronto-Dominion Bank trades on the New York and Toronto stock exchanges under the ticker symbol “TD”.

AMONG CFA EDUCATION FOUNDATION MEMBERS Blank Rome LLP* is pleased to announce that two accomplished finance and real estate partners have joined the Firm in New York: joined the Firm in New York: Stephen D. Brodie, partner, Real Estate group and Financial Services industry team, and Julie Carvalho, partner, Finance, Restructuring, and Bankruptcy group and Financial Services industry team Brodie and Carvalho join Blank Rome from Herrick Feinstein LLP. where Brodie served as co-chair of the firm’s Corporate Department, chair of the Financial Institutions practice group and, for the last three years, as a member of Herrick’s Executive Committee.

“We are thrilled to welcome Steve

and Julie to Blank Rome,” said Alan J. Hoffman, chairman and managing partner. “Steve and Julie have handled a variety of complex corporate, finance, mergers and acquisitions, and real estate matters on behalf of their clients.

With an additional focus on art law, they bring unique knowledge and perspective to our strong financial services team.”

“We’re very excited to join Blank Rome and work with its deep reserve of high-quality lawyers in a number of key cities,” said Brodie. “Personally, in this phase of my career, my clients will benefit from a firm with significant geographic reach and diverse practice areas, such as ABL, aviation finance, and maritime finance; I am happy to have found all of this at Blank Rome.”

“Working with our Financial Services and Real Estate teams, Steve and Julie will continue to provide their clients with strategic counsel, with the benefit of additional capabilities and a deep bench in the financial services industry,” said Lawrence F. Flick, chair of Blank Rome’s Financial Services industry team.

“We are excited that they will have the opportunity to grow their practices at Blank Rome, with the expanded support from our practices and offices throughout the United States. We are confident that their range of experience and strong relationships will be of great benefit to our clients and colleagues.”

Brodie focuses his practice on New York City real estate development and financing as well as other kinds of secured lending, including specialty lending arrangements and high-profile corporate transactions. He has developed considerable experience in a variety of transactional legal work. He often represents commercial banks in secured and unsecured financings, including syndicated and single bank, high-end middlemarket, “C&I” transactions, construction loans, mezzanine real estate financings, leasehold mortgage loans, asset-based

THE SECURED LENDER MAY 2018 41

the cfa brief

loans, and in workouts and restructurings arising from real estate, corporate, and commercial loans, often involving intercreditor relationships. Additionally, Brodie has represented owners, developers, and co-op and condominium sponsors in real estate development matters involving construction, building conversions, commercial leasing, and buy/sell transactions, as well as foreign lenders in financings for U.S. borrowers secured by real estate, oil tankers, oil refineries, ski resorts, and other collateral.

Brodie has decades of experience with New York’s Lien Law and Real Property Law, as well as Article 9 of the Uniform Commercial Code, and has been the lead lawyer on numerous cross-border lending transactions.

His clients also include banks and niche lenders lending against nontraditional collateral, including professional sports franchises and fine art owned by both collectors and dealers. He advises art title insurers as well as banks that are creating and revising written credit policies for both art and real estate lending. He also represents collectors and gallerists on matters related to the financing and purchase of fine art.

He is a frequent writer and speaker on matters pertaining to financing, title insurance, and risk in the business side of the art world.

Brodie earned his J.D. from the New York University School of Law, and his B.A. from Yale University.

Carvalho focuses her practice on debt financings, including syndicated and single bank high-end middle-market transactions, art loans and other private wealth lending transactions, mezzanine financings, and asset-based loans.

She has represented major financial institutions and specialty non-bank lenders, as well as borrowers across a wide range of industries. She also advises clients in mergers and acquisitions, and general commercial corporate

42

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

matters.

Carvalho earned her J.D. from the University of Michigan Law School where she was an editorial staff member of the Michigan Journal of Gender and Law, and her undergraduate degree from New York University.

Blank Rome is an Am Law 100 firm with 13 offices and more than 600 attorneys and principals who provide comprehensive legal and advocacy services to clients operating in the United States and around the world. Its professionals have built a reputation for their leading knowledge and experience across a spectrum of industries, and are recognized for their commitment to pro bono work in their communities.

Since its inception in 1946, Blank Rome’s culture has been dedicated to providing top-level service to all of its clients, and has been rooted in the strength of its diversity and inclusion initiatives.

Hahn & Hessen LLP: Stephen J. Grable has become a partner in the firm. The promotion strengthens one of the firm’s core practice areas: commercial litigation, and adds even further depth to the firm’s substantial litigation capabilities and deep expertise in financial service, fiduciary, business disputes and bankruptcy matters.

In addition to continuing litigating commercial and bankruptcy matters, Grable is assuming the role of vice chair of the Firm’s Fiduciary Litigation Practice Group. He will be responsible, along with the group’s Chair, Zachary G. Newman, for representing fiduciaries in both affirmative and defensive litigation throughout the United States.

By way of background, Grable joined the firm as an associate after graduating from Fordham University School of Law in 2007. During his time at the firm, Grable has litigated complex commercial, fiduciary, bankruptcy, and business disputes in various federal and

state courts in New York and elsewhere.

Grable also has served as an adjunct professor at Fordham University School of Law and Seton Hall University School of Law, teaching both survey and advanced courses on fiduciary disputes and alternative dispute resolution.

“We are thrilled to welcome Stephen to the partnership. His promotion broadens the firm’s depth in business and financial services litigation,” said Mark Indelicato, managing partner. “We are particularly proud of his accomplishments in broadening the firm’s fiduciary litigation practice. Stephen represents the very best of Hahn & Hessen, exhibiting exceptional talent and a tireless commitment to our clients.”

Founded in 1931, Hahn & Hessen LLP is a full service commercial firm serving primarily financial institutions and creditors holding distressed debt. The firm has received substantial recognition for its unique capabilities in situations where the creditworthiness of a client’s existing or potential borrowers, counterparties or customers are of concern.

Paul Hastings LLP*: Andres Mena, a debt finance lawyer, previously with Kirkland & Ellis, has joined the firm as a partner in the Leveraged Finance practice in New York. His arrival continues the firm’s investment in its marketleading finance practice. Mena joins a preeminent practice, bolstered by recent partner additions and up-from-the-ranks partner nominations.

“We’re committed to providing top legal counsel to our clients and Andres is a great addition for the firm,” said Seth Zachary, chair of Paul Hastings.

“The ability to represent clients across the spectrum of sophisticated financing transactions is a major strategic advantage of and priority for our firm. Andres’ arrival and other recent additions serve to further strengthen our global leadership, breadth, and overall capabilities,”

he added.

“Paul Hastings has strong teams within all areas that underlie my practice, including top-notch Leveraged Finance and Restructuring practices, a deep focus on energy matters, and premiere Latin America coverage,” said Mena. “I’ve worked alongside Paul Hastings lawyers in the past and have been impressed by their expertise and strong client relationships, especially in leveraged finance. The deep bench of impressive attorneys is simply outstanding. I am looking forward to helping continue to grow the firm’s market-leading practice in that space,” he added.

Mena concentrates his practice in debt and leveraged finance, representing public and private borrowers and private equity sponsors. Over the last 15plus years he has represented corporate clients, private equity funds, and lenders in numerous financing and restructuring matters. These include LBOs and acquisition financings, recapitalizations, out-ofcourt workouts and DIP financings, with an emphasis in the cross-border and energy space. Mena is a graduate of the University of Chicago Law School and of the Universidad de Chile.

Mena is a partner in the Corporate department of Paul Hastings and is based in the firm’s New York office. Mena concentrates his practice in debt finance and private equity. He represents corporate clients, private equity funds and lenders in connection with acquisition and leveraged financings, as well as debt restructurings and workouts, with an emphasis in the cross-border and energy space. Mena’s transactions include senior, subordinated, first and second lien, debtor-in-possession and other financing facilities.

Mena was recognized by Chambers Global for both Banking & Finance (Experts Based Abroad) and Capital Markets: Debt & Equity (Foreign Experts) and as a “Leading Lawyer” by the IFLR1000.

He was profiled in the September 2006 edition of the Diario Financiero of Santiago de Chile, included in the “Global Positioning” article of July 2008’s LatinLawyer Magazine and in the April 2009 edition of “Capital” magazine of Santiago de Chile.

to bring affordable, innovative, and fully transparent funding solutions to small businesses with a wide range of credit profiles. Fairbank was recognized in the 2016 Trending 40’s list of D.C.’s top entrepreneurs under 40 years old and is a member of the Forbes Financial Council.

* Indicates firm is also a CFA member

Torys LLP 1114 Avenue of the Americas New York, NY 10033-7703 Darien Leung, partner Tel: 212-880-6012 dleung@torys.com Main: +1 (312) 564-5100 Torys LLP is an international business law firm, with offices in New York and Canada. With a reputation for quality, innovation and team work, it is one of the leading financial services practices on both sides of the border. Torys has a history of helping clients in the sector break new ground, making its clients’ trusted resource for strategic advice on their most complex matters.

Darien Leung, who will represent Torys LLP on the CFA Board of Directors, is a member of Torys LLP and is the head of the firm’s commercial finance practice.

Darien has a broad-based commercial finance practice and experience with secured and unsecured credit facilities, asset-based finance, acquisition finance, precious metal financing, real estate finance and subordinated debt and mezzanine facilities. She advises financial institutions, pension funds and other alternative lenders, as well as private equity sponsors and their portfolio companies in domestic and international transactions. Darien received her J.D. from the George Washington Law School and her A.B. from Smith College.

CFA WELCOMES NEW MEMBERS Breakout Capital Finance, LLC 6862 Elm Street, 3rd Floor McLean, VA 22101 Carl Fairbank, Founder and CEO Email: cfairbank@breakoutfinance.com Tel: (703) 852-6008 www.breakoutfinance.com Breakout Finance is a leading provider of innovative, transparent, and clientdriven small business working capital solutions, including FactorAdvantage, a revolutionary solution developed specifically for factoring companies.

FactorAdvantage is a patent-pending, integrated solution for factors that clears liens, provides over-advances and enables factors to win and retain more clients. Importantly, FactorAdvantage insulates factors and their clients from predatory merchant cash advance companies. Breakout Capital eliminates the hidden costs that have significantly raised the cost of capital to small business owners, enabling the company to offer an affordable solution tailored to each business.

Carl Fairbank, who will represent Breakout Finance on the CFA board of directors, is founder and chief executive officer of Breakout Capital. Prior to founding Breakout Capital, Fairbank worked as an Investment Banker at FBR & Co, where he identified market inefficiencies and widespread predatory practices that made it extremely expensive and challenging for small business owners to grow their business.

He founded Breakout Capital in an effort

THE SECURED LENDER MAY 2018 43

CHAPTER NEWS

the cfa brief

Atlanta Save the dates for the following events the Chapter has planned in 2018: May 17, for the Atlanta Braves vs.

Chicago Cubs outing at SunTrust Park in Atlanta; May 18 for a tennis outing at BridgeMill Athletic Club in Canton, GA, and October 8 for a golf outing at Pinetree Country Club.

For more information visit community.cfa.com/atlantachapter California The Chapter held a tacos and tequila tasting event on April 26 for young professionals at Neat in Los Angeles.

On May 2, the Chapter held a golf outing at The Links at Terranea in Rancho Palos Verdes, CA. The Chapter has many additional events slated for 2018 including: a Summer Party at The Standard Rooftop on July 11; a Hot Topic Panel Discussion at the Luxe Summit Hotel on October 3; the Annual Fall Golf Classic at Coyote Hills Golf Course in October; a Women of CFCC event on October 18 (location TBD); a sponsor panel or networking event at Center Club – Orange County on November 15 and the Holiday Party at the Sheraton Universal on December 12.

For more information visit community.cfa.com/californiachapter Florida The Chapter hosted Mark Vitner, senior economist, Wells Fargo Securities LLC, on April 18, who discussed the economy at the Lauderdale Yacht

44

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

Club in Ft. Lauderdale, FL. CFA Orlando hosted a YoPro Escape Room Event on April 19 at The Great Escape Room in Orlando, FL. Attendees had a 60-minute frantic search for freedom as they were locked in a room with one way out. The hybrid scavenger hunt and puzzle game featured hidden compartments and secret passageways along with clues to plot the Great Escape. On May 10, the Chapter will host a Spring Social after work at the offices of Dean Mead in Orlando.

For more information visit community.cfa.com/floridachapter Houston The Chapter hosted a meet and greet happy hour at Damian’s Cucina Italiana on May 3.

For more information visit community.cfa.com/houstonchapter Michigan On April 12, the Chapter held its Cyber Security: Are You Protected? Event at Skyline Club in Southfield, MI. Andrew Sczygielski, an FBI special agent and cybersecurity agent, covered the increasingly important topic of cybersecurity. The evening included cocktails, hors d’oeuvres and networking.

For more information visit community.cfa.com/michiganchapter MidSouth On April 24, the Chapter held a Pistol Shooting outing at Royal Range in Nashville, TN. The Chapter will hold a golf outing at the Gaylord Springs Golf Links in Nashville on June 26.

For more information visit community.cfa.com/midsouthchapter Midwest The Chapter held a Women’s Networking Icebreaker event on April 26 at The Standard Club, Chicago Room in Chicago. The icebreaker began one hour

before the Spring Educational Panel, held that same day and location.

Attendees had the chance to enjoy a glass of wine while networking with other women in the lending community and learning about the Chapter’s 2018 plans.

The Chapter held a Women’s Speed Networking Luncheon on May 2 at the Columbia Yacht Club in Chicago, IL. This fun, unique networking experience will offer an opportunity to meet other women professionals on a new level, whether you’re a seasoned networker or new to the industry. The “Speed Networking” format is simple; the event was hosted over a threecourse lunch where attendees sat with a different group of women at each course in order to maximize their networking efforts.

The Chapter’s 24th Annual Cubs Outing will be held on May 23 at the Wrigley Rooftop Deck and the 29th Annual Golf Invitational on July 19 at The Harborside International Golf Center.

For more information, visit community. cfa.com/midwestchapter Minnesota The Chapter will host a Lunch and Learn on May 16 at Lake Monster Brewing in St. Paul, MN. The Chapter’s Summer Social will be held on August 15 at The Minneapolis Club in Minneapolis. The Chapter will host a Lunch and Learn Series, titled “LIBOR in Loan Transaction,” and sponsored by Hellmuth & Johnson, PLLC, on November 14. The panel will discuss the future of LIBOR. More than one hundred trillion dollars of financial products use LIBOR as a reference rate. But after 2021 the UK will no longer require banks to submit LIBOR quotes. Avoid disputes/litigation by transitioning from reliance on LIBOR now. Presenters include Karl Johnson and Michael Howard of Hellmuth & Johnson, PLLC.

For more information, visit community.cfa.com/minnesotachapter New England The Chapter will host its Annual Golf Outing, which benefits the Ron Burton Training Village, on June 4 at Blue Hills Country Club in Canton, MA. For more information, visit community.cfa.com/newenglandchapter New Jersey On April 24, the Chapter held a free members-only networking event at “90 on Top” in the David T. Wilentz Building in Woodbridge, NJ to support New Jersey Cares. Non- Chapter members paid $50, which included pro-rated 2018 New Jersey Chapter Dues, which were donated to New Jersey Cares.

Cocktails and dinner were provided.

Attendees created chemo care packages for the first hour, followed by a two-hour long networking reception. The care packages are designed to help boost the spirits of children who are undergoing chemotherapy.

Attendees decorated a bag and filled it with candy, toys, a journal, fuzzy socks and other fun items to help brighten the day of a brave child. “Superhero capes” were also created to help a child feel like a superhero while receiving treatment. The care packages were donated to Hunterdon Medical Center in Flemington, NJ. The Joint NJCFA/NJTMA 2018 Golf & Tennis Outing will be held on May 29 at the Essex County Country Club in West Orange, NJ and the 8th Annual Beach Party will be held at the newly rebuilt Donovan’s Reef in Sea Bright, NJ on July 19.

For more information, visit community.cfa.com/newjerseychapter Philadelphia The Chapter’s Day One at the Masters Networking Event was held on April

5 at Tavern on Broad in Philadelphia.

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

For more information, visit community.cfa.com/philadelphiachapter Southwest The Chapter held a networking event on April 9 at Coal Vines in Dallas, TX. A Middle Market Update event will be held on May 16 and a clay shoot at Elm Fork on August 30.

For more information, visit www.cfasw.org.

For more information on CFA Chapters, please visit community.cfa.com/ch/chaptersmain

COLLATERAL CONFIRMED. CONFIDENCE SECURED.

Michael A. Boeheim, CIA, CFE Director

Why do financial institutions across the country trust Freed Maxick ABL Services? As the nation’s largest niche provider of ABL services, Freed Maxick offers the proactive scheduling, rapid deployment and industry experience that top lenders demand. Trust our extensive experience for your pre-loan surveys and rotational field exams.

Howard A. Rein, CPA, CFE President

716.847.2651 FREEDMAXICK.COM

THE SECURED LENDER MAY 2018 45

the cfa brief

AD INDEX ExWorks Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.exworkscaptial.com. . . . . . . . . . . . . . . Pages 10-11

CALENDAR

Freed Maxick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.freedmaxick.com. . . . . . . . . . . . . . . . . . Page 45

May 1 – 17, 2018 CFA’s Spring Operations Fundamentals Virtual Workshops May 10, 2018 CFA’s Houston Chapter – YoPro! Networking Happy Hour Lucky Strike Houston, TX May 14, 2018 CFA’s Philadelphia Chapter 24th Annual Golf Outing Cedarbrook Country Club Blue Bell, PA May 15 – 17, 2018 CFA’s Operations Bootcamp Goldberg Kohn Chicago, IL May 15 – 17, 2018 CFA’s 12th Annual International Lending Conference Mayer Brown Offices London May 15 – 18, 2018 CFA’s Field Examiner School Goldberg Kohn Chicago, IL May 16, 2018 CFA’s Minnesota Chapter - Lunch and Learn Lake Monster Brewing St Paul, MN May 17, 2018 CFA’s Atlanta Chapter - Atlanta Braves vs Chicago Cubs Outing SunTrust Park Atlanta, GA

46

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

Hilco Global. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.hilcoglobal.com. . . . . . . . . . . . . . . . . . . . BC HPD Software, LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.hpdsoftware. . . . . . . . . . . . . . . . . . . . . . . IBC Katten Muchin Rosenman LLP. . . . . . . . . . . . . . . . www.kattenlaw.com. . . . . . . . . . . . . . . . . . . . . IFC MB Financial Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.mbfinancial.com/healthcare . . . . . Page 7 RedRidge Finance Group. . . . . . . . . . . . . . . . . . . . . . . www.redridgefg.com . . . . . . . . . . . . . . . . . . . . Page 15 Tradewind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.tradewindfinance.com. . . . . . . . . . . . Page 3 Utica Leaseco, LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.uticaleaseco.com. . . . . . . . . . . . . . . . . . Page 39 Wells Fargo Capital Finance. . . . . . . . . . . . . . . . . . . www.wellsfargocapitalfinance.com. . . . Page 2 William Stucky & Associates, Inc.. . . . . . . . . . . . . . www.stuckynet.com. . . . . . . . . . . . . . . . . . . . . Page 1

May 18, 2018 CFA’s Atlanta Chapter – Tennis Event Bridgemill Athletic Club Canton, GA

June 13 - 15, 2018 CFA’s 3rd Chapter Leaders Summit Boston Park Plaza Boston, MA

May 23 - 25, 2018 CFA’s Independent Finance and Factoring Roundtable Windsor Court Hotel New Orleans, LA

June 14, 2018 CFA’s Michigan Chapter Take Me Out To The Suite Jimmy John’s Field Utica, MI

May 23, 2018 CFA’s Midwest Chapter 24th Annual Cubs Outing Wrigley Rooftop Deck Chicago, IL

June 18 - 19, 2018 CFA’s Idea Exchange: Crucial Conversations in Secured Lending New York Marriott Downtown New York, NY

May 29, 2018 CFA’s New Jersey Chapter – Golf & Tennis Outing Essex County Country Club West Orange, NJ

June 19 - 20, 2018 CFA’s Foundations of Account Management Holland & Knight LLP Dallas, TX

June 4, 2018 CFA’s New England Chapter – Annual Golf Outing, benefitting the Ron Burton Training Village Blue Hills Country Club Canton, MA

June 19 - 21, 2018 CFA’s What’s it Worth?

All You Need to Know About Inventory Holland & Knight LLP Dallas, TX

June 5 – 7, 2018 CFA’s ABL & Factoring Basics Workshop Virtual Workshop

June 26, 2018 CFA’s MidSouth Chapter – Golf Tournament Gaylord Springs Golf Links Nashville, TN

June 5 – 7, 2018 CFA’s Summer Loan Documentation Workshop Hahn & Hessen LLP New York, NY

June 27, 2018 CFA’s Houston Chapter – Panel Luncheon Brennan’s Houston, TX

July 10 – 26, 2018 CFA’s Summer Underwriting Fundamentals Virtual workshops July 11, 2018 CFA’s California Chapter Summer Party The Standard Rooftop Los Angeles, CA

October 18, 2018 CFA’s California Chapter Women of CFCC Event Location TBD

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

October TBD, 2018 CFA’s California Chapter Annual Fall Golf Classic Coyote Hills Golf Course Fullerton, CA

November 19, 2018 CFA’s New Jersey Chapter – Holiday Party Venue location TBD

November 7 - 9, 2018 CFA’s 74th Annual Convention Marriott Marquis San Diego Marina San Diego, CA

December 6, 2018 CFA’s Atlanta Chapter Joint CFA/TMA Holiday Party Venue location TBD December 12, 2018 CFA’s California Holiday Party Sheraton Universal Los Angeles, CA

August 15, 2018 CFA’s Minnesota Chapter – Summer Social The Minneapolis Club Minneapolis, MN

November 14, 2018 CFA’s Minnesota Chapter – Lunch and Learn Hellmuth & Johnson, PLLC Edina, MN

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

September 5 – 7, 2018 CFA’s Fall Advanced Field Examiner School Greenberg Traurig LLP Atlanta, GA

November 19, 2018 CFA’s New Jersey Chapter – Holiday Party Venue location TBD

September 5 – 7, 2018 CFA’s Operations Bootcamp Greenberg Traurig LLP Atlanta, GA

December 6, 2018 CFA’s Atlanta Chapter Joint CFA/TMA Holiday Party Venue location TBD

October 3, 2018 CFA’s California Chapter Hot Topic Panel Discussion Luxe Summit Hotel Los Angeles, CA

December 11, 2018 CFA’s Atlanta Chapter with TMA – Holiday Party College Football Hall of Fame Atlanta, GA

October 8, 2018 CFA’s Atlanta Chapter Golf Outing Pinetree Country Club Kennesaw, GA

December 12, 2018 CFA’s California - Holiday Party Sheraton Universal Los Angeles, CA

July 19, 2018 CFA’s Midwest Chapter 29th Annual Golf Invitational Harborside International Golf Center Chicago, IL July 19, 2018 CFA’s New Jersey Chapter – Annual Beach Party Donovan’s Reef Sea Bright, NJ

THE SECURED LENDER MAY 2018 47

revolver

j

TSL OPINION COLUMN

ay Stone of Hilco Receivables discusses the growth of unconventional partnership solutions in challenging times.

Sometimes the best deals are achieved through taking the road less traveled.

The topic of this issue is the role partnerships play in commercial finance deals. At Hilco Receivables we believe in revolution through evolution. We encourage our industry peers to seek uncommon solutions to common problems. It is always our intent to take the stumbling blocks of deals past and turn them into winning solutions.

Let me explain.

In September 2013, Hilco Receivables was approached by a large institutional investment bank to partner with Cenveo (a large national printing company) in helping Cenveo purchase the assets of National Envelope.

National Envelope had initiated a sale process under Chapter 11. Hilco Receivables was approached because of our keen understanding of accounts receivable, and Cenveo needed additional financing to close the deal.

We did our research and internally discussed deal structure and pricing.

In pricing the portfolio, we utilized results on similar deals as well as we considered the disruption to the portfolio and collectability after a sale, recognizing that the sale to Cenveo

48

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

was a going-concern sale. We creatively structured the deal so that Cenveo had liquidity to close, Hilco was secure in buying the assets, and the customer relations (a major consideration of Cenveo in its purchase) were preserved.

Ultimately, Hilco Receivables partnered with Cenveo and bought the operating receivables of National Envelope at a price in the high eight figures. We helped save hundreds of jobs and created a winning partnership.

Why was this a notable deal? Hilco Receivables is not seen as a lender — per se. We had to get creative. It’s difficult for banks to lend against fractured portfolios in bankruptcy. A typical asset-based lender won’t normally do that, and, if they do, it is at a greatly reduced advance rate and with full recourse.

Why does this matter today?

A volatile marketplace is leading us on a rocky road. As we travel through the current political climate with new tariffs, rising interest rates and stock market instability, it will become increasingly more difficult to close deals.

We are fortunate at Hilco Receivables to have state-of-the-art analytics and the ability to see the deal from the perspective of all parties involved.

We will continue the revolution through evolution and encourage all of you to do the same.

Serving as CEO of Hilco Receivables LLC, Jay Stone is recognized as one of the foremost experts in the Accounts Receivable industry. For over twenty years Stone has developed an indepth knowledge of A/R management Analysis and Risk Assessment, Portfolio Purchasing and Liquidation, B2B Debt

Collection, Debt Purchase, Call Center Operations, International Debt Recovery, and more. Stone’s visionary leadership, operational experience and analytical expertise have resulted in exceptional performance for his customers over the years. In his current role as CEO of Hilco Receivables, Stone is responsible for overseeing all business functions required to manage principal investments totaling over $500 million, $10 billion in assets acquired and over $400 million of purchased and feebased commercial receivables.

TM TM

EMPOWERING INTELLIGENT FINANCE EMPOWERING INTELLIGENT FINANCE

END-TO-END EMPOWERMENT OF YOUR WORKING CAPITAL FINANCE SOLUTIONS END-TO-END EMPOWERMENT OF YOUR WORKING CAPITAL FINANCE SOLUTIONS

Automatic client account data gathering Automatic client and riskdata analysis account gathering and risk analysis

The complete operating platform forcomplete deliveringoperating your working The platform capital finance for delivering your working capital finance

The smart dashboard for informed business The smart dashboard finance management for informed business finance management

Contact ces Contactone oneofofour ourlocal localoffi offi cestotofifind ndout outhow how our our advanced advanced invoice discounting, factoring, asset based lending and invoice discounting, factoring, asset based lending and data data gathering gatheringsoftware softwaresolutions solutionscan canhelp helpyou. you.

Europe, Europe,Middle MiddleEast Eastand andAfrica: Africa: +44 +44(0)20 (0)208780 878068 6800 00

www.hpdsoftware.com www.hpdsoftware.com

Asia Asia and and Pacific: Pacific: +61 +61 22 8823 8823 3490 3490

North and and South South America: America: North 805 544 544 5821 5821 +1 805

FROM

TO

RUSTED

REVIVED

Abandoned Bethlehem Steel complex

New Tradepoint Atlantic project

Innovative Real Estate Redevelopment Solutions for the 21st Century Hilco Global’s vision of transforming obsolete industrial and manufacturing facilities was realized by transforming a closed steel mill into a powerful economic engine in the Baltimore/Washington DC area.

Today, Hilco-owned Tradepoint Atlantic is a growing trimodal logistics facility attracting new tenants such as Amazon ®, FedEx ®, Fiat Chrysler ®, Harley-Davidson ® and others. Hilco Redevelopment Partners provides: • Capital to guarantee completion of all project phases.

• Redevelopment of the sites in a socially responsible manner.

• Monetization of assets, including receivables, inventory and PP&E.

• All remediation to regulatory standards.

Gary Epstein at 847.418.2712 or gepstein@hilcoglobal.com

VA L U A T I O N

I

MONETIZATION

I

ADVISORY