November|December 2011

Armed With a Unique Platform and Intense Passion for ABL, AloStar Business Credit is Ready to Serve Its Market

How do two ABL industry executives turnaround an ailing correspondent banking business into an ABL powerhouse? For Andrew McGhee and Michael Gillfillan, executives at AloStar Bank of Commerce and AloStar Business Credit, the answer comes quite easily. Remember who you are and do what you do well. Armed with a unique platform , a top notch staff and an intense love of the ABL business, McGhee assures this relative newcomer is open for business.

For Andrew McGhee, it’s always been about asset-based lending. This son of the South, both born and bred in Atlanta, began his career with a small bank in his hometown and in time moved into the ABL group first at Citibank and then to Bank of America Business Capital (BABC). He recalls, “I spent five years at Citibank in their leveraged finance and asset-based group and then moved to BABC where I spent another five years. Those two institutions are two of the best in the business and they were great places to cut my teeth … learn the business, understand the business and make a good many contacts.”

In 1996, SunTrust Bank approached McGhee with a very tempting offer — the opportunity to start an asset-based lending unit from scratch. “It was a chance to hire the people I wanted to hire, build it the way I wanted to build it and have some fun along with way. I did that for the next five years and at SunTrust, we did pure ABL, leveraged finance, sponsor-driven cash-flow deals, mezzanine deals and a little bit of equity investment and some LP finance. I had the entire line of business and at first; the entire line of business was me.” In time, however, McGhee built his team with seasoned industry professionals and, by his own account, did manage to have some fun along the way.

He explains, “It was a lot of fun and a really unique startup opportunity. With SunTrust, we had a big organization behind us with a solid brand, but unknown in that segment of the market. Back then, I looked at the business and saw that there was a need for a true middle-market asset-based and leveraged finance business. Citibank and Bank of America had gone up market, so we saw that there was a hole and went in and filled it.” And fill it they did.  In its first five years, he notes the SunTrust team booked somewhere in the neighborhood of $6.5 billion in transactions.

It’s no surprise that McGhee’s innate entrepreneurial abilities didn’t go unnoticed at SunTrust.  As such, his responsibilities expanded to include the bank’s agricultural business, and he was later tapped to work on strategic projects and initiatives across the bank’s corporate and investment banking units. He eventually found himself involved with SunTrust’s institutional money management business, and while he was able to adapt to the assignment, he came to an important realization. “I really missed the asset-based lending business, that’s where my heart is … what I had always done. So I left SunTrust in 2008 with the express purpose of finding a commercial finance business.”

From his perspective, the pursuit of a new business made perfect sense. McGhee’s years in the business told him larger institutions, in an effort to feed the ever hungry capital markets machines, would continue to move away from the middle market.  He also knew his experience in building an ABL team from the bottom up could work nicely in this pursuit.  He explains, “I came across some very good regional players that I could take to a national level and I looked at a dozen or so with a couple of different private equity firms. In the end, I determined that I wasn’t comfortable with the liquidity position of those standalones … I knew I was always going to be reliant on bank warehouse lines. If capital were to open up, things would be OK, but if not, it was always going to be a struggle.”

It was during this time, McGhee met Michael Gillfillan, a veteran of the ABL industry. As the former vice and chief credit officer at Wells Fargo Business Credit, Gillfillan was in the same game — to establish an asset-based lending operation, national in scope and committed to serving the underserved. “We spent some time together and realized that we looked at the world through the same set of glasses … we wanted to find a bank platform that would allow us access to consistent funding. With that we could fill a void, namely that segment of the market in need of committed credit facilities of $20 million and under.”

The two joined forces and set out to find a banking platform that would fit the bill. He says, “Throughout 2009, we looked at up to 75 banks up and down the East Coast, in the Midwest, Texas and California. What we wanted was something incredibly unique … national in scope, small enough for us to buy and was troubled, but not dead. Eventually we figured out we were looking for a needle in a haystack and around the end the year, we put down our pencils. We figured it just wasn’t going to happen. It’s about that time that I got a call from a friend of mine, an investment banker in Atlanta. He said, ‘I’ve got the perfect platform for you, Nexity Bank in Birmingham.’”

“We were a bit apprehensive at first,” McGhee admits. Earlier that year, the OCC had seized Atlanta’s Silverton Bank. The forced closure left Silverton’s correspondent banking clients scrambling to find new arrangements. “Mike and I just weren’t interested in a bankers’ bank … it’s a very difficult model that doesn’t fund itself on deposits. But Nexity proved to be a different story. Yes, it had many correspondent banking clients, but it was also a state chartered bank in Alabama and funded itself with Internet deposits.

“I flew out Christmas Eve 2009 to take a look at Nexity. I knew in ten minutes it was the platform we were looking for: Nexity had deposits in all 50 states and loans in 47, so that solved our national platform question. Mike flew out in January and he agreed. So we began the due diligence process … visited every large credit, every troubled asset, saw the properties and by February 2010, we were already speaking with the regulators. We spoke to the banking secretary for the State of Alabama, the FDIC and the Fed.

“On the heels of Silverton, they were very interested in what we could do to save the bank’s significant correspondent banking presence and what we were trying to accomplish with the Nexity platform. We discussed our desire to rebuild the correspondent banking side of the business as well as helping the community banks by creating asset-based loans for their portfolios to help them diversify away from real estate centered portfolios. The regulators found that intriguing in that we could build a test platform for them.”

Gillfillan and McGhee embarked at on 16-month odyssey that included among other things, bi-weekly and ultimately weekly calls with regulators and acquiring a shelf charter in Alabama to bid on Nexity’s assets in an open process. On Friday, April 15 of this year, Nexity Bank failed. On the next Monday, the Birmingham branch of Nexity Bank opened under a new name: AloStar Bank of Commerce. Central to its strategy and at its core is AloStar Business Credit.

“AloStar Business Credit has been a key component from the very beginning,” McGhee explains and his tone intensifies when he rattles off the veritable who’s who of ABL professionals who have joined AloStar’s ranks since its inception. “Look at who we’ve put on our team: Susan Hall. Susan is an industry veteran and as good a portfolio manager as there is in the industry. Mike Lapresi, who has 30 years of experience is running our underwriting. John Rosin has 25 years of experience, and he’ll lead … the list goes on and on.”

And McGhee doesn’t exaggerate. Since June of this year, ABF Journal has reported AloStar has named no fewer than 12 professionals to its ranks. In addition to Hall, Lapresi and Rosin, McGhee and Gillfillan have been joined by Tim Eichenlaub as AloStar’s chief credit officer and David Phillips as its director of origins.  Also on board are Richard Bochicchio, Mark Buren, Darryl Karmen, Allan Marzen, Scott Simmons, John Todd, Mary Ann Stathis and most recently, Donald Jordan as its chief financial officer. McGhee assures more announcements are on the way and at press time, AloStar has four offers of employment in place.

“Everyone involved and touching this business has an ABL background. The team is in place, the structure is there and the discipline is [there]. Now we have to go out and build the engine … the new business side of it. To that end, we’ve hired eight business development officers and have two in New York, two in Atlanta, one each in Baltimore, Chicago, Dallas and Los Angeles. We’ve hit the ground running and the reception has been fantastic,” he says.

McGhee is equally enthusiastic about the already existing team at the former Nexity. “The Nexity people have been fantastic and their approach to client services is the best I’ve ever seen. I’ve learned so much from them. We got to know them during the due diligence process and we have a lot of respect for them. And I think that in the end, they were glad that we won the bid and became part of their company.”

Aside from developing a new model and melding two cultures, the timing seems right too. He notes, “I think it’s a great time to drive capital to small businesses. There are always going to be companies, even in growth cycles, which have outstripped their capital base and will need support that they won’t be able to get from a traditional commercial bank. We’ll be in good shape as long as we stick to our discipline in the market. And Mike and I have spent many hours talking about that … it’s important that we remember who we are and what we do.”

He continues, “Believe me, the last thing I want to do is go out there and compete with a Bank of America, SunTrust or Regions. They are fantastic at what they do, but we don’t do what they do. We do deals that are $20 million and below, and if you bring us a $10 million or $15 million credit, trust me … you’re going to have our full attention.”

Stuart P. Papavassiliou is the senior editor of ABF Journal.