TSL July 2017

Representing the Asset-Based Financing, Factoring & Supply Chain Finance Industries Worldwide July/August 17

THE INTERNATIONAL ISSUE Where Now For Brexit?

ALSO IN THIS ISSUE

FINANCIAL REGULATORY REFORM IN THE AGE OF TRUMP: WHAT’S IN STORE FOR THE LOAN MARKET? P16 THE DEBT PLACEMENT PROCESS IN CROSS-BORDER DEALS P20 CHANGES TO U.S. ECONOMY PERFORMANCE P24 LENDING AND TRAVELING IN LAGOS, NIGERIA P30

A Political Primer For Lenders Page 12

TSL INTERVIEW

JEREMY

HARRISON

A TTRUE R UE A ASSET-BASED SSET-BASED LLENDER ENDER IN THE UK EEUROPEAN MARKE MARKET

PAGE 28 DEPARTMENTS COLLATERAL // THE CFA BRIEF // WHAT WOULD YOU DO // CFA VOLUNTEER LEADERS // LEGAL NOTES // REVOLVER

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International lenders with interests in the United Kingdom are already facing considerable uncertainty in the wake of that country’s decision to leave the European Union, although that has now been compounded further by the results of this June’s general election. This article assesses the UK’s post-election political landscape and offers some thoughts on how it might affect the Brexit process and cross-border lenders.

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

Volume 73, Issue 6

July/August 17

FEATURES 12 Where Now For Brexit? A Political Primer For Lenders

Where Now For Brexit?

International lenders with interests in the United Kingdom are already facing considerable uncertainty in the wake of that country’s decision to leave the European Union, although that has now been compounded further by the results of this June’s general election. This article assesses the UK’s post-election political landscape and offers some thoughts on how it might affect the Brexit process and cross-border lenders. By David J. E. Chmiel

A Political Primer For Lenders

BY DAVID J. E. CHMIEL

16 Financial Regulatory Reform in the Age of Trump: What’s in Store for the Loan Market?

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20 The Debt Placement Process In Cross-Border Deals: The Evolving Role of the Debt Advisor and Their Views on the Use of Asset-Based Lending

The role of the debt advisor, particularly in cross-border ABL transactions, has evolved rapidly in recent years from that of a technician to that of a consigliere to a prospective borrower. In this article, the author discusses this evolution and its impact on access to cross-border ABL for middle-market companies. By Stephen B. Lewis

Elliot Ganz of the Loan Syndications and Trading Association gets into the details. By Elliot Ganz

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24 Changes to U.S. Economy Performance: Lenders Reveal an Optimistic Outlook for Near Term and Increasing Pessimism for Long-Term Economic Strength

For over 20 years, Phoenix Management Services has been collecting, tabulating and analyzing the results from its “Lending Climate in America” survey in order to evaluate national lending attitudes and trends. Here, the authors discuss the results of the latest survey. By Michael E. Jacoby and Jessica Zwirzina

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Financial Regulatory 28 The TSL Interview: A TrueReform Asset-Based in the

Age of Trump Lender in the UK European Market: Jeremy Harrison

Jeremy Harrison is regional group head and senior vice president at Bank of America Business Capital (BABC), part of the Global Commercial Banking business at Bank of America Merrill Lynch. Based in London, he is Elliot Ganz of the Loan Syndications and Trading Association gets into the det responsible for leading new business generation in the UK and across Europe. By Michele Ocejo

BY ELLIOT GANZ

What’s in Store for the Loan Marke 30 Lending and Traveling in Lagos Nigeria Looking Beyond the Misconceptions

Keeping an open mind for the experience and introspections of a life time. By Robert D. Katz, CTP, CPA, MBA

DEPARTMENTS 6

Letter From Richard D. Gumbrecht, Interim CEO of CFA, updates readers on CFA’s upcoming events including the inaugural Women in Commercial Finance Conference.

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

32

What Would You Do? In this edition of What Would You Do?, The Chief Credit Officer at Overadvance Bank wrestles with whether to close a revolving credit facility when a UCC lien search uncovers two filed UCC termination statements for which the prospective borrower cannot produce written evidence that such termination statements were authorized to be filed by the secured parties of record. By Dan Fiorillo and Jim Cretella

34

The CFA Brief 38 40 44 42

Among CFA Members CFA Chapter News Chapter Spotlight Calendar

41

Advertisers Index

45

CFA Volunteer Leaders 45 45 46 47 47 47 48 49

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CFA Officers Past Chairperson’s Council CFA Chapter Leaders Foundation Board of Directors Foundation - Governing Board Foundation- Advisory Board Foundation-Founders Leadership Council CFA Directors

Legal Notes For this issue, we have selected a recent case addressing an important issue related to a lender’s collateral: the risks of lending to companies in the business of selling consigned goods. By Jonathan Helfat and Richard Kohn, CFA Co-General Counsel

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Revolver David W. Morse of Otterbourg P.C. discusses Competition and Covenants: What’s a Lender to Do?

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

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

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

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

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

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

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

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

w

letter from THOUGHTS FROM CFA AND TSL STAFF

elcome to The Secured Lender’s International Issue. As I write this, both CFA’s International Lending Conference and the European Chapter Event I attended in early June are fresh in my mind.

The ILC was well attended with excellent representation from a wide range of funders, advisors, service providers and other parties interested in international and cross-border asset-based finance. The information exchanged, insightful panels, and connections made demonstrate the leverage and impact we have when we come together to advance our common interests. A special thanks to our meeting co-chairs, Richard Kohn (Goldberg Kohn) and David Morse (Otterbourg PC), as well as our hosts, sponsors and participants.

I also recently had the pleasure of spending time with the leaders of the majority of our 21 chapters who gathered in Austin for the second annual bestpractices sharing meeting. Our chapters demonstrate the energy and vitality of the CFA community. Like many of our chapters themselves, this forum has developed as a grass-roots movement to share the best ways to propagate commercial finance at the local level. Thanks to Steve Gold (Allied Financial) and Betty Hernandez (North Mill

Capital) for organizing a productive and engaging meeting.

I realize it’s summer and going to school may not be at the top of your “to-do” list; but, as things slow down, it’s the perfect time to delve into CFA’s Summer Underwriting Fundamentals virtual course, Tuesday, July 11 - Thursday, July 27. Underwriting is far more than gathering data and calculating ratios. Join this Fundamentals program from your desk (or on your deck!) and learn how industry leaders think through credit issues and manage risk.

As we roll into September, CFA Education programs ramp up beginning with two inperson courses in Dallas: Fall Field Examiner School (September 12-15) and ABL Operations Bootcamp (September 12-14). Also, the Fall ABL & Factoring Basics Workshop will be held in Chicago, September 26-27.

On September 27, we kick off two days of events in New York City with the CrossBorder Lending Summit at Winston & Strawn in New York City. The one-day program will feature key players and practitioners in the international asset-based lending space discussing best practices and current market trends. It’s a good opportunity for those who were unable to attend the ILC in London to hear from cross-border lending thought leaders.

On the evening of September 27, CFA’s inaugural Women in Commercial Finance Conference begins with a networking reception at Paul Hastings in New York City.

The Conference, featuring Sallie Krawcheck, will be held at the offices of Wells Fargo the next day. This half-day conference, presented

by CFA’s Women in Commercial Finance Committee, will bring together some of our industry’s leading female executives and employment professionals to offer their insights and tips on navigating issues faced in today’s work environment.

And the day doesn’t end there…that evening we honor the industry’s future leaders at the 2017 CFA 40 Under 40 Awards Celebration at The Pierre Hotel. Peter Schwab, former chairman of Wells Fargo Capital Finance and former CFA chair, will be the keynote speaker. Tickets and sponsorship packages are now available. Please contact James Kravitz, jkravitz@cfa.com, for details.

And then it’s Convention time! For many years, the CFA Annual Convention has been the premier industry event and this year’s program is shaping up to be packed full of first-class networking opportunities, timely panel sessions and exciting entertainment.

And the Convention features the perfect local hero keynote speaker: Thomas S. Ricketts, the chairman and owner of the Chicago Cubs.

Register now for our 73rd Annual Convention, November 8-10, in Chicago: www.cfa.com.

To complement the International Lending Conference, we’ve included articles from a few of those involved in the Conference in this issue. We kick off the issue with Where Now for Brexit? A Political Primer for Lenders, page 12. David Chmiel assesses the UK’s postelection political landscape and offers some thoughts on how it might affect the Brexit process and cross-border lenders.

On page 20, in The Debt Placement Process in Cross-Border Deals: The Evolving Role of the Debt Advisor and Their Views on the Use of Asset-Based Lending, Stephen Lewis discusses this evolution of the debt advisor’s role and its impact on access to cross-border ABL. Turn to page 28 for an interview with Jeremy Harrison, regional group head and senior vice president at Bank of America Business Capital, and president of the CFA European Chapter.

Thank you for everything you do to make our CFA community vital, dynamic and rewarding. Have a great summer!

“On the evening of September 27, CFA’s inaugural Women in Commercial Finance Conference begins with a networking reception at Paul Hastings in New York City.

6

The Conference, featuring Sallie Krawcheck, will be held at

Warm regards,

the offices of Wells Fargo the next day.”

Richard D. Gumbrecht CFA Interim CEO

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Remembering Our Friend and Colleague

Gary T. Zussman February 28, 1957 – May 18, 2017

Goldberg Kohn mourns the passing of our cherished partner, friend and colleague. It was our great privilege and honor to have known him.

collateral INDUSTRY NEWS

THE INDUSTRY IN BRIEF

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David Marks to Lead Wells Fargo Capital Finance; 30-Year Company Veteran to Head Bank’s AssetBased Lending Unit Wells Fargo & Company (NYSE: WFC) announced that David Marks has been named head of Wells Fargo Capital Finance, the bank’s asset-based lending unit. In his role, Marks will oversee the core business groups of Capital Finance, which provides traditional asset-based lending, specialized junior and senior secured financing, channel finance, factoring and financing for domestic and international trade to companies in the U.S., Canada and UK. He succeeds Guy Fuchs, who left the company in March. Marks will be based in Santa Monica and reports to Ed Blakey, executive vice president and head of Wells Fargo Commercial Capital.

“With his previous experience in our Wholesale Banking businesses, and the insight and experience he has gained during his long tenure with the company, David is uniquely positioned to lead the business for continued growth in order to serve the commercial capital needs of our customers,” said Blakey.

Wells Fargo Capital Finance is part of the Wells Fargo Commercial Capital group, which combines Wells Fargo’s asset-based lending businesses to create a streamlined approach for customers incorporating their company’s assets into flexible financing solutions.

Marks joined Wells Fargo in 1987 and most recently served as a group risk officer. He has led sales, service, and operations groups in many of the company’s Wholesale Banking businesses. Marks’ diverse business experience includes head of Corporate Banking, senior credit officer for Corporate Banking and Government and Institutional Banking, regional manager with Trade Capital, and head of the International Group.

About Wells Fargo Capital Finance 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, and provides traditional asset-based lending, specialized senior and junior secured financing, accounts receivable financing, purchase order financing and channel finance to companies across the United States and internationally. Dedicated teams within Wells Fargo Capital Finance provide financing solutions for companies in specific industries such as retail, software publishing and high-technology, commercial finance, staffing, government contracting and others. wellsfargocapitalfinance.com Wells Fargo & Company (NYSE: WFC) is a diversified, community-based financial services company with $1.9 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,600 locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has offices in 42 countries and territories to support customers who conduct business in the global economy. With approximately 269,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 27 on Fortune’s 2016 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy our customers’ financial needs and help them succeed financially.

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PNC Bank Announces Appointments to Senior Secured Financing Team Carlos Elizondo joins PNC’s senior secured financing team as senior vice president, serving the Southwest and based in Houston. He is responsible for business development with private equity firms and middle-market companies, originating asset-based and cash flow loans. He comes to PNC with more than 20 years of commercial finance, advisory and operations experience. Most recently, Elizondo served as a financial advisor to numerous middle-market companies, including those in distressed situations and start-ups. Elizondo earned a bachelor’s degree from the University of Texas and a master’s degree in accounting from the University of Southern California.

A 13-year PNC veteran, Timothy Swiss has transitioned to senior vice president and business development officer with the senior secured financing team. Based in Cleveland, he is responsible for business development with private equity firms and middle-market companies in Northern Ohio, originating asset-based and cash flow loans. Swiss most recently served as a group manager with the commercial banking team at PNC. Swiss earned a bachelor degree from Krannert School of Management at Purdue University and a master degree in business administration from the University of Notre Dame.

PNC Bank, National Association, is a member of The PNC Financial Services Group, Inc. (NYSE: PNC). PNC is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and assetbased lending; wealth management and asset management. www.pnc.com.

Fifth Third Bancorp (Nasdaq: FITB) announced that Paul Vitti has joined its Asset-Based Lending Group as managing director. In this role, Vitti will be responsible for originating and structuring asset-based loans in addition to cultivating customer relationships throughout the eastern United States.

“A market veteran like Paul brings an immense amount of expertise to our team, and his knowledge of the industry will provide significant value to our customers,” said Greg Eck, head of the AssetBased Lending Group at Fifth Third Bank.

“He has a proven talent and passion for delivering the right solution, which directly aligns with our team’s goal to understand client needs and personalize options based on those needs.”

Vitti brings more than 26 years of experience to the group. Prior to joining Fifth Third, he served in roles as managing director for asset-based lending originating efforts for both White Oak Asset Finance and GE Capital, covering the large corporate and middle-market throughout the northeast United States.

He earned a bachelor degree in finance from Siena College in Albany, New York.

The Asset-Based Lending Group at Fifth Third Bank was formed in June 2016 and is led by industry veteran, Greg Eck. The group maintains a diversified ABL portfolio with over $2 billion in commitments and provides strategic asset-based loans to middle-market/ large cap companies throughout the US and Canada.

Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of March 31, 2017, the Company had $140 billion in assets and operated 1,155 full-service Banking Centers and 2,471 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina. Fifth Third operates four

main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management. As of March 31, 2017, Fifth Third also had a 17.8 percent interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of March 31, 2017, had $323 billion in assets under care, of which it managed $33 billion for individuals, corporations and not-for-profit organizations through its Trust, Brokerage and Insurance businesses. Investor information and press releases can be viewed at www.53.com.

Fifth Third’s common stock is traded on the Nasdaq® Global Select Market under the symbol “FITB.” Fifth Third Bank was established in 1858. Member FDIC, Equal Housing Lender.

Longtime GE Capital Executive Paul Feehan Joins Hilco Global as Chief Financial Officer Jeffrey Hecktman, chairman and CEO of Hilco Global, announced the appointment of Paul Feehan as chief financial officer at the international financial services holding company. Feehan will be responsible for managing the finance operation for the global holding company and will be involved in all strategic and tactical matters as they relate to investments, capital structure and allocation, risk management, cash management and financial planning.

Feehan will be taking over this role from John Chen, who has been managing these duties in addition to his current responsibilities as chief operating officer which he will continue. Feehan will initially report to Chen during the integration process and then will report to Chairman and CEO Jeff Hecktman once the transition is complete.

Hecktman said, “I’ve known Paul as a colleague and business leader for many years and I’m thrilled that he will be join-

ing our management team. There is no doubt that his impressive level of accomplishment over more than 25 years at GE Capital make him an unusually good fit for the complexity of our business operations and the many transactions we complete each year worldwide.”

Feehan has built an impressive career in financial services at GE Capital since joining in 1987, most recently having served as the chief credit officer for its Corporate Finance unit, where he led a team that managed a portfolio of $6 billion of middle-market loans. Feehan brings with him a deep knowledge and expertise in all aspects of corporate finance transactions, mergers and acquisitions, refinancing and bankruptcy/ restructuring. “Paul understands the Hilco Global business model well, having worked with so many of our executives on various deals over the years,” said Hecktman.

Feehan is expected to provide leadership in business development efforts and outreach as well, especially given he is a well-recognized advisor to C-Suite level executives at private and public companies as well intermediaries, ABLs, banks, PE firms and hedge funds. Hecktman continued, “Paul’s strong interpersonal skills and many years of building and managing highly effective teams at GE Capital will be a great asset and make him an effective leader of our finance group.”

Feehan holds an MBA from the Kellogg School at Northwestern University and a BS in Accounting from the University of Illinois, Champaign-Urbana, IL. Paul is a Certified Public Accountant (CPA) and a member of many associations and industry groups.

The Northbrook, IL-based Hilco Global (www.hilcoglobal.com) is an independent and diversified financial services company and the world’s preeminent authority on maximizing the value of assets for both healthy and distressed

INDUSTRY NEWS

Paul Vitti Joins Asset-Based Lending Team at Fifth Third Bank

THE SECURED LENDER JULY/AUGUST 2017 9

INDUSTRY NEWS

collateral

companies. Hilco Global operates as the holding company comprised of twenty specialized business units that work to help companies understand the value of their assets and then monetize that value. Often, Hilco Global acts as an advisor to provide consultative services in all aspects of the asset management process. For 30 years acting as a principal or agent, Hilco Global has a successful track record of delivering the best possible result by aligning interests with clients and providing them strategic insight, advice, and, in many instances, the capital required to complete the deal.

White Oak Asset Finance Appoints Industry Veteran to Manage ABL Solutions for the Retail Sector White Oak Asset Finance, GP (WOAF or White Oak), an affiliate of White Oak Global Advisors, LLC, announced the appointment of Stephen M. Metivier, to serve as managing director. Metivier will be responsible for originating, structuring and supporting asset-based loan facilities with a focus on the retail industry.

“Stephen has nearly three decades of asset-based lending experience and has worked with some of the world’s largest retailers,” said Andre A. Hakkak, chief executive officer and co-founder, White Oak Global Advisors. “We look forward to him bringing his deep relationships and expertise to our organization as we continue to expand our retail lending solutions.”

Prior to joining the Company, Metivier served as head of Retail Finance Originations at TD Bank, NA – ABL Division, Wells Fargo Retail Finance, and GE Capital’s Retail & Restructuring Division.

“I was attracted to White Oak because of the strong management team and unique platform the company has built to serve the middle-market,”

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said Stephen Metivier. “Retailers and their suppliers need access to flexible financing solutions to support growth and operations, and I look forward to continuing to support this sector as a member of the White Oak team.”

Metivier graduated cum laude from Northeastern University with a B.S. in marketing and finance. He also attended the Institute of Public Administration in Dublin and interned for John Bruton, the Taoiseach (Prime Minister) of Ireland.

Metivier is also an active member of the Commercial Finance Association (CFA) and Turnaround Management Association (TMA) and is a former Advisory Board Member of the University of Florida’s Miller Retail Center.

White Oak Asset Finance, GP (WOAF) provides asset-based financing solutions to small- and middle-market companies throughout the United States and is owned by institutional clients of White Oak Global Advisors, LLC. Such asset-based solutions include invoice discounting, supply chain finance and inventory finance.

Kenneth Kaestner Joins Berkshire Bank Kenneth Kaestner joined as SVP and asset-based lending regional leader for its mid-Atlantic region, which includes New Jersey and Pennsylvania.

“Kaestner will be instrumental in leading the bank’s initiatives in driving growth and retention through an integrated sales and relationship strategy throughout the mid-Atlantic footprint,” executive vice president for Commercial Lending Michael D. Carroll said in a prepared statement. “We are thrilled to have an experienced professional to support Berkshire Bank’s commitment to the region and our customer-focused approach as we continue to grow and pursue our strategic objectives.”

Kaestner has more than 20 years of

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experience in the asset-based lending sector, including working for PNC Business Credit, a division of PNC Bank. In his new role, he will lead a team of ABL managers and support personnel to develop new business relationships in the region and grow and maintain the existing customer base.

Adams Business Credit Rebrands as Context Business Lending Adams Business Credit, a national assetbased lender, will rebrand as Context Business Lending, bringing the firm in unison with the family of businesses and affiliates under Context Capital Partners, an alternative investment firm. The newly named Context Business Lending will continue to focus on providing flexible working capital solutions for businesses that do not qualify for traditional bank financing.

Context Business Lending typically provides loans of up to $15 million for lower middle-market businesses that may be experiencing some type of challenge, which may include: rapid growth; seasonal fluctuations; supply chain and vendor pressure; operating losses/ negative net worth; turnaround and restructuring; merger or acquisition and debtor-in-possession financing. The firm is sector-agnostic and works with businesses in the manufacturing, distribution, wholesaling and service sectors.

“Even as traditional financial institutions tighten their underwriting criteria and pull back from the middle-market, we believe there is a wide funding gap in the market for flexible financial sources,” said John Giangiulio, co-founder and Managing Director of Context Business Lending. “Context Business Lending is a true asset-based lender that does not focus on financial covenants which often restrict a business from seizing opportunities for growth.”

Through its unique approach to identifying, evaluating and overseeing highly differentiated and specialized funds, Context seeks to develop opportunities in both liquid and illiquid markets and serves as a full financial and operational partner for its fund managers and affiliates. Since inception, Context led seed deals in aggregate totaling more than $400 million. The firm’s subsidiary businesses include Context Jensen Partners, Context Summits, Context Family Network, Context Asset Management, Context BH Capital Management, Context Liberty Bell and Context Business Lending.

Context Capital Partners is headquartered in Bala Cynwyd, PA. For more information about the firm, visit www. contextcp.com.

About Context Business Lending Context Business Lending is a leading, national asset-based lender focused on providing flexible working capital for lower middle-market businesses that do not qualify for traditional bank financing. Context Business Lending’s distinctive ability to see beyond the numbers and understand the unique story of each company enables it to take a more holistic view of the business challenges and opportunities. Context Business Lending is sector-agnostic and works with businesses in the manufacturing, distribution, wholesaling and service industries. To learn more, please visit www.contextbl.com.

Robert Kuhn Joins GlassRatner

About Context Capital Partners Context Capital Partners LP is an alternative specialist company that allocates its capital to talented investment managers and whose subsidiaries offer a diverse range of investment strategies, including hedge funds, liquid alternative mutual funds, and private equity funds.

Robert “Bob” Kuhn has joined GlassRatner’s New York, NY office. Kuhn is a senior managing director of the firm with a focus on turnaround management, financial restructuring, bankruptcy consulting and business development.

He comes to the firm after an impressive 35-plus year career with JPMorgan Chase Bank and its predecessor entities.

After graduating from law school, Kuhn spent a short time practicing entertainment law. Following that, he joined Chemical Bank as a loan workout officer and attorney and went through the Chemical Bank credit training program. Chemical made two smaller early acquisitions, Horizon Bank, and Texas Commerce Bank, both of which Kuhn was on the due diligence team to determine viability and price. He also lectured extensively throughout the bank as well as at outside agencies on various topics such as loan documentation, bankruptcy, early warning signals and credit review.

After seven years in the Workout Group, Kuhn moved over to the commercial bank where he was a senior credit executive with legal lending limit credit authority. Over the years Kuhn was an integral part of the mergers between Chemical and Manufacturers Hanover, then Chase, JPMorgan, Bank One, Bank of New York, Bear Sterns and Washington Mutual. In 2000, he returned to the Special Credits Group and was promoted to managing director and soon took over responsibility for the Southeast and northeast regions of the commercial bank which covered the middle-market, mid-corporate, not for profit, assetbased and real estate sectors. His vast experience included workouts in the fields of retail, apparel, energy, jewelry, service providers, not-for-profits, manufacturing as well as real estate.

Though he moved into a predominantly managerial role, he continued to handle cases himself, usually as requested by senior management that included the larger, more sensitive, syndicated and agented credits.

Kuhn earned a B.S. degree from the Newhouse School of Public Communications at Syracuse University and a J.D. from Suffolk University Law School in Boston, MA.

INDUSTRY NEWS

“We regularly speak with business owners who struggle with how difficult it is to get funding,” said William Peruzzi, co-founder and managing director of Context Business Lending. “We pride ourselves on our ability to find flexible capital solutions that meet the needs of these owners, whether they’re trying to make it through a rough patch or launch the next growth phase.”

“We are very excited to realign the Adams brand with the Context family of businesses, which are designed to provide alternative managers with the financial and operational resources needed to succeed,” said Ron Biscardi, chief executive officer of Context Capital Partners. “The team’s expertise in assetbased lending complements our full suite of alternative-focused funds and companies, which include Context Asset Management and Context Summits.”

THE SECURED LENDER JULY/AUGUST 2017 11

International lenders with interests in the United Kingdom are already facing considerable uncertainty in the wake of that country’s decision to leave the European Union, although that has now been compounded further by the results of this June’s general election. This article assesses the UK’s post-election political landscape and offers some thoughts on how it might affect the Brexit process and cross-border lenders.

Where Now For Brexit?

A Political Primer For Lenders

BY DAVID J. E. CHMIEL

12

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Former British Prime Minister Harold Wilson is widely credited for stating that a week can be a long time in politics, although he himself could not recall making that observation. While the provenance of the remark remains open to debate, its validity is without question: a political landscape can change quickly and dramatically as recent events in the United Kingdom have shown.

In mid-April, Prime Minister Theresa May called a snap general election.

At the time, her Conservative Party enjoyed a commanding lead in opinion polls of as much as 20 percentage points over the opposition Labour Party led by Jeremy Corbyn and few pundits expected anything other than a Conservative landslide. That analysis held throughout the first few weeks of the campaign, but the lead narrowed dramatically in May after a series of “own goals” by the Conservatives in connection with the launch of the policy platform.

From that point on, the Conservative campaign never really regained its momentum and, while most polls continued to show a Conservative lead, the prospects of a landslide faded away. Jeremy Corbyn – previously branded as “unelectable” for his left-wing views and history of controversial positions on issues such as terrorism – continued to gain ground and credibility with voters. As we now know, when the votes were counted on June 8, the Conservatives lost their overall majority in the House of Commons, despite remaining the largest single party and increasing their overall vote share.

Even in normal circumstances, cross-border lenders with interests in the UK would be justified in paying close attention to these developments, given the inherent weaknesses and uncertainties that come with minority governments in parliamentary systems. However, the implications of this particular election take on far greater importance when juxtaposed against the decision of a majority of

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UK voters last year to vote to leave the European Union. It is no real exaggeration to argue that the UK is now entering one of the more critical periods of its post-war history confronting political and economic uncertainty and doing so with a weakened Prime Minister at the helm of a potentially fractious government.

At its heart, the Brexit process remains a political one. Whilst it will be driven overwhelmingly by economic concerns and will be constrained by a legal framework set under EU law (the so-called “Article 50 process”), it is politicians in the UK and the rest of the EU who will ultimately determine its course. As such, it is subject to all of the vagaries and emotions which are part and parcel of politics. Understanding the political environment in which the British government now embarks on the Brexit negotiations is, therefore, critical to appreciating their implications for any company doing business in the UK. This article summarises events to date and offers observations on the possible future direction of Brexit and British governance generally.

The Brexit Process to Date For all intents and purposes, Brexit began in the early hours of June 24, 2016, as it became clear that the “leave” side had emerged victorious from the referendum on Britain’s membership in the EU held the day before. That shocking decision led to the immediate resignation of Prime Minister David Cameron, who had led the “remain” campaign.

After a few short weeks of intraparty machinations, Theresa May was acclaimed as the new Conservative Party leader and Prime Minister.

It would fall to May’s government to determine the UK’s strategy for exiting the EU. In the early days of her premiership, May adopted the catchphrase, “Brexit means Brexit” to indicate that the exercise would not be purely cosmetic. This led to a widespread debate over what form the relationship between the EU and the

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UK would take thereafter. In January of this year, May confirmed that the UK would leave the EU’s single market, meaning that it would no longer be required to abide by the so-called “four freedoms” of movement of goods, people, services and capital. Nevertheless, the government expressed a desire to negotiate a comprehensive post-Brexit deal preserving key elements of Britain’s EU membership that were deemed critical to British interests. This was expressly stated to include a number of provisions relating to the financial services industry, given its continued importance to the British economy. The problem lay in assessing what concessions EU negotiators would demand in return for these protections and whether these would be politically acceptable in the UK. It was a desire to secure a stronger mandate with which to negotiate this post-Brexit deal which led May to call the snap general election that has now placed the country in this even more precarious political position.

The formal, legally mandated process of withdrawal began on March 29 of this year, when the UK government formally served notice of its intention to leave the EU. Under EU law, this triggers a two-year time period for the UK and the remaining 27 member states to negotiate any post-Brexit deal. Failure to do so within that period will lead to the UK leaving with no special safeguards in place and having to fall back on the rights and protections incumbent to it as a member of the World Trade Organization. Those are, of course, limited in nature and would leave many issues specific to EU membership - such as access to the European Capital Markets Union – open to uncertainty as to future effect.

The Process from Here: Hard Brexit or Soft Brexit?

The immediate question on the minds of everyone with UK interests will be what impact June’s election has on the shape and form of any Brexit deal.

The answer, unfortunately, remains

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subject to considerable speculation, but in the short-term, at least, we are operating in a period of even greater uncertainty, although now, arguably, with ultimately more potential for a less disruptive exit deal overall.

It must be noted from the outset that both the Conservatives and Labour campaigned in the general election on the premise of accepting the results of last year’s referendum and ending the UK’s full EU membership.

Given that the two parties secured a combined national vote share of over 80 percent, it is generally accepted that a mandate for Brexit exists, although lawyers continue to debate whether the withdrawal process could even be halted now that Article 50 has been formally triggered.

Analysis becomes more speculative when predicting the details of the post-Brexit relationship. At the time of writing, a debate continues within the Conservative Party over whether its loss of a parliamentary majority indicates that voters rejected the idea of leaving the EU single market completely in favour of some revised form of access. EU negotiators will likely demand considerable concessions in return, particularly with respect to ensuring free movement of EU citizens into the UK. This is likely to be a highly contentious issue given that, by some measures, opposition to the free movement of people was a key determinant of why many “leave” voters cast their ballots the way they did. This would have real political consequences for the Conservative government (and, potentially, would have raised the same challenges for Labour had it won). It remains to be seen how that debate plays out.

Equally, the government is now perceived to be entering the negotiations in a weaker position than was the case before the election. If it is now to secure a post-Brexit deal that protects vital interests, such as access to the single market for the financial services industry, it may be forced to give up much more than previously

anticipated. There have been calls for May to sit down with Corbyn and other UK political leaders and agree a bipartisan negotiating strategy much as the Conservatives and Labour worked together during the Great Depression and the Second World War. Given the highly acrimonious and fractious nature of the election campaign, however, such an approach may remain within the realms of fantasy and the government will need to deal with EU negotiators while also fending off criticism from the opposition at home.

Finally, two further political dynamics cannot be discounted. First, while May has vowed to stay on as leader of the Conservative Party, her position remains tenuous and subject to rebellion from within, given that the decision to call the election was hers alone. A new leadership race could further delay the progress of negotiations and create additional challenges for a party that is already reeling from the unexpected electoral setback. Second, minority governments are inherently at risk of collapse. At the time of writing, the Conservatives appear to be agreeing to a deal for support from the MPs of the Democratic Unionist Party of Northern Ireland that will give them an effective majority of votes in the House of Commons. However, those deals can always collapse and lost by-elections could make the situation even more precarious. It remains a real possibility that UK voters could return to the polls in another general election in a matter of months.

The Changing Policy Landscape Despite Brexit’s critical importance for the UK, it actually figured comparatively little in the election campaign as both parties focused on other issues. What is remarkable is that, by some measures, their broader policy platforms portend a discernible leftward shift with respect to economic policy in the country. This phenomenon, though discussed less, may prove just as important to lenders.

Corbyn campaigned on a highly in-

terventionist economic platform that included plans for increased corporate taxes and the re-nationalization of industries such as utilities and railways.

What was more striking was that the Conservative policy platform also included a number of non-market-based policies that, arguably, would have previously been anathema to Conservative principles. These included greater scrutiny of foreign inbound investment, caps on energy prices and the mandatory inclusion of worker representatives on the boards of large companies.

This may, in part, reflect residual anger among UK voters about perceived inequities in the free market system and it is likely that we will see a more activist and interventionist approach to policy regardless of Labour losing the election. While the full effects of Brexit may not be felt until the UK actually withdraws from the EU, it is this broader shift in approach to policy, made evident by the general election, which may have the more immediate effect on economic activity.

Implications for Lenders Until we know the exact parameters of the negotiated Brexit deal, it is impossible to determine its full implications for businesses, including lenders. Will the UK retain access to the single market for financial institutions based in the country? Will British exporters confront tariff barriers where none previously existed and how will that impact their ability to service debt?

Will the broader economic consequences of Brexit lead to increased inflation and weakening consumer demand? Will the UK be completely free to negotiate free trade deals or other bilateral arrangements with countries outside of the EU? How will any negotiated “divorce bill� for payment of contributions to the EU budget affect the ability of the UK government to invest for growth? These are only some of the issues that will affect lenders.

Many businesses are embarking on efforts to prepare for Brexit by

undertaking extensive legal reviews to assess their potential regulatory and contractual exposures as and when the UK leaves the EU. Equally, economists are modelling the potential performance of the UK economy under various conceptions of Brexit to determine its long-term impact. But regular attention must also be paid to the political environment. Given the inherent uncertainties that accompany a minority government and the realization that a substantial portion of the UK voting public appears willing to support a Labour Party whose leader and platform are arguably the most radical in decades, further fundamental change may yet come. Events move quickly, circumstances continue to evolve and, therefore, interests must be reassessed accordingly. In fact, in the period of time between the writing of this article and its publication, further changes may already have occurred. After all, a week is a long time in politics. TSL David Chmiel is managing director of Global Torchlight, where he advises companies on geopolitical risk and its impact on their business. He previously practiced in London and Chicago as a corporate finance lawyer with a major global law firm.

He can be contacted at david.chmiel@ globaltorchlight.com.

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Financial Regulatory Reform in the

Age of Trump

What’s in Store for the Loan Market?

Elliot Ganz of the Loan Syndications and Trading Association gets into the details.

BY ELLIOT GANZ

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Soon after the immediate shock of the election of Donald Trump as president wore off, participants in the financial markets started to reflect on the possibilities for significant financial regulatory reform. Many surmised that, with a Republican sweep of the presidency, House and Senate, surely the environment for regulatory reform was more promising than it had been since the great financial crisis. Indeed, loan market participants, who found themselves in the crosshairs of both Dodd-Frank Act regulations and more robust regulatory supervision, were not immune to hopeful thinking.

This article will explore whether those expectations were realistic, the extent to which those expectations have been met in the first few months of the Trump administration, and the prospects for significant financial regulatory reform in the near and mid-terms.

We will examine the prospects for change in each of the administrative, legislative and regulatory worlds and touch briefly also on the possibility that legal action could change the regulatory horizon. Finally, we will dive into whether, and how, regulatory reform could impact the loan market.

How Does Financial Regulatory Reform Happen?

In order to understand how financial regulatory reform can be achieved, it is important to understand how things actually get done in Washington. There are a number of paths. First, a new administration can have an enormous impact through the issuance of executive orders and appointment of new leaders of the financial regulatory agencies. Congress can enact legislation (subject to the president’s approval) to roll back or even repeal laws that regulate financial institutions. The regulatory agencies can affect the regulatory environment by either issuing new rules that are more benign or simply interpreting old rules in a more favorable way. Finally, aggrieved market participants can often sue federal agencies under the Administrative Procedure Act if rules promulgated by those agencies exceed their statutory authority or are issued in an arbitrary or capricious manner. So, how are these various avenues shaping up in the early days of the Trump administration?

Administrative Action And Regulatory Change The first few months of the Trump administration are a tale of two paths on financial regulatory reform. On the one hand, the president issued three noteworthy executive orders (“EOs”) focusing on financial regulation. Most relevant to the loan market was the EO issued on February 3 articulating “Core Principles for Regulating the U.S. Financial System” which stated that financial regulation under his administration must be consistent with “Core Principles” which include, among others, fostering economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, and making regulation efficient, effective and appropriately tailored. The EO also charged the secretary of the Treasury with reporting to the president within 120 days on the extent to which the existing regulatory scheme is consistent with the Core Principles and identifying the rules, regulations and guidance that inhibit federal regulation in a manner consistent with the Core Principles. In mid-June, Secretary Mnuchin released the first of what is expected to be a number of reports responsive to that EO, a 150-page report focusing on the banking sector. While the EOs do not have legal import on their own, they signal that the administration intends to direct the federal financial regulatory agencies to enforce regulations with a lighter touch and an eye toward economic growth.

Importantly, over the next two years Trump will have the opportunity to replace the leaders of all of the major financial regulatory agencies whose terms have either already expired or will expire by the end of 2018 (and most by the end of 2017).

He has already appointed and confirmed a new Treasury secretary and chairman of the SEC and identified (but not nominated) new chairmen for the OCC and FDIC. But, as of this writing, many other appointments, including senior political appointments of financial regulators below the agency heads, have been very slow in coming.

Without his political appointments in place, it will be very hard to get traction on his regulatory goals in the short term. Over

the medium to longer term, however, it is reasonable to expect that there will be very significant changes from the past eight years in financial regulatory posture and tone.

The Legislative Environment The lay of the land in Congress is not as simple as it might seem. Although the Republicans enjoy a strong majority in the House of Representatives (238-193 as of this writing) and a thin one in the Senate (52-48), because most laws require 60 votes to pass in the Senate, their ability to make significant changes to Dodd-Frank and other financial regulatory laws is constrained.

The Republicans will have to persuade a number of moderate Democratic Senators to get anything done on financial reform.

Despite the obvious challenge of getting bold financial regulatory reform through the Senate, the majority in the House has set very ambitious goals. They recently passed, on a party-line vote, a very sweeping (and contentious) financial regulatory reform bill, the Financial CHOICE Act that would substantially gut much of the Dodd-Frank Act. But most observers believe that passage of the CHOICE Act by the Senate is virtually impossible. The Senate, instead, has much less ambitious designs and is moving forward on an entirely different tack.

Mike Crapo, the Republican chairman of the Senate Committee on Banking, joined

by Sherrod Brown, the ranking member of the Committee for the Democrats, issued on March 20, 2017 a request for proposals to foster economic growth (the “Crapo/Brown Letter”), soliciting ideas that would “help consumers, market participants and financial companies participate in the economy in a more effective and efficient way be considered in an orderly process.” About 130 proposals were received in response.

However, with widely different views on financial regulatory reform existing even between the progressive and more moderate wings of Senate Democrats, whether such a bi-partisan approach is possible remains to be seen.

While enacting full-fledged legislation

by Congress will be very challenging, Congress has still managed to act aggressively on regulatory reform. Relying on the Congressional Review Act (CRA), a law passed THE SECURED LENDER JULY/AUGUST 2017 17

in 1996 that was used only once previously, Congress has already repealed 13 regulations enacted by regulators in the last days of the Obama administration, including one issued by the SEC. The CRA was designed to address situations where federal regulatory agencies, sympathetic to an outgoing president at the end of his term, issue new regulations that are not favored by the new administration. It requires federal regulatory agencies to submit a report describing each regulation it promulgates and gives Congress then sixty calendar days to decide whether to revoke the rule through a joint resolution of both houses which is then signed by the president. As explained below, and importantly for the loan market, the CRA could apply not only to new rules but to any rule or even potentially to guidance, with respect to which the federal agencies have not submitted a report.

What Are The Implications For The Loan Market?

There are two major regulatory schemes impacting the loan market that could be materially implicated by regulatory or legislative action, the Leveraged Lending Guidance (“LLG”), issued in March 2013, and the risk retention rules promulgated under Section 941 of Dodd-Frank.

Leveraged Lending Guidance The LLG has had a significant effect on banks that underwrite loans and on the market more generally. The LLG has, until now, not been considered a rule but many have observed that it has been largely applied as such by the banking regulators – the OCC, FDIC and the Federal Reserve. In addition to rigorous reporting and monitoring requirements, the LLG identifies certain criteria to be considered in developing an institution’s “leveraged lending” definition, including whether a loan’s leverage exceeds 4x total debt to EBITDA. It further restricts banks from originating – defined broadly to include amendments and refinancings - a non-pass credit. The agencies note in the LLG that loans with a leverage ratio of greater than 6X and loans that cannot be paid back from free cash flow in 5 to 7 years will be subject to additional scrutiny. In the years following the Guidance’s release, the banks endeavored to comply with the LLG

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and, as the paths to conformance became clearer, the market saw U.S. banks retreat from deals for which there was market demand, but which would not pass regulatory muster.

In March, Senator Pat Toomey asked the General Accountability Office (“GAO”) to determine whether the Leveraged Lending Guidance actually was a “rule” in guidance’s clothing subject to the Congressional review (and revocation) under the CRA. We believe that it is likely that the GAO will conclude that the LLG is a rule for the purposes of the CRA. Our conclusion is based on both the very broad definition of “rule” in the CRA and the fact that courts and the GAO have already interpreted the definition broadly.

Then, in June, as part of the first installment of his response to President Trump’s “Regulatory Core Principles” EO, Secretary Mnuchin identified the LLG as an area that needed attention. The report expressed concern with the ambiguity of the definitions in the LLG as well as a lack of clarity around penalties for noncompliance. This ambiguity meant that banks had to wait unto ex post-facto regulatory review to get clarity on whether a loan would pass or fail supervisory review. Moreover, the absence of clear compliance rules appears to have resulted in fewer leveraged loans being made by banks – but not necessarily fewer loans in the system. Instead, leveraged lending migrated to less regulated nonbanks, “a dynamic which makes it far less clear that the guidance actually diminished risk to financial stability…” The report recommends that (i) the LLG should be re-issued for public comment and refined with the objective of reducing ambiguity and achieving consistency in supervision, examination and enforcement, and (ii) banks should be encouraged to incorporate clear but robust metrics when underwriting leveraged loans instead of relying on the 6X leveraged discussed in the LLG. It is difficult to predict whether, assuming the GAO does conclude that the LLG is a rule, Congress will pass a joint resolution revoking the rule. If it does, and President Trump signs the resolution, not only would the LLG be immediately null and void, but under the terms of the CRA, the banking agencies would be prohibited, without further Congressional direction from proposing

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rules that are substantially similar to the LLG. If Congress does not act within 60 calendar days, the LLG would remain in place.

But, given the Treasury Secretary’s recent recommendations, a third alternative could be that the federal banking agencies, under new leadership, would either reissue the LLG for comment or work with Congress on a compromise that would reduce the burdens of the LLG and possibly give banks more discretion on how they underwrite loans.

The complete nullification of the LLG would likely mean that the banks would no longer have to comply with its onerous reporting and characterization requirements.

What it would mean for bank underwriting of leveraged loans is more difficult to predict. While the LLG is a roadmap designed to constrain bank behavior in underwriting loans, the federal agencies would still be mandated to ensure the safety and soundness of banks; the agencies’ bank examinations under the Shared National Credit program could be expected to continue to reflect that mandate even without the LLG. Risk Retention for CLO Managers Section 941 of the Dodd-Frank Act addresses imposed “risk retention” for sponsors who initiate securitizations. The reasoning behind Section 941 was that, if sponsors of “originate-to-distribute” securitizations were required to have “skin in the game” by retaining risk, they would no longer originate securitizations with poor performing or toxic assets. Specifically, Section 941 required a number of federal regulatory agencies to adopt regulations requiring the “securitizer” of an asset-backed security to retain at least 5% of the credit risk of the assets collateralizing the securitization.

In October 2014, the agencies passed final U.S. risk-retention rules (the “Final Rule”).

The Final Rule provides that a sponsor or a majority-owned affiliate of the sponsor must retain an economic interest in the credit risk of the securitized assets in one of (i) a vertical slice in each class of interests issued in the securitization equal to 5% of each tranche issued by the securitization, (ii) a horizontal first loss interest equal to 5% of the fair value of the interests in the securitization or (iii) a combination of vertical and horizontal interests. The Final Rule requires CLO managers to retain risk despite

many comments from market participants that risk retention should not apply to CLO managers because they do originate the assets that are sold to securitizations and that requiring retention of 5% of the fair value of a CLO (rather than 5% of the credit risk, as mandated by the statute) was excessive, would be unduly burdensome and would lead to a significant decrease in CLO issuance.

The Final Rule became effective on December 24, 2016. Even before it became effective, the CLO market reacted because investors were reluctant to invest with managers who could not demonstrate that they could comply with the risk retention rules when they did become effective. Issuance in 2015 and 2016 dropped dramatically from 2014 levels as did the number of managers who were able to issue. Post-effective date, CLO formation has rebounded in early 2017 after a slow January, but the business model for most CLO managers has fundamentally changed. Some CLO managers that are either naturally capital-rich or have restructured themselves to have access to risk retention capital may affirmatively like risk retention because it provides a competitive advantage. Other managers have found ways to make risk retention work, either by working with a capital-rich partner or using vertical financing or both.

While this group functions in a post-risk retention world, it is often at great cost, requiring them to pay away a component of their fees to make their deals work. A third group of managers has not yet found a sustainable risk retention solution and have been unable to issue.

How are the avenues for change described above open to the CLO market? The EO issued by President Trump that identifies “Core Principles” and asks the Treasury Secretary to identify non-compliant rules and regulations is one. The LSTA submitted a letter to Treasury Secretary Mnuchin suggesting easy fixes for the application of risk retention on CLOs. In particular the LSTA letter noted that the SEC alone has the authority to modify or waive the risk retention rules for the CLOs for the vast majority of CLO managers that it regulates. The first installment of Secretary Munchin’s response to the EO did not cover risk retention, but it is widely believed that the next installment,

expected in July 2017, will. Nevertheless, Treasury cannot make that happen on its own. Instead, the SEC, now under new leadership, would have to be persuaded that the harms identified by commenters are coming to pass and that the risk retention rules should not be applied to CLO managers. The next avenue runs through Congress. The Financial CHOICE Act described above would entirely repeal the risk retention rules for all asset classes other than residential mortgages but, as noted, is very unlikely to survive in the Senate. However, in response to the Crapo/Brown Letter, the LSTA submitted a legislative proposal that would allow CLO managers to comply with risk retention by retaining 5% of a CLO’s equity (rather than its fair value) so long as the CLO met a series of strict requirements. It is difficult to gauge whether this proposal will resonate with Senate Democrats and make it into whatever financial regulatory reform legislation is ultimately passed. Finally, the LSTA continues with its litigation efforts on risk retention. In October 2014, the LSTA sued the Federal Reserve Board and the SEC on their (mis)application of risk retention to CLOs and their conflation of “fair value” with the statutorily mandated credit risk.

The litigation process has been grinding on for nearly three years, first at the Court of Appeals, then at the District Court and now back at the Court of Appeals. On April 19, the LSTA submitted its opening brief to the DC Circuit Court in what will be the final stage of the litigation and the government responded on June 7. The briefing process will run through the summer, oral arguments are likely to occur in the fall and a final ruling will likely emerge in early 2018.

The Volcker Rule and CLO notes The Volcker Rule, part of the 2010 DoddFrank Act, prohibits banks from owning “ownership interests” in “covered funds” and was intended to address bank ownership of the equity of hedge funds and private equity funds. Instead, it has also been interpreted by the federal banking agencies to cover CLOs. Moreover, the agencies consider even AAA and AA CLO notes prohibited ownership interests because they have “indicia of ownership”, including the right to replace the manager. While CLOs whose only assets are loans and cash equivalent

assets are specifically exempted from the definition of covered funds, the agencies’ expansive definition prevents banks from owning any notes of CLOs that have the ability to purchase even a small amount of bonds and has forced banks to either seek amendments to these CLOS or divest such CLO notes (even though these CLO notes have never suffered a loss). All new CLOs since the issuance of the Volcker Rule have been “loan-only,” thereby limiting the flexibility of managers to take advantage of market opportunities.

Interestingly, Treasury Secretary Mnuchin’s recent response to President Trump’s Regulatory Core Principles EO recommended that the regulatory agencies pull back from their expansive definition of “covered funds” to focus on the original targets of the Volcker Rule, i.e., hedge funds and private equity funds (and, presumably, not securitizations such as CLOs). Alternatively, it is not inconceivable that the banking agencies under the direction of new leaders could re-examine their very broad interpretation of “ownership interest” for CLOs and once again permit banks to own these safe securities even if CLOs remain covered funds. In late May, the LSTA submitted a second letter to Secretary Mnuchin urging him to support the LSTA’s view that CLO debt securities are not ownership interests.

Conclusion While initial hopes for sweeping financial regulatory reform following the election of Donald Trump may have been overly optimistic, the coming changes in the leadership of the financial regulators may indeed lead to some much-needed “right-sizing” of financial regulation. The prospects in Congress, on the other hand, remain murky; there will be reform only to the extent the Republicans and Democrats can identify common ground. How this all plays out for the loan market is likely to play out in the coming months and is certain to be fascinating. TSL Elliot Ganz is the general counsel of the Loan Syndications and Trading Association (LSTA) and co-heads its government policy and advocacy efforts.

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THE DEBT PLACEMENT PROCESS IN CROSSBORDER DEALS: THE EVOLVING ROLE OF THE DEBT ADVISOR AND THEIR VIEWS ON THE USE OF ASSET-BASED LENDING

BY STEPHEN B. LEWIS The role of the debt advisor, particularly in cross-border ABL transactions, has evolved rapidly in recent years from that of a technician to that of a consigliere to a prospective borrower. In this article, the author discusses this evolution and its impact on access to cross-border ABL for middle-market companies.

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The role and expectations of the debt advisor have evolved considerably over the years since the first pure-play debt advisory practice, separate and apart from an investment bank, was conceived some 20-plus years ago in the UK. From the early days of merely providing assistance with the sourcing and negotiating of leveraged finance terms from amongst a competing group of lenders for the benefit of a prospective borrower, today’s debt advisory practitioner has evolved into more of a consigliere for a company’s management seeking to raise debt financing. The debt advisor is now expected to have at his or her disposal a list of providers of a variety of debt products capable of mixing and matching to fulfill the bespoke needs of each particular client. The advisor is also expected to counsel the client on why a particular financing structure will be of benefit to a particular client, taking into account all of the tactical and strategic reasons why the financing is being sought.

In order to fulfill this expanded role, the debt advisor must remain constantly aware of trends in the financing markets across the product spectrum and must be sufficiently knowledgeable about the subtleties of each product so that in a given circumstance he or she can make an informed recommendation to a client about which product would be appropriate and the likely terms available for the recommended product. Further, the debt advisor must be generally familiar with which financing products work best in certain industries so that the likelihood of successfully completing a transaction on acceptable terms is increased.

In today’s marketplace, companies seeking financing, whether for M &A activities, refinancings, asset purchases or the like, are used to seeking financing based on a multiple of the company’s EBITDA. For a company with a meaningful track record of performance over a period of time, with a defensible market position or a unique

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product or service offering, there are many sources of this type of debt capital ready and willing to lend. But what about a company that doesn’t fit that description? What about a company in a business that is very capitalintensive or a company that is in a seasonal or cyclical industry? What about a company that is asset-rich, but is at the breakeven point at the EBITDA line? These businesses need a different type of financing.

This is exactly the point at which every reader of this article will be saying to themselves the debt advisor should be recommending an assetbased lending solution to his or her client. In the United States, Canada and, to a lesser extent, the UK, that is exactly what would happen. But what about outside North America? To paraphrase The Wizard of Oz, “Dorothy, you are not in Kansas anymore” and therein lies the rub.

Outside of the US, Canada and the UK, the asset-based lending product, as practitioners in those three countries would define that term, is either not widely available, is not well understood or both. Further, in certain countries, to the extent some version of the product is available, there may be practical or other limits to its use that will affect the advisability of using the product. For the debt advisor who deals with cross-border transactions, not only must the advisor be facile with all of the nuances of the lending products available in the advisor’s home market, but the advisor must also be very familiar with the nuances of the financing products available in the relevant country and with the potential sources of those products. This also means the advisor needs to have a good understanding of local market receptivity to the use of a particular financing product and be able to address any potential pushback in appropriate circumstances.

Specifically with respect to the receptivity of using the asset-based lending product outside of North America, to the extent the product is

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available, experience would suggest there continues to be an “image problem” affecting its use. While in the US and Canada it is true that ABL is no longer considered a product used as a last resort when nothing else is available, outside the US that perception lingers to a degree. Borrowers resist considering the product because of misperceptions about how hard it is to implement, onerous reporting requirements and how their ability to borrow may vary depending on the underlying borrowing base.

However, what those borrowers fail to appreciate and what the universe of debt advisors in the cross-border arena need to be prepared to demonstrate to those borrowers is that the ABL product in many respects provides a greater degree of flexibility than a bank line or overdraft facility. The debt advisor, in advocating the use of ABL in a cross-border deal, not only must be able to articulate how the product will work country by country, but the advisor also must be able to clearly explain how the quantum of debt to be provided under the ABL facilities is equal to the amount the borrower was seeking. This last point sounds obvious, but since many borrowers unfamiliar with or wary of the use of an ABL product are concerned about the actual amount of money they will be able to borrow under the formula in the financing documents, the debt advisor needs to be prepared to take the client through how the borrowing base in each country works, to provide comfort on this point. Further to the last point, the debt advisor in a cross-border deal needs to be able to clearly articulate the flow of borrowed funds across the group to again allay the concerns of a prospective borrower that he/she won’t be able to get the funds as and where needed.

I started this article by saying that the debt advisor role has evolved into that of a consigliere. While that is true, the role of the cross-border debt advisor who has recommended the use of an ABL product is also akin to

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that of a professor. The advisor must confidently educate the client about the benefits and limitations of the product while at the same time demonstrating that the product is the one best suited to meet the client’s needs and one that will allow the client to continue its growth trajectory. TSL Stephen Lewis joined Headwaters in 2014 from Cross Border Strategies LLC, a boutique he founded. There he focused exclusively on facilitating international debt financing for middle-market companies with current or planned operations outside North America. Prior to founding Cross Border Strategies LLC, Lewis served for seven years Executive Director with GE Corporate Financial Services in Chicago and then London.

Lewis is a 30-plus-year veteran of the financial services industry. He has broad legal and business experience in multijurisdictional transactions of all types, including portfolio acquisitions, lending, structuring and re-structuring. His extensive management skills include establishing and leading “start-up” operations in Canada and the UK for US-based lending institutions.

Lewis has personally led over 100 international financing transactions involving more than $10 billion in international financing. He has completed international debt transactions in over 30 countries, including the US, Canada, Great Britain, France, The Netherlands, Spain, Germany, Italy, Japan, China, Hong Kong, Singapore, Australia, Mexico, Brazil, Argentina and Chile.

Lewis received a BA from DePauw University with high distinction and a JD from Indiana University School of Law. He is based in Chicago, Illinois.

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Changes to u.S. Economy Performance: Lenders Reveal an Optimistic Outlook for Near Term and Increasing Pessimism for Long-Term Economic Strength

BY MICHAEL E. JACOBY AND JESSICA ZWIRZINA For over 20 years, Phoenix Management Services has been collecting, tabulating and analyzing the results from its “Lending Climate in America” survey in order to evaluate national lending attitudes and trends. Here, the authors discuss the results of the latest survey.

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Each quarter, Phoenix’s proprietary “Lending Climate in America” survey is distributed to over 5,000 lenders nationwide. In the Q2/17 survey results we saw a continuing trend of increasing pessimism by lenders with regard to the U.S. economy in the long term. (See Chart below.) In the Q2/17 survey, their longterm expectations (i.e., how will the U.S. economy perform beyond the next six months?) decreased 15 points to a GPA of 2.30, and their short-term expectations (i.e., how will the U.S. economy perform during the next six months) fell 8 points to a grade point average (GPA) of 2.50.

The near-term sentiments represent an overall ‘B’ grade while the long-term sentiments represents an overall ‘C’ grade.

In our Q2/17 survey, lenders revealed a) a decrease in both the near- and longterm GPA, b) an increase in the diffusion indexes for interest rates, loan losses, and bankruptcies, and c) their belief that the stability of the stock market and unstable energy prices are the factors that have the greatest impact on the overall economy.

Positive Outlook for Near-Term Economy GPA Each quarter we ask lenders, “How do you expect the U.S. economy to perform in the next six months on a scale of A through F?” The Q2/17 survey results exhibited a minor decrease of 8 points

in the economic grade point average (GPA) to 2.50 from 2.58 in Q1/17. For the first time, lenders are equally split in their beliefs of the economy performing at a ‘B’ and ‘C’ level within the next six months. The results from the 2Q 2017 survey continue the previous quarter’s results of a higher near-term GPA than long-term GPA. In addition, we ask lenders, “How do you expect the U.S. economy to perform beyond the next six months on a scale of A through F?” Lenders continue to have an increasing pessimistic view about the U.S. economy in the long term. The long term GPA decreased 15 points from a 2.45 in Q1/17 to a 2.30 in Q2/17. In Q2/17 the percentage of lenders expecting the U.S. economy to perform at a ‘B’ level fell 12 percentage points from a 52% in Q1/17 to a 40% in Q2/17. We saw an increase in the percentage of lenders that expect the U.S. economy to perform at a ‘C’ level beyond the next six months. Although we are seeing a decrease in the long-term GPA, the Q2/17 GPA of 2.30 is still 41 points higher than the Q2/16 GPA of 1.89 at this time last year.

Interest Rates, Loan Losses and Bankruptcies to Increase One of the questions posed to survey respondents is whether they expect economic indicators to be up, down, or remain at the same level over the next

Lender Expectations for Economy (A= 4.0; C= 2.0; F= 0) 4.00

Economy Grade

3.50 3.00

2.50 2.00

1.50 1.00

0.50 0.00

GPA 6-Month Expectations

GPA 6-12 months Forward

THE SECURED LENDER JULY/AUGUST 2017 25

six months. The question drills down even further into specific economic indicators including, but not limited to, interest rates, loan losses and bankruptcies. To measure lender sentiment, the survey utilizes a Diffusion Index. Our Diffusion Index is calculated by subtracting the percentage of negative expectations from the percentage of positive expectations. In the Q2/17 survey, lenders indicated a significant increase in these metrics. The interest rate diffusion index increased to 100%, a 9-percentage point increase, compared to 91% the previous quarter. This is the first time in the history of Phoenix’s “Lending Climate in America” survey that all lenders agree interest rates will be up rather than remain the same or decrease. Furthermore, we ask lenders on a quarterly basis in what direction they think the Fed will move interest rates and by how much in the coming six months. Of the lenders surveyed, 73% expect the Fed to raise interest rates by 50 basis points or more within the next six months. These answers were provided after the March Federal Reserve meeting when interest rates were raised by 25 basis points.

Echoing these sentiments, the survey shows an increase in lenders that expect loan losses and bankruptcies to increase over the next six months. The increase in these metrics correlates to the increase expected by lenders in regard to interest rates. With the expected increase in interest rates comes the increased possibility of a rise in loan defaults, causing loan losses and bankruptcies to increase. The bankruptcy diffusion index increased 47 percentage points from 18% in the previous quarter’s results to 65% in Q2/17. In addition, the loan losses diffusion index increased to 50% in Q2 2017 compared to 15% in Q1 2017. These results represent the highest negative sentiments since the Q2/16, which had diffusion indexes of 67% for loan losses and 81% for bankruptcies.

Lenders Predict Interest Rate Spreads to Decline and Leverage Multiples to Increase The “Lending Climate in America” survey routinely asks lenders whether their

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financial institutions plan to reduce, maintain, or increase their interest rate spreads and fee structures. The question is then broken down further, based on average loan size. While a majority of lenders, 76% of the respondents, expect their financial institution to maintain its current interest rate spread and fee structure (a 12-percentage point increase from Q1/17), 16% of the respondents expect their financial institution to reduce its current interest rate spread and fee structure (a 12- percentage point increase from Q1/17). This would seem to indicate continued competitive pressure and the need to be sensitive to pricing in order to maintain and/or increase market share.

Echoing these competitive sentiments, lenders showed a marked shift in their expectation to increase leverage multiples.

The survey asks lenders to indicate the highest senior debt-to-EBITDA leverage ratio that their banks would consider.

Forty-one percent of lenders indicated the >3.5x range (the highest threshold in our survey) would be the highest EBITDA ratio they would consider, a 17 percentage point increase from the Q1/17 results.

Stock Market and Unstable Energy Prices to Affect the Overall Economy Another question routinely asked to lenders is to select the two factors that they believe could have the strongest potential to affect the economy in the next six months. The top two factors selected by lenders in the Q2/17 survey were the stability of the stock market and unstable energy prices. The stability of the stock market garnered the highest amount of responses at 55%, while unstable energy prices garnered 36% of responses.

The sentiments for unstable energy prices is further supported by the fact that many economists expect gas prices to rise dramatically before the end of 2017.

In the Q2/17 survey lenders were asked to identify which factor they think is most likely to cause gas prices to increase before the end of 2017. The majority of lenders, 63%, believe that geopolitical uncertainties will be the most likely factor to cause gas

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prices to increase dramatically before the end of 2017, while 29% believe gas prices will increase due to a decline in oil inventories. Of the lenders surveyed, only 8% believe the potential increase in gas prices will be from a reliance on foreign sources.

Conclusion The results from the Q2/17 survey indicate a continuing trend in which lenders are increasingly pessimistic about the U.S. economy on a long-term basis.

Despite lender expectation for interest rates, loan losses and bankruptcies to be up within the next six months, lenders remain relatively positive about the U.S. economy on a near-term basis. TSL The Phoenix Management “Lending Climate in America” Survey is conducted quarterly. To see the full survey results for Q2 2017 as well as to view previous quarter results, please visit www.phoenixmanagement.com/about-phoenix/ lending-survey.

Michael E. Jacoby is a senior managing director and shareholder at Phoenix Management Services. He has served in advisory capacities, as well as interim management positions for more than 270 Phoenix clients in a wide variety of industries since joining Phoenix in 1992. He can be reached at mjacoby@phoenixmanagement.com.

Jessica Zwirzina is the marketing and communications manager at Phoenix Management Services. She can be reached at jzwirzina@ phoenixmanagement.com.

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CFA’S WOMEN IN COMMERCIAL FINANCE CONFERENCE

WOMEN IN COMMERCIAL FINANCE CONFERENCE September 28th, 2017 • New York, NY The CFA Women in Commercial Finance Committee is proud to present an in-depth conference designed to provide real-life tools and examples on how to advance your career. This half-day conference, taking place ahead of the 2nd 40 Under 40 Awards celebration, will bring together some of our industry’s leading female executives and employment professionals to offer their insights and tips on navigating issues faced and a path to success in today’s work environment. Our conference will be highlighted by special keynote speaker, Sallie Krawcheck.

With a reputation for integrity, creativity, independence of thought, a sense of humor and an unrelenting focus on results, Sallie Krawcheck has built a career that has reached the top levels of success across a range of functions: as a senior corporate executive, as a research analyst and now as an entrepreneur. In her new book, Own It: The Power of Women at Work, Sallie describes a new kind of career playbook for a new era of feminism, offering women a new set of rules for professional success: one that plays to their strengths and builds on the power they already have.

Featuring Guest Speaker Sallie Krawcheck September 28th, 2017 Wells Fargo Conference Center 150 East 42nd St. Corner of 3rd Ave. New York, NY 8:30 a.m. - 2:30 p.m.

FEE $220 MEMBER/NON-MEMBER Contact Jeff Walsh @ jwalsh@cfa.com

Registration includes a special reception the evening of September 27th at the offices of Paul Hastings in NYC. Space is limited – sign-up today!

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A TRUE ASSET-BASED LENDER IN THE UK EUROPEAN MARKET:

JEREMY HARRISON Jeremy Harrison is regional group head and senior vice president at Bank of America Business Capital (BABC), part of the Global Commercial Banking business at Bank of America Merrill Lynch. Based in London, he is responsible for leading new business generation in the UK and across Europe.

BY MICHELE OCEJO

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One of the only true asset-based lenders in the UK European Market, Harrison manages deal origination throughout EMEA, sourcing transactions internally and externally with a minimum £20m facility.

Prior to joining Bank of America in 2011, Harrison spent four years in New York leading Lloyds TSB Bank Plc’s U.S.-based operations.

He began his career in finance with GMAC in 1998, later moving to GE in 2001 and Lloyds in 2003.

Harrison is the president of CFA’s European Chapter.

Here he discusses how the industry has evolved in the UK/Europe as well as the challenges and opportunities facing lenders there.

How did you get your start in ABL? In 1998, I joined GMAC, then called Bank of New York and prior to that International Factors, which had been sold by Lloyds TSB Bank Plc. I joined as a client manager looking after invoice discounting and factoring clients. I quickly moved into inventory and term lending, which were the beginnings of ABL. I had just completed my part-time BA degree and my dissertation was entitled, “The Differences between Factoring and Invoice Discounting.” This served as a springboard into the sector, which was growing exponentially, and where my friends and colleagues were moving from standard corporate banking.

What are the differences in the UK market and the U.S. market? What about pan-European asset-based financing?

In the U.S., ABL is mainstream, and in some ways it is ahead of the UK and indeed Europe, but in other ways the UK is more advanced. In the UK, cashflow lending or RCFs teamed with term loans or bonds are the predominant structure.

A lot of what I do is to ‘educate’ on the merits of ABL, and we continue to win deals in the marketplace, as many of our clients realize that the ABL product is a better option. Nevertheless, there is room to grow our product in the European market, which I expect will happen as it becomes an increasingly accepted solution.

The challenge within Europe is the separate jurisdictions with their differing considerations. For example, the Administrator in Germany or enhanced employee rights in France. Many European clients continue to use the factoring product. However, clients are more often turning to a cross-border ABL structure.

How has ABL evolved in the UK and European markets over the last few years?

Since early 2000, the market has evolved strongly, and ABL is a real alternative to traditional methods of financing. ABL was once dominated by the clearing banks and a handful of others. Today, the market also includes the international banks and a number of independently owned asset-based lenders. Market depth and capacity have increased, and we are currently working on several large multi-jurisdictional transactions.

What are the biggest challenges and opportunities facing ABL in the UK? How do you see the product evolving to address these challenges?

Alternative lenders have been in the market for four or so years, and we have seen good ABL deals go down that route, despite expensive financing for these transactions. I would like to see progress around ABL working with alternative lenders and providing the revolving piece of transaction. The inter-creditor is a key document in our suite, and I believe with some revisions, there is suf-

ficient protection for ABL to work with alternative lenders.

From a CFA perspective, I see this as an opportunity. Working with debt advisors is critical in our market, and giving them the tools they need to have confidence in ABL is crucial. Recently, Bank of America Merrill Lynch hosted a Debt Advisory focused panel, and the key challenges we uncovered were working with the alternative lenders, standardized documentation and making the product less onerous. Of course, we have views on each area, and I think we have made enormous progress, but it is important to look at the market dynamics and adapt where you can. For example, companies can embrace IT enhancements to make it easier to communicate with their banks.

How do you think the new regulations from the EU on leveraged lending may affect the UK and European asset-based markets?

Generally, my view is that Europe follows the U.S., and as such, some version of the U.S. regulations are likely in Europe. But I would expect these to take note of the nuances of European lending.

As the president of CFA’s European Chapter, what role does the chapter play in the industry?

The Chapter operates at the middle- to upper-end of the marketplace. We are not aimed at factoring clients, but do cover invoice discounting and ABL clients, with invoice discounting being unique and larger clients not fitting the CFA profile. The Chapter is focused on Europe, not just the UK, and I think we are beneficial to all market participants as our aim is to provide useful content.

Education is a critical part as well as offering panels on current trends to assetbased lenders. We host meetings in the UK, the Netherlands and Germany. It’s important that we involve ABL professionals at all levels and encourage our members to be active participants. TSL Michele Ocejo is editor-in-chief, The Secured Lender

THE SECURED LENDER JULY/AUGUST 2017 29

Lending and Traveling in Lagos, Nigeria - Looking Beyond the Misconceptions Keeping an Open Mind for the Experience and Introspections of a Life Time.

By Robert D. Katz

I

traveled to Lagos, Nigeria earlier this spring to teach “Movable Asset Financing”, or what we refer to as asset-based lending in North America, as part of a Commercial Finance Association (CFA) program in conjunction with the World Bank and FITC (formerly Financial Institutions Training Center) in Africa, targeting underdeveloped countries and underserved markets around the world.

One of the goals of the program is to expand the knowledge of market participants and help to uncover opportunities to lend in these resource-rich nations. The CFA previously held similar training programs in Colombia, Mexico, Zambia, and India and has future programs scheduled in many other countries around the globe. My co-teacher was Betty Hernandez, shareholder, EVP and chief credit officer of North Mill Capital LLC. Participants benefited from the wisdom of multiple perspectives; Betty provided a lending perspective and I provided a consulting and asset-recovery viewpoint. Betty was exceptionally popular covering the topic of minimizing loan losses. My popularity grew discussing the prospects and strategies in recovering a lender’s collateral in a liquidation scenario.

Lending on collateral other than real estate and equipment is not as common outside of the United States and other developed countries as one may think. The equivalent to the Uniform Commercial Code laws are quite new to many of these developing nations. For instance, Nigeria’s UCC laws have been in existence for only approximately two years. But the country’s financial leaders in charge of developing the programs have laid the right foundation.

In discussing the origin and development of movable asset financing/asset-based lending in Nigeria, Ubong Valentine Awah, one of the representatives from the World Bank, stated during the training program, “Once you have spent the time to develop and put the laws into place, then the hard work begins, which is to train the judiciary branch to enforce the laws.” He raised a valid point in that, if the judiciary won’t enforce the laws, then banks will not accept the risk of making loans, even those offering good returns. By comparison to the United States, banks in Nigeria pay 5% to 6% on customer deposits. But before you get too excited, for creditworthy borrowers it is not uncommon in Nigeria to be charged 20% for a term or mortgage loan.

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Movable Asset Financing Program Overview Programs attendees included over 70 senior credit officers from the Nigerian lending community, both from large international banks, such as Standard Chartered Bank, to smaller microbanks.

The World Bank coordinated with the financial services community in Nigeria in advance of the program to ensure the banks would send their brightest and most experienced professionals to the program.

The four-day program started with an introduction to asset-based lending. Participants learned about lending against accounts receivable and inventory; how reserves are structured and how advance rates are determined. Participants were divided into smaller breakout groups for case-based discussion. The smaller groups gave participants more opportunities for participation and interaction.

There were training sessions on asset-valuation techniques, the need for auction and appraisal expertise in assetbased lending, due diligence and field examinations. In addition, participants learned about fraud detection and how to use rolling cash-flow forecasts and borrowing base calculations in structuring loans. We also discussed and covered valuing assets and collateral and the need for auction and appraisal experts.

So, for those inclined, there is an opportunity to expand your business in 2018.

The program concluded by gathering participants’ feedback on the program to further refine future training programs.

As previously mentioned, the program’s attendees included over 70 senior credit officers and leaders from the Nigerian lending community. One of the best litmus tests for the success of the program was this: The program was scheduled to run from Wednesday to Friday. Consistent with most similar programs in the United States, the first day is usually the most well attended and by the last day (Friday) there tends to be a trail-off. In our case it was just the opposite, which to me goes to the strength of the materials, the interest in the concept as well as Betty for her

expertise and insight. The first day of the program started with approximately 55 attendees and, when the program ended on Friday afternoon, there were well over 70 in attendance, which suggested that attendees spoke to their colleagues at their respective institutions and suggested that they come to attend and find out what they were missing!

Some Take Aways From The Trip: Lagos is Nigeria’s largest city and is the financial capital. Lagos offers a diverse economy, people and culture. There are public and privately held multi-billion dollar companies such as Dangote Cement, Nestle, Citi, Honda and Mercedes dealerships, which operate in the country. There are also many smaller entrepreneurial businesses as well, which have financing institutions that focus on them, the microbanks.

Although Nigeria is “half a world away” there were many similarities to the United States. They too are dealing with the problem of escalating healthcare costs. And one of the staffers was excited to spend her Saturday at her daughter’s cheerleading team. Our fellow group members took us to some favorite local restaurants for dinner.

And, one night we found ourselves at the Hard Rock Café, demonstrating that some of our beloved American institutions appeal overseas to millions who admire our way of life.

Competition is strong in the financial services industry and it is considered taboo for lenders to discuss prospects with their competition for fear that competitors will steal the prospect.

The people we worked with and that I encountered couldn’t have been friendlier and more gracious. Lagos is a metropolitan city full of smart, educated entrepreneurs and business people eager to seize the next opportunity.

My father and I have been members of the CFA’s Education Foundation for over 20 years. After spending a significant amount of time working with representatives of the CFA, World Bank, FITC and chief credit officers from major lending institutions across Africa, I am excited

and encouraged about the impact that this program and the CFA’s Education Foundation have around the globe.

The coordination efforts between the CFA representatives, specifically Tim Atkinson and Katie Valenti, and the World Bank representatives including, Ubong Valentine Awah, were superb. There were some minor, not unexpected, hiccups early on as one can imagine when programming multiple time zones and continents away, but the dedication of all the parties working together around the world resulted in a great training program. My co-teacher Betty Hernandez shared a great deal of knowledge with program participants and could not have been a better ambassador for our industry.

Nothing better sums up my thoughts of the entire trip than something I think of when I think of the Hard Rock Cafe.…

For those who Rock and to the CFA, the World Bank, FITC and the future of Movable Asset Financing in Africa, we salute you!

In closing, a very big thank you and appreciation to my employer, EisnerAmper, LLP, my colleagues and my immediate boss, Allen Wilen, for allowing me the time to be a part of this program and take advantage of this opportunity. TSL Robert D. Katz, CTP, CPA, MBA is a managing director of EisnerAmper LLP’s Financial Advisory Services group. He is a longstanding member of the CFA’s Education Foundation and an adjunct professor in Strategic Management and Corporate Finance at Temple University. He can be reached at Robert.Katz@eisneramper.com (215) 8818828 to provide additional insight.

Thank you to Linda McDonough of 50 Words Marketing (Lmcdonough@50wordsmarketing. com) www.50words.com for her contribution to this article.

THE SECURED LENDER JULY/AUGUST 2017 31

what

i

WOULD YOU DO?

n this edition of What Would You Do?, The Chief Credit Officer at Overadvance Bank wrestles with whether to close a revolving credit facility when a UCC lien search uncovers two filed UCC termination statements for which the prospective borrower cannot produce written evidence that such termination statements were authorized to be filed by the secured parties of record.

What You See Is Not What You Get? Last month, Overadvance Bank issued a commitment letter to extend a $30 million senior secured revolving credit facility to Shady Chuck’s Electronics, LLC, a longstanding regional electronics and appliance retailer with over 40 store locations.

While many retailers have closed their doors in recent times as a result of the rapid rise of online retail, Shady Chuck’s aggressive pricing and knowledgeable sales force have kept Shady Chuck’s in the black. Shady Chuck’s has historically self-financed its operations through cash flow. However, in light of its desire to grow into new territories, Shady Chuck’s has decided to pursue a traditional ABL revolving line of credit to maximize available liquidity.

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As part of its due diligence, Overadvance Bank conducted UCC searches against Shady Chuck’s. Aside from several equipment lease filings that related to specific leased equipment, the search revealed two recently terminated UCC-1 financing statements, a blanket inventory filing by Supply’Em Big, Inc., one of Shady Chuck’s largest inventory suppliers, and an all-asset filing by XYZ Bank.

While the UCC search results indicated that these financing statements were terminated, the termination statements were filed in the past few months, and each termination statement indicated it was authorized to be filed by Shady Chuck’s, rather than by the secured parties of record. As such, the underwriter made a note to follow up with Shady Chuck’s to obtain evidence (e.g., payoff letters) that the financing arrangements evidenced by these two UCC-1 financing statements were fully repaid and satisfied.

A week before the scheduled closing date, Shady Chuck’s CFO reported that the company did not have payoff letters signed by either XYZ Bank or Supply’Em Big, but it wasn’t a big deal because Shady Chuck’s terminated the two UCC-1 financing statements months ago. The CFO explained that, while Shady Chuck’s consented to XYZ Bank’s UCC-1 filing in anticipation of growing XYZ’s cash management arrangements into a secured line of credit, the line of credit failed to materialize and, as a result, Shady Chuck’s terminated XYZ’s UCC-1 financing statement. Regarding Supply’Em Big’s UCC-1 filing, the CFO said that Shady Chuck’s initially authorized the UCC-1 filing in contemplation of Supply’Em Big’s proposal to substantially increase its trade credit terms in exchange for a lien on the company’s inventory. However,

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Supply’Em Big subsequently provided Shady Chuck’s with written notice that it was backing out of the deal (a copy of this notice was sent to the underwriter at Overadvance Bank). As a result, Shady Chuck’s sent a letter to Supply’Em Big demanding that Supply’Em Big terminate its UCC-1 filing and, after a month passed with no response from Supply’Em Big, the CFO arranged to file a UCC termination statement against Supply’Em Big’s UCC-1 filing.

The Chief Credit Officer at Overadvance Bank has some concerns about closing the facility based solely on the CFO’s explanation of the UCC terminations. Namely, without evidence that XYZ Bank and Supply’Em Big authorized the filing of the UCC termination statements, the Chief Credit Officer is concerned that the termination statements filed by Shady Chuck’s were not effective to terminate the UCC-1 financing statements of XYZ and Supply’Em Big, thereby potentially leaving the Bank with a security interest junior in priority to both XYZ Bank’s and Supply’Em Big’s prior perfected liens.

If you were the Chief Credit Officer, what would you do?

Under the Uniform Commercial Code, a termination statement is effective to terminate a filed UCC-1 financing statement if the termination statement was “authorized” to be filed. So who can authorize the filing of a UCC termination statement?

Obviously, the secured party of record can authorize the termination of its own UCC-1 financing statement (which was not done in this instance).

However, pursuant to Section 9-509(d) of the UCC, the debtor of record is, under certain circumstances and subject to meeting certain conditions, also authorized to file a UCC termination statement.

what would you do?

For collateral other than consumer goods, Section 9-513(c) of the UCC generally requires a secured party to file a termination statement within 20 days after the secured party receives a written demand from the debtor of record to file the termination statement to the extent there are no obligations secured by the collateral described in the financing statement to be terminated and the secured party of record is not under any commitment to make an advance or incur an obligation to the debtor. If the secured party does not file or send a termination statement within such 20 day period, and provided there are no such obligations owed to, or commitments on the part of, the secured party, Section 9-509(d) authorizes the debtor of record to file a termination statement. The UCC requires that such a termination statement indicate (typically by checking a box in the termination statement) that it is filed by authority of the debtor rather than the secured party. The concern with any termination statement, especially a “debtor authorized” termination statement, is that there is no way to determine from the filed termination statement itself whether the termination statement was in fact duly authorized (i.e., in the case of a secured party authorized termination statement, whether the secured party actually authorized the filing or, in the case of a debtor authorized termination statement, whether the debtor actually met the requirement to file the termination statement).

Rather, additional diligence is typically required.

In our case, Shady Chuck’s says that neither termination statement was expressly authorized by the secured parties of record. Rather, Shady Chuck’s authorized the filing of the termination statements as the debtor

of record for each financing statement. With regard to Supply’Em Big’s UCC-1 financing statement, it appears that Shady Chuck’s gave the requisite demand, filed a UCC termination statement indicating that Shady Chuck’s authorized the termination filing, and that no obligations are secured by the filing (and no commitment on the part of Supply’Em Big to extend credit) because Supply’Em Big confirmed that it backed out of the enhanced trade credit arrangements with Shady Chuck’s. However, with regard to XYZ Bank’s UCC-1 financing statement, no such steps were taken by Shady Chuck’s to terminate XYZ’s UCC-1 filing. Moreover, because Shady Chuck’s continues to run its cash management arrangements out of XYZ Bank, the Chief Credit Officer is concerned that, without the XYZ’s confirmation, the UCC termination statement could be challenged as not being authorized.

Accordingly, the Chief Credit Officer requests that Shady Chuck’s obtain written confirmation from XYZ Bank that its UCC-1 filing was properly terminated. The Chief Credit Officer also makes a note to advise his underwriters to vet the evidence of authorized UCC termination statements earlier in the underwriting process to avoid last-minute fire drills like this one.

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 Chief Credit Officer at Overadvance Bank has some concerns about closing the facility based solely on the CFO’s explanation of the UCC terminations. Namely, without evidence that XYZ Bank and Supply’Em Big authorized the filing of the UCC termination statements, the Chief Credit Officer is concerned that the termination statements filed by Shady Chuck’s were not effective to terminate the UCC-1 financing statements of XYZ and Supply’Em Big, thereby potentially leaving the Bank with a security interest junior in priority to both XYZ Bank’s and Supply’Em Big’s prior perfected liens.”

THE SECURED LENDER JULY/AUGUST 2017 33

the cfa brief AMONG CFA MEMBERS

CFA NEWS IN PRINT

Azadian Group LLC: Shaq Siddiqi has joined the company as chief operating officer. Siddiqi brings 15-plus years of commercial finance experience to his role.

Prior to joining Azadian Group, Siddiqi successfully undertook senior roles of increasing responsibility in the areas of portfolio management, underwriting, due diligence, field examination, sales support, and operations at Medallion Business Credit, Merchant Factors, Capital Business Credit, and Wells Fargo.

In his new position at Azadian Group, Siddiqi will oversee underwriting, due diligence, portfolio management, client services, sales support, investor relations, and general business operations.

Raffi Azadian, founder and C.E.O. of Azadian Group stated: “I have known Siddiqi for several years and his reputation is impeccable. I am thrilled to now be working closely with him and am confident that his unique skillset, work ethic and sales and service-focused attitude will be of great benefit to the company.”

Celtic Capital Corporation: Robert Billhorn has joined as senior vice president – client development. Having been in the banking and alternative finance markets in the Cincinnati area for the past 20 years, Billhorn will be based in Cincinnati and will cover Celtic Capital’s Ohio, Indiana, Kentucky, Tennessee and Michigan markets.

CIT Group Inc. (NYSE: CIT): John Fawcett has been named executive vice president

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and chief financial officer. He will succeed CFO Carol Hayles who has decided to pursue other opportunities. Fawcett joined the company as an advisor on April 17, 2017 and began a transition period before taking on the CFO role, which occured in early May when Hayles stepped down. Fawcett will report to chairwoman and chief executive officer Ellen R. Alemany and serve on the company’s Executive Management Committee.

“John is a seasoned finance professional and strategic leader with a strong banking background,” said Alemany. “He brings deep expertise across the finance disciplines, including financial planning, treasury management, accounting and regulatory matters. John will be a key partner to me and the management team as we continue to advance our strategic plans and grow our core businesses.”

Alemany continued, “I want to thank Carol for her significant contributions to CIT over the past seven years. Since being named CFO in 2015, she has played a key role in our strategic transformation and helped to advance efforts such as the integration of OneWest Bank, the sale of the Commercial Air business and our plans to return capital to shareholders. These efforts have helped to position the company to deliver on our plans to create long-term shareholder value.”

Fawcett served as CFO of Citizens Financial Group (CFG) and Royal Bank of Scotland (RBS) Americas from 2007 through 2015. He was instrumental in leading the CFG initial public offering and separation of CFG from RBS in September 2014. Prior to this, he had a 20-year tenure at Citigroup with CFO roles in various areas including as CFO of Global Transaction Services, CFO of the Commercial Markets Business and head of Financial Planning and Analysis for the Global Corporate and Investment Bank, to name a few. Most recently, Fawcett served on the board of Rabobank

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North America. He earned a Bachelor of Science in accounting and a Master of Business Administration in finance, both from St. John’s University.

DS-Concept: John Stillwaggon has been promoted to the position of CEO, USA. In this role, he will be responsible for leading the region’s strategy, growth, and profitability, while managing overall operations.

The position reports into Rene Pastor, president of Global Commercial Operations, located in the firm’s German HQ office.

According to Pastor, “John has shown steady growth within our organization, both in originating new business, as well as in formulating and executing on new strategic initiatives that will push our business into the future. We are excited to have John apply his extensive knowledge and leadership abilities to his new role to help elevate our business even further in the coming years.”

Stillwaggon added, “I am honored and excited to be given the opportunity to lead DS-Concept’s business in the region. This is the perfect time to implement changes and improvements that will allow our firm to continue to be a leader in our space.”

Stillwaggon has been with DSConcept for five years, previously holding leadership positions as managing director, and SVP of Sales. Prior to joining DS-Concept, Stillwaggon was employed at COFACE, a €1.6 billion revenues insurance and financial services firm. Stillwaggon holds a BA from Siena College, an MA from Boston University, and certificates in international trade, logistics, finance, and credit analysis from New York University.

Peapack-Gladstone Financial Corporation (NASDAQ: PGC) and Peapack-Gladstone Bank are proud to introduce a new team of private bankers and the opening of Peapack Capital Corporation, the newest subsidiary of the Bank, which will focus on

equipment finance and leasing.

“Equipment leasing is the logical next step for us,” said Doug Kennedy, president and chief executive officer of Peapack-Gladstone Bank. “We have found a team that fits our aggressive style and is able to launch the program with a foundation built on years of experience.”

Robert R. Cobleigh, a resident of Whippany, NJ, leads the team as an executive vice president of the Bank, and as the president of Peapack Capital.

Cobleigh is responsible for launching the equipment leasing program and introducing the Bank’s brand to this vertical.

Cobleigh has over 30 years of leasing and structured finance expertise in a broad range of industries and assets including manufacturing, trucking, business aviation, rail, marine and energy. A founding member, he most recently served as regional vice president and credit officer for Santander Corporate Equipment Finance, Inc. where he was instrumental in supporting the growth of a $1 billion portfolio for the Santander Bank, N.A. subsidiary. Prior to this, Cobleigh was the vice president of credit for structured and specialty finance (leasing, mutual fund and trade finance) for MUFG-Union Bank/The Bank of TokyoMitsubishi in New York. He has also held senior positions at RBS/Citizens Asset Finance, Inc., Chicago, IL, where he served as vice president of credit - Business Aviation, Buy Desk and Structured Finance; Siemens Financial Services, Inc., Iselin, NJ, where he was the director of credit of Capital Markets; Volvo Finance North America, Inc., Montvale, NJ, where he was the senior financial analyst - pricing; and International Proteins Corporation, West Caldwell, NJ, where he served as the director of treasury and finance.

Robert earned his Bachelor of Business Administration degree - Finance and MBA - Investment Management from Pace University, New York.

Joining Robert is Denny Smith of North Kingstown, RI. Smith will serve as senior vice president and chief operating officer of Peapack Capital. With 25 years of bank leasing experience, Smith most recently managed front and mid-office operational functions including pricing, structuring, buy/sell syndication, proposal creation, profitability analysis, incentive compensation, closing functions, change management, and Infolease system upgrade projects for Sovereign Bank/Santander Bank, N.A., as senior vice president and managing director. Previously, he served as director of the group during in-footprint product launch in 2012 managing the B/S and l/S. He originally joined Sovereign Bank in August 2004 to launch tax and non-tax equipment lease products for all asset classes. He spent 15 years at Fleet Capital Corporation where he was vice president, national finance manager, responsible for developing and communicating pricing philosophy and methodology to the Bank relationship managers, the leasing sales force and senior management, and for providing pricing and structuring support for all leasing products. He was also very involved in providing lease product education to relationship managers and their clients.

Prior to Fleet, Smith was at a non-bank equipment lessor, Signal Capital Corporation. A graduate of the University of New Hampshire with a Bachelor of Science in business administration, Denny will help introduce Peapack Capital to the equipment finance market, responsible for operations, procedures and the efficiency of the division.

Frank Striplin and Christopher McManus also join Peapack Capital as senior vice presidents and sales directors.

Frank and Chris will partner with Smith and Cobleigh to initiate and develop the Bank’s equipment leasing program and deliver the Peapack-Gladstone Bank brand of client service.

Frank, a resident of Evans, Georgia, joins Peapack Capital from the Corporate Equipment Finance group of Santander Bank, N.A. where he booked more than $190 million in new business in less than two years and consistently maintained a backlog greater than $75 million. Consistently a top performer in sales volume and profit, Striplin was the six-time winner of the Chrysler Capital President’s Award for Excellence. During six years at Citicorp, he was the leading producer in the southeast for five years and the leading profit and volume producer for the entire company one year.

His performance earned him the Citicorp Chairman’s Award five times and the Teamwork Award four times. While at Credit Lyonnais, he built a team that produced a portfolio of approximately $900 million, generating a return on equity of more than 20%. He has held various sales positions as well as senior business development and leadership roles with several major banks and commercial finance companies, and has built and led several high-performance sales teams.

During his career, he has produced or assisted in generating over $1.9 billion in new business.

Christopher McManus, a resident of North Wales, PA, and graduate of Temple University with a Bachelor of Business Administration degree, is a highly accomplished equipment leasing and finance professional with over 25 years of direct lending experience. McManus has been a top performer at all levels of his career in equipment finance. He began his banking career at First Fidelity Bancorporation in 1991 in their equipment leasing group. In 1993 he was selected for the First Fidelity Professional Banker Program, a credit training program, where he spent one year developing his skills. After moving on to GE Capital as an underwriter, in 1995 McManus accepted a position on the direct equipment lending team. He spent much of his

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career as a top performer and a highly successful direct equipment lender at institutions like Mellon Bank US Leasing, US Bancorp, RBS/Citizens Asset Finance, Inc. and Santander Bank, N.A. He was a three-time recipient of the RBS/Citizens World Class Performers Award. He has proven successful at all levels of the marketplace, working with middle-market size companies up to large corporate entities. His knowledge of the marketplace and asset classes gives Peapack Capital a tremendous advantage.

Rounding out the division, Mark L. Robinson and Dennis R. Magarro join the Peapack Capital team as senior vice president, senior underwriter and vice president and senior underwriter, respectively.

Robinson, a resident of Randolph, NJ, and graduate of Lehigh University with an MBA and BA in finance, has over 30 years of proficiency in financial services with extensive and diverse experience in underwriting, relationship and portfolio management, originations, credit analysis, leveraged loan structuring, risk rating systems, document negotiation and compliance. Throughout his career he has held positions at Santander Bank, N.A., JA Mitsui Leasing Capital Corporation, CIT Group, Merrill Lynch Business Financial Services and Wells Fargo.

Magarro is a results-driven credit professional with 17 years of finance experience with diverse commercial lending organizations in credit analysis, underwriting, risk and portfolio management, finance and accounting. Educated at Sacred Heart University, graduating with a MBA in finance, and Quinnipiac University, with a BS in accounting, Magarro has held positions at Arthur Andersen LLP, General Electric Company - GE Capital, RBS/Citizens Asset Finance, Inc., MUFG - BTMU Capital Leasing and Finance and Santander Bank, N.A. Peapack-Gladstone Financial Corporation is a New Jersey bank holding com-

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pany with total assets of $3.95 billion as of March 31, 2017. Founded in 1921, Peapack-Gladstone Bank is a commercial bank that provides innovative private banking services to businesses, real estate professionals, non-profits and consumers, which help them to establish, maintain and expand their legacy.

Through its private banking locations in Bedminster, Morristown, Princeton and Teaneck, its private wealth management, commercial private banking, retail private banking and residential lending divisions, along with its online platforms, Peapack-Gladstone Bank offers an unparalleled commitment to client service.

LBC Credit Partners (LBC): Stephen Krawchuk has joined LBC as managing director and head of LBC’s Western Region. He will be responsible for sourcing, structuring and negotiating new investments. Stephen is a veteran investment professional with over 25 years of experience providing financing solutions to middle-market companies throughout the United States.

“We are pleased to welcome Stephen to our team,” said John Brignola, managing partner at LBC. “Stephen’s extensive credit experience and deep relationships with private equity sponsors, investment bankers and commercial lenders will prove valuable as we seek new investment opportunities in the western U.S.” Prior to joining LBC, Stephen was a managing director with Crystal Financial and previously held senior positions with Contrarian Capital Finance, Wachovia Capital Finance, Deutsche Banc Alex Brown and Greyrock Capital. He began his finance career with Foothill Capital in Los Angeles, after attaining his CPA while with PriceWaterhouseCoopers.

Krawchuck joins LBC from Crystal Financial, where he served as managing director. He has over 25 years of corporate finance and investing expertise across

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a broad range of industries. Krawchuck has worked with management teams and private equity sponsors in support of acquisitions, refinancings, recapitalizations, balance sheet restructurings and growth initiatives. He currently serves on the Board of Directors for the Los Angeles Chapter of the Commercial Finance Association and is a graduate of The University of Arizona. Krawchuck can be reached by email at skrawchuk@ lbccredit.com or by phone at (323) 6032004.

LBC Credit Partners is a leading provider of middle-market financing solutions including senior term, unitranche, second lien, junior secured and mezzanine debt and equity co-investments supporting sponsored and nonsponsored transactions. With over $2.8* billion of capital commitments, LBC has made investments in companies located throughout North America across a wide range of industries and is committed to a long-term approach to debt investing.

Sallyport Commercial Finance: Ingrid Chen has been hired as senior account executive for the West Coast office. Chen, who was born and raised in Indonesia, has been working in the factoring industry for nearly 26 years. She began her career with Account Funding Inc., a small family-owned factoring company based in Encino, CA. In 2007, Bibby Financial Services acquired Account Funding Inc., and Ingrid joined BFS along with the acquisition. She worked at BFS for 10 years as an account executive until March 2017 where she now finds herself dedicating her work in the factoring industry to Sallyport Commercial Finance.

Chen brings along a wealth of expertise and knowledge of the industry, strong interpersonal and communication skills, as well as her experience managing a portfolio of clients with facilities ranging from $750K to $12MM. “We are delighted to have convinced Ingrid to join our rapidly expanding

team at Sallyport Commercial Finance, LLC,” said Emma Hart, chief operating officer. “Ingrid and I have worked together for over six years previously, and she was a key member of the team then as she is now. Ingrid’s work ethic and attention to detail are second to none.

She cares about her clients and relationships whilst protecting our investment.

We are very excited to have added Ingrid to our already experienced team of account executives to service our clients.

Ingrid will provide operational support to our West Coast clients, and establish our operational office in California.”

Damon Dickens has been hired as VP, risk and underwriting, at Sallyport. Dickens, born in Wales, UK, studied Mathematics, Statistics, and Economics (BSc) at the University of Warwick in 2009, and then went on to study International Banking and Finance (MSc) at Liverpool John Moores University in 2010. He also holds a (BSc) in Accounting and Finance from the London School of Economics.

Upon graduating in 2010, Damon joined Bank of America in their graduate program working in their Portfolio Risk Analytics Department based in Chester, UK. He then joined Bibby Financial Services working in the Global Risk Department in the UK. In 2013 Damon began an international placement with Bibby in North America. Damon joined Sallyport Commercial Finance in March of 2017 as VP, Risk and Underwriting, and is located in Sallyport’s Houston Office.

“Damon brings six years of experience of portfolio risk analysis and management within the factoring and asset-based lending industry,” said Hart.

“Having worked with Damon in California, we know his capabilities and work ethic and his values align with ours. As Sallyport Commercial Finance continues to grow rapidly, Damon will provide valuable support to the business as he possesses strong risk analysis skills as well as having a ‘getting business done approach.’

Sterling National Bank: Daniel Topple and Oleg Karaman have joined its Commercial Banking Team as senior managing directors and team leaders. They will be based at Sterling’s Manhattan office and will report to David S. Bagatelle, president – New York Metro Markets.

Topple and Karaman will lead the development of new business and the management of key relationships by delivering customized solutions focused on loans, deposits and other revenuegenerating products. Together, they will drive the team’s growth and profitability through business development and client retention activities.

Topple brings a wealth of experience in business development and client management. He was most recently vice president and associate group director for Signature Bank, where he developed and managed a client base consisting of primarily non-profit organizations, media and tech firms. Prior to his role with Signature Bank, he held positions with HSBC Bank, Merrill Lynch and Bank of America.

Karaman has extensive knowledge in relationship management and providing a full range of financial services to municipalities, states and private companies. He was most recently a relationship manager for Signature Bank, where he oversaw all aspects of EB-5 Escrow financing. Prior to Signature Bank, he held positions with Santander, Independence Community Bank and Washington Mutual Bank.

“Daniel and Oleg have a superior track record in providing best-in-class banking solutions to valued clients.

We are excited to welcome them to the Sterling family, drawing on their years of experience and dedication to building lasting relationships,” said David Bagatelle, executive vice president and president-New York Metro Market at Sterling. “The addition of Daniel and Oleg reflects our objective to build a

skilled management team, supporting the bank’s growth and success.”

Topple received a Bachelor in marketing from Hofstra University and Karaman received a Bachelor in finance and investments from Baruch College.

Wells Fargo & Company: Lisa McGeough has been named head of its new Financial Institutions Group (FIG). The newly-established FIG includes the Global Financial Institutions business, formerly part of Wells Fargo’s International Group, and the Financial Institutions business, formerly part of Wells Fargo’s Corporate Banking Group. Based in Charlotte, NC, McGeough will report to Perry Pelos, senior executive vice president and head of Wholesale Banking.

With more than 800 team members globally, FIG will focus on serving the long-term financial needs of U.S. banks, international financial institutions, supranationals, sovereigns, and nonbank financial institutions including insurance companies, broker dealers, asset managers, exchanges, finance companies, payment processors, and title companies.

“This is an exciting time for the business as we leverage the talents and experience of our expanded team and continue to strengthen our global capabilities,” said Pelos. “With her extensive leadership and capital markets expertise, Lisa will lead efforts to deepen relationships with our financial institution customers as we provide them with a more integrated global platform.”

McGeough, who joined Wells Fargo in 2005, is currently head of the Industrials Group for Corporate Banking. She is also the former head of Wells Fargo Securities in the Europe, Middle East, and Africa (EMEA) region and CEO of Wells Fargo Securities International where she oversaw investment banking and capital markets activities, including advisory services and sales and trading for EMEA.

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With more than 27 years of experience in institutional sales and marketing, McGeough has held roles at Morgan Stanley Inc., Toronto Dominion Securities, and Salomon Brothers (now Citigroup).

Wells Fargo Capital Finance, part of Wells Fargo & Company (NYSE: WFC), announced the hiring of Jason Cosso as business development officer and managing director. Based in San Francisco, Cosso will be focused on originating senior secured loans with private equity sponsors and companies in the western U.S. Wells Fargo Capital Finance, part of Wells Fargo & Company (NYSE: WFC), announced the hiring of Jason Cosso as business development officer and managing director. Based in San Francisco, Cosso will be focused on originating

senior secured loans with private equity sponsors and companies in the Western U.S. “We’re excited to welcome Jason back to the firm and leverage his breadth of experience and expertise in this industry,” stated Scott Glassberg, managing director and head of Western region loan originations, Wells Fargo Capital Finance.

Cosso rejoins Wells Fargo Capital Finance where he spent 2004 to 2011.

His most recent experience was with CIT Group, Silicon Valley Bank and Comerica where he held various management roles with originations, underwriting, portfolio management and syndications.

Jason is a graduate of California Polytechnic State University and lives with his wife and their twins in Lafayette, CA.

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AMONG CFA EDUCATION FOUNDATION MEMBERS Clear Thinking Group LLC: Eric Luukko has joined the firm’s Value Preservation practice as a managing director. Prior to joining Clear Thinking Group, Luukko spent more than 20 years in the assetbased lending industry, including his most recent position as vice president, collateral manager at Rockland Trust. He has also held positions at Webster Business Credit Corporation and Fleet Retail Finance, Inc. Luukko began his career in retail with the Thom McAn Shoe Company, holding positions of increasing responsibility in the IT and Finance areas. He received a B.S. in Accounting and History from Babson College in Wellesley, MA. “Eric’s financial analysis skill set, coupled with his lending and collateral management experience, will make him a tremendous asset to our clients as they face complex business challenges and opportunities,” comments Stuart Kessler, president, Clear Thinking Group.

Clear Thinking Group is a management consulting firm that helps consumer product, retail, staffing, food processing, and distribution companies to succeed, at any stage of their life cycle, with clear direction and practical solutions. Over the past 16 years, the firm has been engaged by healthy companies to create value, and by troubled companies to preserve value.

Ruskin Moscou Faltischek P.C.: Jeffrey A. Wurst, a senior partner at Ruskin Moscou Faltischek P.C., one of the region’s leading providers of innovative legal services, was named amongst the Long Island Pulse Magazine’s “2017 Top Ten Legal Eagles” in Nassau and Suffolk Counties and is the only Bankruptcy and Commercial Finance attorney to be so named. Long Island Pulse is the largest magazine on Long Island and one of the largest regional publications in the country. This is the 10th year that Long Island Pulse has awarded its Legal Eagle honor to the region’s foremost attorneys.

Wurst is the chair of Ruskin Moscou Faltischek’s Financial Services, Banking & Bankruptcy Department and is a highly skilled attorney practicing in both transactional and litigation matters. He is highly regarded for his knowledge and experience in commercial finance matters including traditional bank and non-bank commercial lending and factoring and has been recognized for his critical thinking and leadership in the growing area of FinTech and commercial marketplace lending (including Merchant Cash Advance).

Ruskin Moscou Faltischek’s Financial Services, Banking & Bankruptcy Department represents large and small lenders, banks and other financial institutions from the New York Metropolitan area and across the USA. “Jeff is a seasoned attorney who has a keen ability to handle matters in both the courtroom and the boardroom,” said Adam Silvers, managing partner, Ruskin Moscou Faltischek P.C. “We are very pleased to congratulate him on this welldeserved award.”

Wurst is a Fellow of the prestigious American College of Commercial Finance Attorneys. He is admitted to practice in the courts for the State of New York as well as the federal district courts for the Southern, Eastern, Western and Northern Districts of New York and in the Northern District of Texas, Northern District of Illinois, the Eastern District of Michigan. He is admitted to and has practiced before the Second, Third and Fourth Circuit courts of appeal.

Wurst serves on the Boards of Directors for the Association of Commercial Finance Attorneys, the Chamber Players International and the New York Institute of Credit. He is a member of the American Bar Association, serving on its Commercial Financial Services and Legal Opinions Committees. He is also a member of the American Bankruptcy Institute and the New York State Bar Association. He is a founding member and past president of the Long Island Chapter of the Turnaround Management Association, a past Chair of

the New York Institute of Credit, and past Vice President of the Turnaround Management Association Global. Wurst served as a member of the Board of Directors of Harvey Electronics, Inc., a public company, after having represented the group acquiring a majority interest through its Chapter 11 proceedings.

IN MEMORIAM Goldberg Kohn, Gary Zussman Goldberg Kohn mourns the passing of its cherished partner, friend and colleague, Gary Zussman. It was our great privilege and honor to have known him.

Gary was an incredible man - a very accomplished attorney, but so much more than that. He was a trusted confidant, mentor, advisor and teacher to many. He always treated people with the utmost respect, took the time to teach, and was completely genuine. He was patient and kind and did things the right way. He thought about issues very carefully, and then took the position that made sense. When Gary talked, people listened.

Clients, quite literally, loved him.

Clients have remarked that Gary guided them through their most challenging professional and personal times. Gary’s clients were awed by his uncanny ability to stay calm and focused in the heat of the most intense legal negotiations and by the brilliant way he conducted himself. Gary left a legacy that is a high standard to follow but in his honor, we all strive to continue the standard of excellence and collaboration that he established.

Gary was a principal in the Commercial Finance Group with more than 30 years of experience representing banks and financial institutions. He received his law degree, cum laude, from the University of Michigan in 1982 and his B.S. in accounting and finance, magna cum laude, from the Wharton School at the University of Pennsylvania in 1979.

The entire Goldberg Kohn family extends its deepest sympathies to his wife Renee, sons Kevin and Matthew, parents Daniel and Sylvia, sister Amy, other family members and countless friends. The St. Louis Cardinals will greatly miss their #1 fan. A memorial service to celebrate Gary’s life was held on Sunday, May 21 at Temple Jeremiah in Northfield, IL. Donations can be made to Temple Jeremiah.

Great American Group, Lester Friedman Lester joined Great American Group 25 years ago and spearheaded its significant growth within the Great American Appraisal Division over the years. Under his guidance, the appraisal business has grown to be one of the most trustworthy and recognized firms in the marketplace.

Great American Group currently has over 100 employees in its appraisal division alone, and currently deliver over 1,300 appraisals annually.

Andrew Gumaer, currently CEO of Great American Group LLC, has stepped in as interim CEO of the Appraisal Division.

Andrew cofounded Great American Group over 27 years ago and is familiar with all aspects of the appraisal business.

Lester and his significant contribution to Great American Group will be missed. Memorial Services were held at: 6150 Mt Sinai, Simi Valley, CA. Lester is survived by his wife Laurie, son Zachary and daughter Rachel.

THE SECURED LENDER JULY/AUGUST 2017 39

CHAPTER NEWS

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Atlanta The Chapter held an educational lunch at Greenberg Traurig on June 21, “Whose Asset Is It Anyway? Consignments and Purchase Money Security Interests in Inventory.” The interactive presentation about consigned goods and the steps that should be taken to protect a secured lender’s interest in those goods was led by John Dyer and Bethani Oppenheimer of Greenberg Traurig. Audience participation prizes were awarded.

On June 22, the Chapter held its Annual Summer Social with the TMA at Huey Luey’s Mexican Kitchen and Margarita Bar in Sandy Springs, GA. On July 13, the Chapter held a joint CFA Atlanta and Charlotte Networking Event called “Let’s Meet in the Middle” at Brazwell’s Pub in Greenville, SC. The event featured pool, ping pong, food and drinks.

Save the dates for September 26 for a golf outing at Rivermont Country Club and an Educational Breakfast at the offices of McGuireWoods on October 19.

The Chapter’s Holiday Party with TMA will be held on December 7.

For more information visit community.cfa.com/atlantachapter California The Chapter held its Summer Party at The Sheraton Universal Hotel – Poolside on July 12. Attendees enjoyed an evening of cocktails, BBQ and networking. On July 13, the Chapter held a YoPro networking event at Double Take.

Save the dates for a panel discussion at the Luxe Summit Hotel on October 4, a Sponsor Panel on November 15 at

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the Center Club-Orange County and the holiday party at the Sheraton Universal hotel on December 13.

For more information visit community.cfa.com/californiachapter.

Charlotte The Chapter held a “Meet in the Middle” evening of networking with CFA’s Atlanta Chapter on July 13. Attendees met at Brazwells Pub in Greenville, SC for pool, ping pong, food and drinks.

For more information, visit community.cfa.com/charlottechapter Europe The Chapter held an event on May 3 at Duff & Phelps in London featuring a moderated interactive panel with key UK-based debt advisors looking at: What does ABL need to do to move the needle?

The panel consisted of Marc Finer, associate director, Debt Advisory, KPMG; Tim Metzgen, managing director, Marlborough Partners; Floris Hovingh, head of Alternative Capital Solutions, Deloitte and Ken Goldsbrough, managing director, Duff & Phelps, served as moderator.

The event concluded with a reception.

Florida The Chapter held an event in Orlando called What’s Up Downtown? at the Citrus Club on June 14 with speaker Thomas Chatmon. Since joining the City of Orlando in 2007 as executive director of the Downtown Development Board (DDB) and Community Redevelopment Agency (CRA), Chatmon oversees economic development, retail and business recruitment, marketing and special events programming, and housing development within the Downtown CRA area. He has played an integral role in achieving some of Downtown Orlando’s premier developments, including Amway Center, the Dr. Phillips Center for the Performing Arts, Chase Plaza, 55 West, SunRail, and more.

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For more information visit community.cfa.com/floridachapter Houston The Chapter held a panel luncheon, High Finance at the Court: Distressed and Bankruptcy M&A, on June 28 at Brennan’s in Houston, TX. For more information, visit community.cfa.com/houstonchapter Michigan The Chapter held a Fill the Gap, Close the Deal panel on June 13 at the Troy Marriott in Troy, MI. Attendees learned about current lending support programs and non-traditional funding sources that can be used to bolster loan structures and get tough deals over the finish line.

The evening included cocktails, hors d’oeuvres and networking.

Panelists included: Romy Ancog, lead lending relationship specialist, Small Business Administration; Chris Cook, director, Capital Access, Michigan Economic Development Corporation; and K. Roger Davis, managing partner, Northcreek Mezzanine. Meagan Hardcastle, managing partner, Harmon Partners, served as moderator.

For more information, visit community.cfa.com/michiganchapter MidSouth On July 27, the Chapter will host a Baseball Night to view the Chattanooga Lookouts vs. Birmingham Barons at Chattanooga Lookouts Field in Chattanooga, TN. For more information, visit community.cfa.com/midsouthchapter MidWest The CFA Midwest Chapter held its inaugural Ambassadors of Lending Networking Event on June 15 at the Civic Opera Building Roof Terrace in Chicago where attendees had the chance to mingle with senior lenders (a.k.a. Ambassadors from

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the CFA Midwest Chapter) to celebrate with chapter members and non-members of all ages overlooking the Chicago River. The event was open to colleagues and others who aren’t actively involved in lending as well.

On June 28, the Chapter held Super Connect at Milwaukee Summerfest at The Lake Deck in the Water Street Brewery Building on the Summerfest Grounds in Milwaukee. The Chapter is joining forces with the TMA and MBBI to provide a Super Connect opportunity on opening day of Milwaukee Summerfest. The area was ideal for networking without the music being too loud, yet have all the atmosphere Summerfest offers. Fireworks began at 9:30 pm and were viewed from The Lake Deck and attendees had the chance to explore the festival grounds, which remained open until midnight and featured live music and entertainment.

The Chapter’s 28th Annual Golf Invitational at Haborside International Golf Center in Chicago will be held on July 20 and the 1st Annual Brewers Outing, held at the ATI Deck in Miller Park in Milwaukee on August 10.

For more information, visit community.cfa.com/midwestchapter New Jersey The Chapter will hold its 7th Annual Beach Party on July 19 at the Channel Club Marina in Monmouth Beach, NJ. The party will feature a three-hour open bar, cocktail hour with passed hors d’oeuvres, and a full surf and turf dinner (chicken or fish also available). There will be acoustic music on the patio overlooking the Navesink River. Beachwear and casual dress is encouraged.

On October 12 there will be a YoPro Financial Planning Seminar - A Real Life Road Map for Your Future, at the offices of Mandelbaum Salsburg in Roseland, NJ. For more information, visit community.cfa.com/newjerseychapter

Hilco Global. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.hilcoglobal.com. . . . . . . . . . . . . . . . . . . . BC HPD Software, LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.hpdsoftware.com. . . . . . . . . . . . . . . . . . IBC Liquid Capital Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.liquidcapitalcorp.com. . . . . . . . . . . . . IFC Utica Leaseco, LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.uticaleasco.com . . . . . . . . . . . . . . . . . . . Page 38 Validis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.validis.com. . . . . . . . . . . . . . . . . . . . . . . . . Page 3 Wells Fargo Capital Finance. . . . . . . . . . . . . . . . . . . www.wellsfargocapitalfinance.com. . . . Page 2 William Stucky & Associates, Inc.. . . . . . . . . . . . . . www.stuckynet.com. . . . . . . . . . . . . . . . . . . . . Page 1 Xynergy Capital Group LLC . . . . . . . . . . . . . . . . . . . . www.xynergycapital.com . . . . . . . . . . . . . . . Page 43

New York The Chapter held its Annual Golf and Tennis Outing on July 10 at the Bonnie Briar Country Club in Larchmont, NY. The event featured a golf practice range and golf clinic where golfers registered for one free golf clinic session. There were separate golf clinic day options, including three golf clinic sessions. There was also a cocktail reception, dinner and awards ceremony from 5:30-8:30 p.m.

For more information, visit community.cfa.com/newyorkchapter

Southwest Save the dates for August 30 for the Chapter’s Sporting Clay Challenge at Elm Fork Shooting Range in Dallas, TX and PEGapalooza 2017, Dealmaker Wine & Whiskey Tasting on November 15 at 015 at Trinity Groves in Dallas, TX. For more information, visit www.cfasw.org For more information on CFA Chapters, please visit cfa.connectedcommunity. org/chaptersmain

Philadelphia The Chapter will hold an October Educational Event on October 12 at Drexel University in Philadelphia, PA. For more information, visit community.cfa.com/philadelphiachapter Raleigh-Durham The Chapter will host its Durham Bull Baseball Outing to watch the Durham Bulls vs. Indianapolis Indians on July 19 at Durham Bulls Athletic Park.

For more information, visit community.cfa.com/raleighdurhamchapter

THE SECURED LENDER JULY/AUGUST 2017 41

CALENDAR

the cfa brief

July 11 – July 27, 2017 CFA’s Summer Underwriting Fundamentals Virtual Workshops July 12, 2017 CFA’s California Chapter - Summer Party Sheraton Universal Universal City, CA July 13, 2017 CFA’s California Chapter - YoPro Mixer Double Take American Restaurant Los Angeles, CA July 13, 2017 Joint CFA Atlanta and Charlotte Networking Event – “Let’s Meet in the Middle” Brazwell’s Pub Greenville, SC July 13, 2017 CFA’s Southwest Chapter – PEGapalooza Denver Denver, CO July 19, 2017 CFA’s New Jersey Chapter 7th Annual Beach Party Channel Club Marina Monmouth Beach, NJ July 19, 2017 CFA’s Raleigh-Durham Baseball Outing Durham Bulls vs Indianapolis Indians Durham Bulls Athletic Park Durham, NC

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July 20, 2017 CFA’s MidWest Chapter – Annual Golf Invitational Harborside International Golf Center Chicago, IL July 27, 2017 CFA’s MidSouth Chapter - Baseball Outing Chattanooga Lookouts vs. Birmingham Barons AT&T Field Chattanooga, TN August 10, 2017 CFA’s MidWest Chapter – Annual Brewers Outing ATI Deck, Miller Park Milwaukee, WI August 14, 2017 CFA’s Midwest Chapter 5th Annual YoPro Summer Boat Cruise Wendella Boats Chicago, IL

September 12 - 14, 2017 CFA’s Fall ABL Operations Bootcamp Exact location: TBD Dallas, TX September 19, 2017 CFA’s California Chapter Women of CFCC Event Location: TBD September 26, 2017 CFA’s MidSouth Chapter Sporting Clays Nashville Gun Club Nashville, TN September 26, 2017 CFA’s Atlanta Chapter – Golf Outing Rivermont Country Club Johns Creek, GA September 26 – 27, 2017 CFA’s Fall ABL & Factoring Basics Workshop Exact location: TBD, Chicago, IL

August 30, 2017 CFA’s Southwest Chapter - Sporting Clay Challenge at Elm Fork Elm Fork Shooting Range Dallas, TX

September 27, 2017 Annual Cross-Border Lending Summit Winston & Strawn New York, NY

August 30, 2017 CFA’s Southwest Chapter Sporting Clay Challenge at Elm Fork Dallas, TX

September 28, 2017 Women in Commercial Finance Conference Wells Fargo Conference Center New York, NY

September 12, 2017 CFA’s Southwest Chapter Sixth Annual Energy Summit Belo Mansion Dallas, TX

Oct/Nov 2017 Women of CFCC Event Wine Tasting & Skincare Exact date TBD Upstairs II

September 12 – 15, 2017 CFA’s Fall Field Examiner School Exact location TBD Dallas, TX

October 4, 2017 CFA’s California Chapter - Hot Topic Panel Discussion Luxe Summit Hotel Los Angeles, CA

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October 12, 2017 CFA’s Philadelphia Chapter – Educational Event Drexel University Philadelphia, PA

October 19, 2017 CFA’s Atlanta Chapter – Educational Breakfast Event McGuireWoods Atlanta, GA

December 7, 2017 CFA-TMA Philadelphia Annual Joint Holiday Networking Event Loews Philadelphia Hotel Philadelphia, PA

October 12, 2017 CFA’s New Jersey Chapter - YoPro Financial Planning Seminar - A Real Life Road Map for Your Future The Offices of Mandelbaum Salsburg Roseland, NJ

November 8 – 10, 2017 CFA’s 73rd Annual Convention Sheraton Chicago Hotel & Towers Chicago, IL

December 7, 2017 CFA’s Atlanta Chapter Holiday party with TMA Save the date

October 2017 CFA’s California Chapter Annual Fall Golf Classic Date and Location: TBD

November 15, 2017 Sponsor Panel Center Club - Orange County Costa Mesa, CA

December 13, 2017 CFA’s California Chapter - Holiday Party Sheraton Universal Universal City, CA

November 15, 2017 CFA’s Southwest Chapter - PEGapalooza 2017 Dealmaker Wine & Whiskey Tasting 3015 at Trinity Groves Dallas, TX

Financial Freedom to Focus on Your Business Xynergy Healthcare Capital can provide your medical or healthcare organization with the cash flow it needs to grow, be profitable, and meet financial goals. With our healthcare factoring program, we can provide working capital to stabilize your cash flow so you can meet your financial responsibilities including payroll, taxes, and suppliers. If you have limited access to financing, we can enhance your financial flexibility by increasing cash flow to assist with your short term financial strategies.

Contact us today to find out how we have changed the rules for funding the medical industry.

(855) 358-8258 – info@xynergycapital.com www.xynergyhealth.com

THE SECURED LENDER JULY/AUGUST 2017 43

CHAPTER SPOTLIGHT

the cfa brief

CFA’s New York Chapter’s Inaugural Women in Lending Networking Event Over 60 financial professionals gathered for the CFA’s New York Chapter’s inaugural Women in Lending: Networking Event on May 16 in New York City. The evening was coordinated by the New York Chapter’s Women’s Committee and event sponsor, Blank Rome LLP. Heather Sonnenberg, partner, and Javeriya Dunn, business development director, of Blank Rome helped plan the event.

This exclusive networking event featured a cocktail reception followed by an interactive painting class where experienced artists guided guests through replicating the night’s selected painting.

The event started with opening remarks from the Chapter’s recently re-launched Women’s Committee which includes: Debra Putzer, chief client credit officer, CIT Commercial Services; Meredith Fitz, NE portfolio manager EVP, PNC Business Credit; Debbie Habib, global marketing director, FGI Finance; and Blake Otte, director of business development, AloStar Capital Finance.

“It was inspiring to see the broad range of professional women in the finance community who turned out for this event,” Sonnenberg said. “Blank Rome was pleased with the high turnout (the event sold out), especially since this was the first CFA

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CFA’s New York Chapter’s Inaugural Women in Lending Networking Event on May 16 featured an interactive painting class.

Ronnie Sussman of EverBank and Heather Sonnenberg of Blank Rome LLP begin their paintings at CFA’s New York Chapter’s Inaugural Women in Lending Networking Event on May 16.

New York Chapter women’s event in New York. It was exactly what we had hoped, women of all different levels of experience networking and having fun. Blank Rome was honored to sponsor such a successful event with the CFA.” “It was a fun, out-of-the-box type of event for finance professionals, and a great way to network with 60 or so women in a sold-out event,” added attendee Ronnie Sussman of EverBank. “It offered a unique way of getting to know people who you may not normally have the opportunity to speak with. I enjoyed the camaraderie and laughter, as we all attempted to produce a painting like the instructors, each with our own creative twist. I’m looking forward to more events like this now that the NYC Women’s committee has been relaunched.”

This exclusive networking event in the New York metro area lending community included women from entry level to senior

REGISTRATION IS OPEN FOR CFA’S ANNUAL CONVENTION IN CHICAGO! WWW.CFA.COM

leaders. In addition to a unique painting, each guest also walked away with a complimentary annual membership to CFA’s New York Chapter.

First Vice President D. Michael Monk Vice President Finance David Grende Vice President John M. DePledge Vice President Jeffrey K. Goldrich

CFA PAST CHAIRPERSON’S COUNCIL

Co-General Counsel Jonathan N. Helfat Co-General Counsel Richard M. Kohn Interim CEO & Secretary Richard Gumbrecht Executive Committee Katherine Bell Sheri Fenenbock Steven C. Gold Michael D. Haddad Mark A. Hafner Stewart W. Hayes Lawrence E. Klaff Darryl Kuriger David B. Kurzweil Kathleen Z. Lepak Robert Meyers Jennifer Palmer

Stephen L. Bakke

Deborah J. Monosson

Michael Coiley

Joseph F. Nemia

Richard J. Dorgan

Richard P. Palmieri

Walter M. Einhorn

David H. Pendley

John Fox

Robert S. Sandler

Norris S. Griffin

Peter E. Schwab

Michael D. Haddad

Michael D. Sharkey

Mark A. Hafner

Ronald C. Smith

Jack R. Hoekstra

Richard L. Solar

Charles G. Johnson

Bruce A. Sprenger

David J. Kantes

Irwin Teich

Keith Karako

Patrick B. Trammell

Richard W. Madresh

Robert I. Weisberg

Michael Maiorino

CFA CHAPTERS

CFA MANAGEMENT COMMITTEE

President Andrea L. Petro

Atlanta Stacy Odendahl Crestmark Bank VP, Business Development (609) 287-8229 California Chapter Gary Reiss State Financial Corporation President (310) 820-5222 Canada Chapter Robert Kizell RBC Capital Markets Managing Director and Head (416) 974-4061

Europe Chapter Jeremy Harrison Bank of America Merrill Lynch Regional Group Head/ SVP/Sr. BDO +44 (0)20 7996 4546 Charlotte Chapter Sylvia Stock Federal National Commercial Credit Senior Business Development Officer Florida Chapter Nimit Kapoor Fifth Third Bank Vice President (407) 999-3036

J. Michael Stanley Peter York

THE SECURED LENDER JULY/AUGUST 2017 45

the cfa brief

Florida Chapter (Orlando) Nimit Kapoor Fifth Third Bank Vice President (407) 999-3036 Florida Chapter (South) Lily Craig Complete Health Holdings, LLC Chief Financial Officer (917) 244-6905 Florida Chapter (Tampa) Anthony Brooks Central Bank First Vice President (813) 409-6524

Houston Chapter Erik Konicki Statesman Business Advisors, LLC Managing DirectorValuation (713) 590-4696 Michigan Chapter Robert Bowles Bluewater Founder & Executive Director (586) 255-8700 MidSouth Chapter William Benning First Tennessee Bank Vice President (901) 523-4700

Midwest Chapter Eric Welchko Ravinia Capital LLC Managing Director (708) 372-0556 Minnesota Chapter Michael Wolf MB Business Capital Sr. Vice President (612) 455-4244 New England Chapter Justin Mills People’s United Business Capital VP, Relationship Manager (978)739-0272

New Jersey Chapter Robinn Mikalic J D Factors LLC Business Development Officer (856) 817-6050 New York Chapter Edward Behnen Capital One Business Credit VP-Portfolio Management (646) 836-5065 Northern California Chapter Brendan Cronin Arch + Beam Senior Associate (415) 252-2900

Ohio Chapter Adam Endsley Executive Director JPMorgan Chase Bank (216) 781-4507 Philadelphia Chapter Robert Bushey Santander Bank, N.A. Sr. Vice President (267) 256-2822 Raleigh-Durham Chapter Justin Wood Troutman Sanders LLP Partner (919) 835-4138

Make Connections With Commercial Finance Leaders VISIT community.cfa.com/events FOR A CFA EVENT NEAR YOU

46

JOIN US ON SEPT. 22 IN NYC TO CELEBRATE THE WINNERS OF THE CFA 40 UNDER 40 AWARDS! WWW.CFA.COM/40UNDER40

CFA EDUCATION FOUNDATION

2017 Fundraising Campaign Co-Chairs Bobbi Acord Noland Parker, Hudson, Rainer & Dobbs LLP

Foundation Governing Board Bobbi Acord Noland Parker, Hudson, Rainer & Dobbs LLP

Wade M. Kennedy McGuireWoods LLP

Gayle A. Berne Jones Day

Robert Lau Carl Marks Advisors

Nelson R. Block Winstead PC

Anthony R. Callobre Buchalter Nemer

Daniel D. Batterman Hahn & Hessen LLP

Kevin Morley Osler, Hoskin & Harcourt LLP

Massimo Capretta Mayer Brown LLP

2017 Foundation Board of Directors William D. Brewer Winston & Strawn LLP John M. DePledge Citibank, N.A. Jeffrey K. Goldrich North Mill Capital LLC Richard Gumbrecht Commercial Finance Association David B. Kurzweil Greenberg Traurig, LLP Andrea L. Petro Wells Fargo Capital Finance Marshall C. Stoddard, Jr. Morgan Lewis Foundation - Staff Charles G. Johnson Commercial Finance Association

Katherine Bell Paul Hastings LLP Michael A. Boeheim, CIA, CFE Freed Maxick ABL Services Anthony R. Callobre Buchalter Nemer

David W. Morse Otterbourg P.C. Vikas Puri Latham & Watkins, LLP Thomas E. Schnur Vedder Price, P.C.

James C. Chadwick Holland & Knight LLP

Paul Schultz Corporation Service Company

Arnold Cohen Norton Rose Fulbright

Jeffrey H. Verbin Greenberg Traurig, LLP

David L. Dranoff Goldberg Kohn Ltd.

Jeffrey A. Wurst, Esq. Ruskin Moscou Faltischek, P.C.

Lawrence F. Flick, II Blank Rome LLP Ronald Glass GlassRatner Advisory & Capital Group LLC Joseph A. Heim, CFE, CPA Dopkins ABL Consulting Services

Aydan Savaser Commercial Finance Association

James J. Holman Duane Morris LLP

Rosa Gomez Commercial Finance Association

Seth E. Jacobson Skadden, Arps, Slate, Meagher & Flom LLP

John T. Young, Jr. Conway MacKenzie Gary M. Zimmerman UCC Plus Insurance Fidelity National Title Group FoundationAdvisory Board Denise Albanese Cost Reduction Solutions Daniel Baker Chapman and Cutler LLP

Andrew Cardonick Greenberg Traurig, LLP Mats Carlston Winston & Strawn LLP Gregory A. Charleston Conway MacKenzie Jonathan M. Cooper Goldberg Kohn Ltd. Joel Getzler Getzler Henrich & Associates LLC Thomas A. Greco Hilco Global R. Marshall Grodner McGlinchey Stafford PLLC Guy F. Guinn Squire Patton Boggs Patrick M. Hardiman Winston & Strawn LLP Richard Hawkins Atlantic Risk Bayard Brantley Hollingsworth Phoenix Management Services J. Craig Howe Howe, Keller & Hunter, PC

Andrea Pipitone Beirne KPMG LLP

THE SECURED LENDER JUNE 2016 47

the cfa brief

Ronald H. Jacobson Winston & Strawn LLP

Amar Shah The Keystone Group

Harvey I. Forman Blank Rome LLP

Michael E. Jacoby Phoenix Management Services

Susan E. Siebert Jones Day

Richard Jay Goldstein Buchalter Nemer

Graham Stieglitz Burr Forman

Jonathan N. Helfat Otterbourg P.C.

Michelle White Suárez Holland & Knight LLP

Joseph Hodkin Daley-Hodkin LLC Mario J. Ippolito Paul Hastings LLP

Ronald B. Risdon Schulte Roth & Zabel LLP

Christopher C. Kupec Holland & Knight LLP

Foundation-Founders Leadership Council Mark A. Alimena J.H. Cohn, LLP

Ronald H. Jacobson Winston & Strawn LLP

Jeffrey M. Rosenthal Mandelbaum Salsburg

Sidney Lambersky Sears Holdings

Thomas J. Allison Monroe Capital LLC

Leigh Lones GenConnect Recruiting and Consulting

Mitchell B. Arden Phoenix Management Services

Martin I. Katz Executive Sounding Board Associates Inc.

William H. Schorling Buchanan Ingersoll & Rooney PC

Richard M. Kohn Goldberg Kohn Ltd.

Steven J. Seif, Esq. Hahn & Hessen LLP

Timothy M. Lupinacci Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

H. Bruce Bernstein Sidley Austin LLP

Daniel J. Krauss, Esq. Hahn & Hessen LLP

Baker A. Smith BDO Consulting

David B. Kurzweil Greenberg Traurig, LLP

Marshall C. Stoddard, Jr. Morgan Lewis

Kenneth A. Latimer Duane Morris LLP

Daniel D. Tiemann KPMG LLP

Charles E. Levin McDermott Will & Emery, LLP

Michael Trager RSM McGladrey, Inc.

Robert D. Katz, CTP, MBA, CPA EisnerAmper Randall L. Klein Goldberg Kohn Ltd.

Leonard Lee Podair Hahn & Hessen LLP Kenneth R. Pogrob WeiserMazars, LLP J. Tim Pruban Focus Management Group Jeff Rogers McMillan LLP

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Jack Butler Birchlake Kris Coghlan FTI Consulting David Crumbaugh Latham & Watkins, LLP Shirley E. Curfman Seyfarth Shaw LLP C. Edward Dobbs Parker, Hudson, Rainer & Dobbs LLP

Steven M. Rosenberg Rosenberg & Fecci Consulting LLC

Arnie Dratt Hilco Global

Donald E. Rothman Riemer & Braunstein LLP

Michael C. Eisenband FTI Consulting

Jay G. Ochroch Fox Rothschild O’Brien & Frankel LLP Leonard Lee Podair Hahn & Hessen LLP Howard Rein Freed Maxick ABL Services

Michael W. Lissner Lissner Associates, Ltd. Charles G. Ludmer J.H. Cohn, LLC Arthur B. Muir McGuireWoods LLP

JOIN US ON SEPT. 22 IN NYC TO CELEBRATE THE WINNERS OF THE CFA 40 UNDER 40 AWARDS! WWW.CFA.COM/40UNDER40

CFA DIRECTORS Joe Accardi NY/NJ Market Leader Santander Bank, N.A. Imtiaz Ahmad Leader, Commercial Finance Discover Financial Services Roger Allen Chief Operating Officer LSQ Funding

Milton H. Barbarosh President Empire Global Advisory Services, LLC Robert Barnhard Senior Vice President Eastern Bank Robyn Barrett Managing Member FSW Funding Charles H. Batson President & CEO First Business Capital Corp.

Martin Battaglia CEO Encina Business Credit

Sami Altaher Executive Director FGI

Nicolas Beauchamp President Alternative Capital Group Inc.

Jason Anish President & CEO Austin Financial Services, Inc.

Kevin Beeson EVP-Business Credit First Tennessee Bank

Jon Anselma Managing Partner Paragon Financial Group Howard M. Applebaum Chief Lending Officer, Executive Vice President BHI Jay B. Atkins President Seacoast Business Funding Raffi Azadian CEO Azadian Group, LLC

Matthew R. Begley CEO MBMJ Capital LLC dba Continental Business Credit

Arif Bhalwani Managing Director Third Eye Capital Corp.

Ryan Cascade President Ares Management LP

Philip M. Cohen President PRN Funding, LLC

Mark Bienstock Managing Director Express Trade Capital, Inc.

Edward Castado VP of Marketing BlueVine Capital

Joseph R. Costanza SVP-Sr. Credit Officer Investors Bank

Brian Birnbaum President Liquid Capital Corp.

Thomas W. Cavanaugh President Premier Trade Solutions, Inc

Paul B. Cronin National Director KeyBank Business Capital

Robert W. Bowles Founder & Executive Director Bluewater Ben Brachot Managing Director Dwight Funding

Becky J. Cronister Justin Chae President President & CEO Action Capital Corp.

Prime Business Credit, Inc. Glenn Currin Chris Chang Managing Director Head of Global Sales Great Lakes Business DS-Concept Credit LLC

Patrick R. Brocker Sr. Managing Director Peapack-Gladstone Bank

Ronald Chang President UPS Capital

Mary Beth Curry VP, Credit Administration CoBank

Jeremy Brown Chairman/Founder RapidAdvance

Leon Chernyavsky Partner Alleon Healthcare Capital

Ryan Curry President and CEO TXP Capital LLC

Keith Broyles Sr. Vice President Blue Hills Bank

Martin Chin SVP, Head of Capital Finance City National Bank

Robert Curtis President Gateway Acceptance Co.

Christopher J. Calabrese Partner LBC Credit Partners

Eric Belk President Match Factors, Inc.

Steve Capper Partner Flexible Funding

Gail K. Bernstein Executive Vice President PNC Business Credit

Anne Capps Executive Vice President American Receivable Corporation

Andrew Bertolina CEO Finvoice

Christopher Carmosino President Citizenz Bank Business Capital

Brian J. Cuttic Senior Director, Asset Based Lending Synovus Financial Corp.

Carl C. Chrappa President Independent Equipment Co. Talley Clower Managing Member Provident Commercial Finance, LLC Bruce L. Cohen Managing Partner Leland Capital Advisors LLC

Tania A. Daniel Managing Director, Factoring Division ENGS Commercial Finance Arjan de Liefde Managing Director International Clients ABN AMRO Commercial Finance

THE SECURED LENDER JUNE 2016 49

the cfa brief

Paul DeDomenico CEO InterNex Capital

Burt M. Feinberg Managing Director CIT Group

Bruce Denby Managing Director/ Group Head The PrivateBank

Robert Fentress President BB&T Corporation

Kenneth Dotson Managing Partner Alantes Corporate Finance Richard S. Downey President - Regions Business Capital Regions Business Capital Ed Dridge Director, Asset-Based Lending MUFG Union Bank, N.A. David Drogos Managing Director, CS Business Finance CapitalSource Tracy D. Eden National Marketing Director Commercial Finance Group Gary C. Epstein Chief Marketing Officer Hilco Global Raul Esqueda President 1st Commercial Credit Juan Estrada President & CEO Quickpay Funding, LLC Kim Evans Director Starbanco Business Finance

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Rich Flamang SVP / National Sales Manager Summit Financial Resources Jeffrey Fliegel Executive Vice President BankUnited

Thomas X. Geisel EVP, President of Specialty Finance Sterling National Bank Thomas A. Getty, Jr. SVP-Head of Asset Based Lending HSBC Bank, USA., N.A. John Giangiulio Managing Director Context Business Lending, LLC formerly Adams Bus Credit

Mark A. Hafner President & CEO Celtic Capital Corporation John Hagist Vice President LOEB Cole Harmonson CEO Far West Capital Nick Hart President Sallyport Commercial Finance, LLC

Steven C. Gold President & CEO Lee Haskin Jeffry Foil Allied Financial Corporation CEO President Crossroads Financial Seven Oaks Frank S. Goldberg Capital Assoc., LLC Chairman & CEO Alfred Hedaya Briar Capital President Mark Foster Hedaya Capital Senior Vice President Jeffrey K. Goldrich Berkshire Bank President & CEO Jerry Hertzman North Mill Capital LLC Senior Vice President Allen E. Frederic, Jr. IDB Bank Chief Executive Officer Gerry H. Gonzalez Republic Business COO Randolph S. Hicks Credit, LLC REV Finance Group, Inc. Executive Vice President Nations Equipment Finance Harvey Friedman Raymond E. Green Chief Operating Officer Sr. Managing Director Wade Hladky Lenders Funding, LLC WNB Specialty Finance CEO & President Gulf Coast Business Credit Joseph P. Gaffigan David Grende President President & CEO Christoph Hoedl TCF Capital Funding Siena Lending Group First Vice President RB International Finance William J. Gallagher Neville Grusd (USA) LLC Managing Partner President CapFlow Funding Group Merchant Financial Brian Keith Holden Corporation Chairman and CEO Kevin Garvey A/R Funding, Inc. Senior Vice President Vivian Guo Finance and Administration Managing Director Layla Hollender Capital Partners JRF International President Factoring Ltd. TradeRiver USA

JOIN US ON SEPT. 22 IN NYC TO CELEBRATE THE WINNERS OF THE CFA 40 UNDER 40 AWARDS! WWW.CFA.COM/40UNDER40

Ronald Hoplamazian Portfolio Manager, Corporate Credit Stabilis Capital Management, LP Lisa Hultz Vice President Mazon Assoc., Inc. Joseph Iannuccilli President Sound Shore Financial Janet Z. Jarrett Managing Director, Head of Asset Based Lending SunTrust Robinson Humphrey Ryan Jaskiewicz CEO 12five Capital, LLC Jeff Johnson Sr. Vice President & Division Manager ABL Tech Capital, LLC Stephen P. Johnson President J D Factors LLC Harvey L. Kaminski President & CEO Prestige Capital Corporation Harry J. Kaplun President Frost Capital Group Dan Karas Executive Vice President, Chief Lending Officer TBK Bank Bradley S. Kastner Director-Business Development MidCap Financial Services, LLC

Gary Katz Managing Partner Downtown Capital Partners, LLC Wood Kaufman CEO TBS Factoring Service, LLC Theresa Kelly EVP, Business Banking Director Flushing Bank Michael R. Kenney Managing Director & Business Head BMO Bank of Montreal-ABL Kee H. Kim President & CEO Finance One, Inc. Sunnie S. Kim President & CEO Hana Financial, Inc. Edward P. King Managing Partner King Trade Capital Lawrence E. Klaff Sr. Managing Director Gordon Brothers Finance Company Niko Kluyver Managing Director FactorPlus (Caribbean Factoring Services) Jeffrey J. Knopping Managing Director Benefit Street Partners Michael P. Knuckles Executive Vice President Renasant Business Credit

Theodore L. Koenig President Monroe Capital LLC

Michael Lukhton CEO Baron Finance

Andy McGhee CEO & Co-Founder AloStar Capital Finance

Kevin Laborde President Cash Flow Resources, LLC

Michael A. Maidy Co-Managing Member Sherwood Partners

Michael McKnight Gusto LLC

Greg Lacker Managing Director Coastline Financial Services Group

Michael Maiorino President People’s United Business Capital

Larry F. LaCroix Executive Vice President Avidbank

Marc Manuel Managing Director, Global Head of Equities Magna Management

Michael LaManes Head of Structured Finance Amalgamated Capital Dean I. Landis President Entrepreneur Growth Capital, LLC J. Brad Leach President Lighthouse Financial Corp.

Lawrence A. Marsiello Managing Director Pine Brook Road Partners LLC Arthur Martini Managing Director Owl Rock Capital Partners James McArthur Executive Vice President Aegis Business Credit, LLC

Tony Lee Head of ABL Bank of the West

John McCauley President Virginia Commercial Finance, Inc.

Susan B. Leopold CFO ATF Finance

John N. McDevitt Vice President BNP Paribas

David K. Levy President Utica Leaseco, LLC Robert Love SVP and Group Director Signature Bank Juan Antonio Lovera President InCapital Financiera, S.A.

Jeffrey McLane President Bank of America Business Capital Paul Menzel President and CEO Financial Pacific Leasing, Inc., an Umpqua Bank Company

Barry Morehead President Security Business Capital, LLC. Nancy Morgan SVP/Manager SLG BBVA Compass David Moriniere Vice President Alloy Merchant Finance Duane Morrison Vice President Callidus Capital Corporation

Andrew H. Moser Genevieve Merritt-Parikh Managing Partner and CEO President Scargo Hill Capital Allied Affiliated Funding, LP Rick Muckelrath Carole-Ann Miller Executive Vice President President ProMED Healthcare Camsa Inc., o/a Maple Financing Trade Finance Ken Murphy Jeff Miller Director Business Capital Vice President EverBank EasyPay Finance Mark O’Brien Warren K. Mino EVP Business Development President & Underwriting Webster Business Credit Gemino Healthcare Corp.

Finance, LLC Rowena Mitchell General Manager International Trade Finance, LLC.

Kevin O’Hare President Scott Valley Business Capital

Douglas L. McDonald Manager Access Business Finance, LLC

D. Michael Monk Managing Partner Amerisource Funding

Jennifer Palmer President Gerber Finance, Inc.

Steve McDonald President Trade Finance Solutions (TFS)

Deborah J. Monosson President Boston Financial & Equity Corp.

Jim Pendergast VP Business Development The Southern Bank Company

THE SECURED LENDER JUNE 2016 51

the cfa brief

Charlie Perer Head of Originations Super G Capital Timothy Peters CNH Finance LP Alice M. Peterson COO Big Shoulders Capital Andrea L. Petro Executive Vice President Wells Fargo Capital Finance Samuel S. Philbrick President U.S. Bank Neil Prendergast SVP Group Head, Asset Based Lending First Midwest Bank Christopher S. Randall Senior Managing Director NBH Capital Finance Christine Reilly Chief Risk Officer LiftForward, Inc. Kwesi Rogers President & CEO Federal National Commercial Credit Joel B. Rosenthal Executive Manager Charter Capital Steven W. Roth President North American Capital Corp.

Steven Samson President MidCap Business Credit, LLC

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Stacey Schacter Chief Executive Officer VION Receivable Investments Dennis Schlesner President Presidential Financial Corp.

Ian Schnider Managing Director Fortress Investment Group Bret Schuch EVP-Division Manager Goodman Factors Michael Scolaro Managing Director BMO Harris Bank Gregory L. Segall Mng. Partner Versa Capital Management Mark Seigel President Veritas Financial Partners Michael A. Semanco President Hitachi Business Finance George Shapiro Chairman, CEO The Interface Financial Group David L. Shelnutt SVP, Manager Structured Finance United Community Bank Glen E. Shu President Bay View Funding Martin S. Silver Managing Partner IIG Trade Finance, LLC

Derek Skea President Financial Carrier Services

Brent Stolzenthaler President & CEO AIM Business Capital, LLC

Ben Van Zee President Commonwealth Capital, LLC

Kenneth J Smith President BDC Capital Corporation

Miles M. Stuchin President Access Capital, Inc.

Ron Vanek President Marquette Business Credit

Marc Smith Sr. Vice President Magnolia Financial, Inc.

Andrew H. Tananbaum Gerald C. Watson Executive Chairman President Capital Business Credit LLC The Watson Group

Shapleigh Smith Managing Director Citibank, N.A.

Ruth Thieneman Director of Marketing Thermo Credit, LLC

Tom A. Smith Vice President Riviera Finance

John Thompson CFO Transfac Capital, Inc.

Helena Sopwith Managing Partner Camel Financial, Inc.

Paul Tobias Chairman, CEO Mackinac Commercial Credit, LLC

J. Michael Stanley Managing Director Max Toledo Rosenthal & Rosenthal, Inc. Executive Vice President Bridgeport Capital William A. Stapel SVP Director of ABL Port- Steve Tomasello folio Management President MB Business Capital Crestmark Bank Leonard Steigman Vice President World Business Lenders Einat Steklov President Coral Capital Solutions Paul Stemler President Global Technology Finance, LLC Todd Stichler Managing Director LendSpark

Ian Watson Chief Executive, North America Bibby Financial Services Martin Weingarten CEO Star Funding Inc. Kenneth L. Wengrod President/Co-Founder FTC Commercial Corp.

Theodore V. West President Atlantic National Trust, LLC Douglas K. Winget President Huntington Business Credit

Patrick B. Trammell President Southeastern Commercial Finance, LLC

Scott Winicour Co-President Gibraltar Business Capital, LLC

Stephen K. Troy President AeroFund Financial, Inc.

Kelly K. Wu Executive Vice President Cathay Bank

Tim Valdez Co-Founder Pavestone Capital LLC

Peter York Managing Director JPMorgan Chase Bank

Brian J. Van Nevel Co-CEO SPECTRUM Commercial Services

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legal notes

f

or this issue, we have selected a recent case addressing an important issue related to a lender’s collateral: the risks of lending to companies in the business of selling consigned goods.

JONATHAN HELFAT AND RICHARD KOHN CFA CO-GENERAL COUNSEL TSA Stores, Inc., et al. v. Wilmington Savings Fund Society, FSB (In re TSAWD Holdings, Inc., et al.), 565 B.R. 292, 2017 WL 892329 (Bankr. D. Del. 2017).

Can a consignor who failed to file a Uniform Commercial Code (“UCC”) financing statement against a debtor and, despite signing a contract with the debtor which provided, among other things, that all consignment transactions between the parties are governed by the UCC, prevail over a properly perfected secured lender with a “blanket” lien and recover the proceeds from the sale of the consigned goods? The United States Bankruptcy Court for the District of Delaware says, “it’s an issue of fact”.

This case arises out of the decision

THE LEGAL SIDE OF ABL & FACTORING

of Bankruptcy Judge Walrath in the United States Bankruptcy Court for the District of Delaware denying the motion for partial judgment on the pleadings filed by Wilmington Savings Fund Society, FSB (“Wilmington”).

Sports Authority (“Debtor”), a nationwide seller of sporting goods, filed Chapter 11 in the United States Bankruptcy Court in Delaware on March 2, 2016. Wilmington was a prepetition lender to the Debtor and obtained, in consideration for its prepetition indebtedness, a security interest in the Debtors’ inventory. M.J. Soffee LLC (“Consignor”) sold goods to the Debtor prior to the bankruptcy on a consignment basis for resale by the Debtor.

The Consignor admittedly did not perfect its interest in the inventory it consigned to the Debtor, despite the terms of a “Pay by Scan” agreement between the Debtor and Consignor which provided that the transactions between the Consignor and the Debtor qualified as consignments pursuant to the UCC. The priority “fight” which is the subject of this decision revolves around $5,4000,000 of proceeds from the sale of goods shipped and delivered by the Consignor to the Debtor prior to the Chapter 11 filing (the “Proceeds”).

Procedurally, Wilmington filed a complaint against the Consignor seeking a declaration that Wilmington had a perfected security interest senior to the Consignor’s interest in the Proceeds. Wilmington argued that Article 9 of the UCC applied to Consignor’s transactions with the Debtor and the Consignor had not perfected its rights under Article 9. The Consignor counterclaimed for a declaration that Wilmington’s security interest in and liens on the Debtor’s inventory did not attach to the Proceeds and, alternatively, to the extent Wilmington’s had a lien on the Proceeds, such lien was

subordinate to the Consignor’s interests. While admitting non-compliance with the UCC, the Consignor maintained that (1) Article 9 was not applicable to the competing interests in the Proceeds and (2) the underlying goods were not the property of the Debtor so Wilmington’s liens never attached to the goods or Proceeds.

As Judge Walrath noted, the priority of a consignor’s rights as regards a competing security interest are not strictly governed by the UCC. Consignments, according to court, that fall within the definition of Section 9-102(a)(20) of the UCC, require perfection in accordance with the UCC. However, consignments that do not come within the UCC definition are governed by state law (common and statutory). The Consignor argued that its transactions with the Debtor did not fit within the UCC definition of “consignment goods”.

More specifically, Section 9–102(a) (20) of the UCC defines a ‘‘consignment’’, in relevant part, as a ‘‘transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale’’ and: (A) the merchant: (i) deals in goods of that kind under a name other than the name of the person making the delivery; (ii) is not an auctioneer; and (iii) is not generally known by its creditors to be substantially engaged in selling the goods of others.

See, UCC at § 9–102(a)(20).

The Consignor argued that because the Debtor was generally known by its creditors to be substantially engaged in the business of selling the goods of others, and because Wilmington had actual knowledge of the consignment arrangement, the Consignor was not obligated to perfect its security

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interest in accordance with the UCC in order to maintain its interest in the goods and priority over Wilmington.

Wilmington countered that the Consignor was precluded from arguing that the transaction was not governed by the UCC because the Pay By Scan agreement between the the Debtor and Consignor expressly provided that the arrangement “shall qualify as a consignment under Sec. 9-102(a) (20)”. Significantly, however, Judge Walrath found that the reference to the cited language in the contract was unenforceable and could not overcome the actual facts of the transaction. Consequently, the court denied Wilmington’s motion and will permitted the Consignor to introduce evidence at a subsequent hearing that the Debtor was generally known to be

substantially engaged in the business of selling consigned goods or that Wilmington had actual knowledge of the Debtor’s consignment arrangement with Consignor. Therefore, if the Consignor is successful in proving that its prepetition transactions with the Debtor did not, in fact, satisfy the UCC definition of “consignment”, it will prevail over Wilmington in the fight for the Proceeds.

judgment on the pleadings.

2. It is better practice, if possible, for the secured lender and the consignor to enter into an intercreditor agreement defining the rights of the respective parties. TSL Jonathan N. Helfat, partner, Otterbourg P.C., and Richard M. Kohn, partner, Goldberg Kohn, are CFA co-general counsel.

Observations: 1. If the Pay by Scan Agreement had specifically stated that the Debtor was not “generally known by its creditors to be substantially engaged in selling the goods of others” it might have been enough of a factual finding to overcome the consignee’s argument and grant

tsl

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TSL OPINION COLUMN

avid W. Morse of Otterbourg P.C. discusses Competition and Covenants: What’s a Lender to Do? In the trenches of the lending marketplace, it has never seemed more competitive. At all levels and across a spectrum of debt products, the desire for lenders to grow their portfolios together with the number of new institutions making loans, has put the borrower in a very favorable position.

The result has been a notable loosening of covenant structures in loan documents, with the corresponding increase in risk for lenders. And, at the same time as the risks to lenders increase, there is increasing downward pressure on the compensation lenders receive—creating a trend that turns the concept of “risk/reward” on its head.

In its decision to make a loan and in establishing the terms under which a lender is willing to make the loan, a lender looks at the current circumstances of the borrower, the nature of its business, the value of its assets, its cash flow and liquidity, its business plan and its projections. The covenants are intended to capture these expectations and hold the borrower to them so that the lender understands and can manage the risks it is taking. At the same time, the borrower wants the flexibility to manage its business in the ordinary course and

consistent with its business plan—incurring debt, granting liens, making acquisitions, making investments, paying dividends, as projected. And, in fact, the lender wants the borrower to be able to operate its business and take the steps it needs to in order to meet its plan, subject to the lender’s expectations about what the business is and subject to limiting the risk of repayment of its loans.

In the current state of the market, where the borrower is dictating the terms of the covenants, there is an increased risk that the flexibility given a borrower under the credit agreement may allow it to engage in transactions that are inconsistent with the expectations of a lender and allow the borrower to fundamentally change the business that the lender signed up to finance.

For example, if a lender is financing a company organized under the laws of a jurisdiction in the United States, the lender would expect that it will not thereafter be required to finance the same company under the same facility after the company has reorganized under the laws of a jurisdiction outside of the United States. While many credit and security agreements may require that the company notify the lenders if it is changing the jurisdiction in which it is organized, they do not necessarily prohibit reorganizing in a jurisdiction outside of the United States.

Then there is a “trap door” that can be found in some permitted investment baskets in credit agreements.

The use of this basket by retailer J. Crew has led to litigation between the company and its term loan lenders.

According to J. Crew, the baskets in its credit agreement for investments allow it to transfer its critically important trademarks to a newly formed subsidiary free and clear of the liens

of the term loan lenders and allow the new subsidiary to grant liens on the trademarks to incur additional debt that may be used to repay previously unsecured debt—while the borrowers under the term loan facility must pay a license fee to use the trademarks they had previously owned.

Covenants limiting the ability of a company to dispose of its assets may have baskets without any limit.

As a result, a lender that has agreed to finance a company of a certain size in terms of assets, revenues and profitability may end up with a dramatically different company. If there are mandatory prepayments on a term loan that cause the exposure to reduce as the assets decrease, it is one thing, but with an asset-based revolving facility, it is another. While the argument may be made that the asset-based lender is protected by a shrinking borrowing base, it is not necessarily the case that the quality of the assets left behind are the same as before or that the liquidity of the company will be maintained in the same proportions to its working capital needs. Or that the size of the baskets in the credit agreement make sense for a company of a much smaller size. If the company were of the size and character after giving effect to the permitted dispositions, would the lender have provided the financing or provided the financing on the same terms?

There are debt baskets in credit agreements that allow new debt to be incurred that matures prior to the debt subject to the credit agreement.

Typically, when entering into a new financing of a company, the new lender will not want the maturity date of other material indebtedness of the company to be earlier than the maturity date for new lender’s credit facility. But given the way the covenants

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in a credit agreement are drafted, a lender to a company can end up with the company incurring other material indebtedness with a maturity date that is earlier than such lender’s credit facility. If the other debt had been in place at the time of the closing, the lender would have required the right to establish reserves or to have a “springing” maturity date.

Similar issues arise in the context of intercreditor agreements where the second lien lender may retain the unfettered rights of an unsecured creditor, which effectively means the provisions of the intercreditor agreement relating to the first lien lender’s rights in the context of a 363 sale, providing DIP financing or obtaining adequate protection, are substan-

tially undermined.

Ultimately, in the current environment, the challenge for the lender is to fully understand and manage the manner in which the covenants in its credit agreement and other documents may or may not affect how its borrower’s business may change over the course of the relationship and determine whether the resulting consequences to the lender are acceptable. TSL

position in New York. Morse is a representative from the Commercial Finance Association in one of the current projects of the United Nations Commission on International Trade Law (UNCITRAL) concerning secured transactions law.

David W. Morse is a member of the law firm of Otterbourg P.C. in New York City and is presently head of the firm’s finance practice. He has been recognized in Super Lawyers, Best Lawyers and selected by Global Law Experts for the banking and finance law expert

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