September 2010

A Room With a View – The Sky’s the Limit for LBC Credit Partners

High atop the Cira Centre in downtown Philadelphia, big things are afoot. Though it doesn’t happen that often, today, the entire team that makes up middle-market lending house LBC Credit Partners is in the office; and there is the feeling of something electric in the air. ABF Journal decided to pay the company a visit to find out why.

The Partners:

John J. Brignola, Partner, LBC Credit Partners

Christopher J. Calabrese, Partner, LBC Credit Partners

Nathaniel R. Cohen, Partner, LBC Credit Partners

Ira M. Lubert, Partner, LBC Credit Partners

LBC Credit Partners is a place where decisions are made collectively and on this day the company’s nearly two-dozen staff members are on site preparing for the annual strategy meeting that will take place that night.

This once-a-year meeting of the minds — followed by a dinner at one of the city’s many top-notch restaurants — offers partners, principals, directors and investment professionals a chance to hash out the company’s direction for the coming year and decide the best way to see those goals through.

This also happens to be the day ABF Journal was invited to pay the company a visit.

The “LBC” in LBC Credit Partners is Ira Lubert, John Brignola, Nate Cohen and Chris Calabrese. All four had a storied career in the lending market before joining together to launch LBC in 2005.

Brignola, 49, began his career in Meridian Bank’s asset-based lending unit before joining AT&T Capital, sticking around after it was acquired by PPM Finance in 1998. He was working as director of special investments at a multi-billion-dollar hedge fund when LBC was formed.

Cohen, 47, has two decades of leveraged finance, private equity and corporate buyout experience and did a stint at Comcast Corporation as divisional president and CFO. He was working with a private equity fund, LLR Partners, where he focused on special situations investing, when he and Brignola began the talks that would eventually lead to LBC.

Lubert, 60, is the founder of Independence Capital Partners and a principal in eight active private investment funds with over $11.5 billion in capital commitments under management. He started his career at IBM and went on to co-found Radnor Venture Partners/TL Ventures.

Calabrese, 47, was the last partner to join LBC. He worked for Mellon Bank’s Business Credit unit, and the leveraged finance and business credit units at First Union (now Wells Fargo) and predecessor banks (CoreStates Bank and Meridian Commercial Finance). He ultimately joined Congress Financial, now part of Wells Fargo Capital Finance, where he was executive vice president, national manager of underwriting and a member of the senior credit committee.

Needless to say, any one of these veteran finance executives would have made for an exciting interview; but today we’d get to speak with most of LBC’s founding team. We were joined by Brignola, Cohen and Calabrese for a discussion of how LBC came to be, and where the company sees itself in today’s turbulent market.

What became clear is that a lot of thought went into launching LBC Credit Partners, which likely explains the group’s steadfast attention to detail. It all started around 2003, when Brignola was working for a Chicago-based hedge fund and commuting from Philadelphia to Chicago. He and Cohen soon began discussions about a new venture.

John Brignola: I met Nate years ago and we got to be friends and eventually business colleagues. Nate was an operating partner at a buyout shop where he got to know Ira Lubert. Ira has a successful track record of raising money around operating people and their strategies. So Nate and I spent a lot of time with Ira getting to know him and eventually we put a plan together.

Nate Cohen: John and I spent about a year-and-a-half to two years sort of planning out venture capital trying to figure out what the right structure was for the fund. We wanted alignment with our partners, with senior lenders and borrowers, and figured out the only way to accomplish that is to have long-term committed capital. John and I had many meetings; we put together business plans, we met with various types of investors and spent a lot of time with Ira in particular.

JB: I was one of the early competitors in the second lien market years ago and I saw this continuing need for this product. Demand was increasing for this product and it was really gaining acceptance in the middle-market; so as we were creating the business plan we were gravitating toward this privately negotiated second lien product — this was back in 2004-2005.

We wanted the structure of our fund to be aligned with the senior lenders and equity sponsors that we partner with, and the way to do that, we concluded, was to be a private equity fund that provides junior capital. Our structure is just like all the private equity funds, the buyout funds. And from a senior lender perspective, we have long-term committed capital so senior lenders know that we can be a patient, steady partner for them rather than a fund that may be forced to make decisions based on its own internal structure.

LBC Credit Partners launched its first fund, LBC I, in October 2005 with $300 million of equity capital. Just prior to the fund’s launching, Calabrese joined the firm.

NC: Chris and John had worked together in the past [and] we really thought that another partner would help compliment the business. There was a lot of high regard for Chris in the industry. And he was in a similar situation to John, commuting from Cherry Hill to New York every day.

Chris Calabrese: It was time for me to do something and if I was going to take the risk I wanted to do it with people that I liked and it was great that it was going to be in Philadelphia — that was an added benefit. I had known John and I just felt that we complimented each other. I had relationships, he had relationships, there were some that overlapped but it was a great compliment. And Nate added something completely outside the banking networks that we had. I thought it was going to be a great combination. And then there was Ira and all his help and guidance, which was a great endorsement.

In the five years since its humble start LBC has grown to 23 employees; and the team keeps growing. Since the beginning of 2010, the company has added five new employees, and on the day of our interview had just signed an offer-letter for a sixth. The partners all emphasize the importance of a team strategy that leverages the talents of every member.

CC: We needed great people and we were able to attract them. We needed capital and we were able to attract that; but as important if not more important are the relationships. You establish all these relationships throughout your career and you wonder are they relationships of you, or relationships of who you work for, and it’s really probably a combination of both. But when those relationships move over with you and want to do business with you and like what you have assembled, that’s really rewarding.

NC: When you think about putting together a team you’re looking for guys who compliment you and are smarter than you — you want to work around very bright, very well-respected people and you want to really work in a cohesive environment. So we’ve really focused on our environment, our culture and a common goal, that is, setting goals as a team and accomplishing goals as a team in an effective manner.

CC: I think that the whole group has different levels of experience with different institutions but there is a respect for everybody’s talents and experiences and it’s clearly the entire group when we’re dealing with a new transaction or a new portfolio investment; we have different levels of decision making but it’s important to get everybody’s perspective and the decisions are made by consensus. Anything that involves investing or new opportunities is a group decision.

Today LBC has more than $1 billion under management and has made investments in a wide range of industries across North America. The company focuses on the middle market, which it defines as representing companies with $50 million and $750 million in annual revenues. According to Brignola, the typical LBC client falls somewhere in the middle, with average annual revenues of $200 million to $250 million.

The company does 12-20 deals a year, its principles say, with average deals ranging from $10 million to $50 million per transaction. LBC supports acquisitions, growth strategies, refinancings, recapitalizations and restructurings. When we met with Brignola, Cohen and Calabrese, they were in the process of closing three deals, had two in due diligence and another 15 to 20 in various stages of processing.

In February 2010, the partners launched their second fund, LBC II, with $645 million in equity capital. The company focuses on a wide variety of industries and diversification is a big part of the LBC model.

JB: We intentionally are not specialists; we want to build a diversified portfolio so we look at virtually any industry.

NC: We’re very diversified and we have a lot of experience in many industries. We touch about 35 different end markets from food to healthcare to niche manufacturing, aerospace, defense and auto.

CC: What we do is we develop a certain knowledge about certain industries and we may be able to leverage that knowledge onto other transactions and we also try to take a view of what industries are less affected by the economic cycle and where we are n the cycle, but we don’t say we’re only going to lend to companies in this or that specific industry segment. We look though to the end markets. That’s part of our due diligence — how diversified the end markets of our customers are as well as where they play.

Cohen explains that with the launch of the second fund, the company has expanded its product offering and can now be more things to more companies.

NC: We have a larger breadth of products, from senior term loans to one-stop financing, second lien, mezzanine debt and equity co-investment; so we can play up and down the debt capital structure and provide a lot of flexibility.

JB: Back to our original strategy, which was an alignment of interest and then the product for the middle market, now we have a breadth of products so whatever the need is we can hopefully create a solution to meet that need.

NC: The original products were second lien and some mezzanine debt, what we would call junior capital products. That’s not to say we weren’t doing some senior secured stuff, we just broadened our product offering. We have a lot of capital under management and we can be incredibly flexible in the right situation for a borrower.

JB: Right, so we offer a one-stop product now, or a unitranche; we have some senior cash-flow type capital available. Our business is not to provide a traditional bank loan and not to provide an asset-based revolver, that’s not what we do.

Given their collective approach to success, opportunities are rarely lost on LBC and both the size and the scope of the group continues to grow. Two years ago, the company hired Allan Allweiss, a veteran of Bank of America and CIT, to launch a Chicago office; today the office is staffed by Allweiss and Doug Goodwillie, with a third executive expected to join soon. And by the fall LBC hopes to have a New York satellite office up and running.

Brignola says he’d like to have the ball rolling on a New York office by the end of August, but said he didn’t plan to rush it.

JB: It’s very important to have the right person, especially when you’re ramping up an office – you need the right person to do that. Our headcount growth is really driven by two things, one is the need itself and one is foresight on what type of person we’re going to need to be able to be decisive, efficient and effective for our customers. The people we hire fit well into our culture. We see this as making an investment in each other so we both can be successful.

As we wrapped up our discussion, the talk turned to the annual meeting that everyone in the office was gearing up to attend that night. We wanted to know what would be discussed and where the company saw itself heading into 2011.

CC: We’re going to sit down and discuss what’s going on in the marketplace, what kind of deals we are seeing, where we should focus our efforts. We think there is going to be a gradual pickup in M&A but it might not be as sharp as some think, it might not snap back but gradually grow back. We think there is going to be a lot of opportunity for refinancings. A lot of the loans that were done five years ago are coming up for maturity. We’re starting to see that now.

JB: I think in 2011 we’re going to see continued growth in the pace of M&A activity and there are looming loan maturities for several borrowers so I think we’re going to begin seeing more refinancing opportunities — to date we haven’t seen many. I think companies needed to heal and needed to figure out how to grow their businesses. I think now they are getting to that point where they know what they need in terms of capitalization. They have loans maturing and they are going to market to get it done well in advance of the maturities — I think 2011 is going to present a lot of those opportunities for us.

NC: It’s about getting everybody aligned and focused and charging forward to hit our short-term and longer-term goals.

“Charging forward” is a good way to describe the team at LBC Credit Partners. For most of their respective careers, Cohen, Brignola and Calabrese have been pushing ahead, moving on to the next thing; and today they spearhead a strong and diverse team that continues to do just that. As to what keeps them charging forward on a daily basis: that’s simple, it’s the people around them and the challenge of finding solutions to complex problems.

CC: It’s exciting to grow something like we did here and start something new. We’d all been in the business for so long it never really felt like we were starting new so much as changing partners and working with a strong new group. But now that a lot of that’s been set in place we always have to look at what’s going to happened three or four years out so I enjoy trying to drive that kind of strategy.

[I love] the deals themselves, winning the deals, meeting with the management teams, walking the plants, meeting with the private equity groups, I mean that’s what I really love, getting in front of the customers and the private equity groups and the ownership and helping them in whatever their opportunity is.

NC: No day is the same, especially in this business; nothing you plan in the morning is necessarily the way your day goes. The other thing for me is I love looking at businesses and trying to understand their current situations, the challenge of understanding why something will play out as presented or why it will not. I really enjoy the dynamics of understanding a business and its industry. You’re constantly learning… We’ve come a long way, but we have a long way to go.

JB: I love the art of the deal and the research side of the business. It’s nice to watch something play out the way you thought. I like the challenge of growing our business. It’s a lot of work but, at the same time, it’s very rewarding.

Christopher Moraff is the associate editor of ABF Journal.