Charting a New Course… Hudson Valley Bank’s New ABL Plans to Play Large
Mark Fagnani took the helm at Hudson Valley Bank’s new ABL Group in fall 2013 after 34 years as a lender at Wells Fargo, Wachovia, Congress Financial and First Union, in addition to several years running his own advisory company. He shares his vision for how a smaller player in a crowded market can be more agile and play large.
Mark Fagnani was looking for a new challenge when he left the world of big bank lending. After 34 years at some of the industry’s largest financial institutions, including Wells Fargo Capital Finance and Wachovia, and a stint running his own advisory firm, he was ready to enter the world of small and middle-market lending.
In particular, Fagnani wanted to build a group from the ground up that would have a more entrepreneurial spirit and less bureaucracy than his previous employers. “We had gotten very large at Wachovia and certainly even larger so at Wells. I just wanted to do something a little different,” Fagnani says.
In the fall of 2013, he met with leaders at Hudson Valley Bank (HVB) and liked the direction they were heading. “Steve Brown, who’s the CEO, has a vision of the future and a vision for growing the bank,” Fagnani says. “He’s brought in new people. They have new members of the board. They’ve revamped all of their systems. So they really are somewhat state-of-the art for a small bank. And Steve was open to expanding beyond their traditional lender products to something like ABL, so it just felt like the right fit for me.”
In February, Fagnani settled into his new digs on Fifth Avenue in Manhattan — home to Hudson Valley Bank’s new ABL group, HVB Capital Credit.
In a December phone interview, Fagnani said his team, which includes Richard S. Lampack, a former colleague and finance officer at Wells Fargo Capital Finance, and Business Unit officer / product controller at Wachovia Capital Finance, and Kenneth J. Murphy, who served in a number of senior positions at financial institutions such as Transamerica Business Capital and Fleet Capital, was busy building infrastructure, evaluating new software systems and interviewing candidates for BDO and underwriter positions. In addition, the group was working with HVB’s PR arm to discuss website strategy, as well as writing policy and procedures manuals and credit rating guidelines.
“One of the things we spent a lot of time putting together is what I’m going to call an ABL pitch book, which was a 12-page presentation for the board, the credit committee, all of the Hudson Valley bankers, so they could understand the nature of our products — who we are, what we’re after,” Fagnani says. “We think there’s a lot of referral business within the bank that hasn’t been tapped, and that’s low-hanging fruit for us.” Fagnani is working to get the book in front of all of HVB branch and commercial bankers to “drive the business forward in that way together.”
Fagnani’s team is educating its credit committee on the many facets of an ABL deal and on the need for speed. “We’ve really drummed into them how important it is when you have a live prospect, get the deal approved and off the streets as quickly as possible.”
Though the ABL team was still developing its go-to-market strategy, Fagnani says it plans to attack the market on all fronts. “We’ll do some cold calling on businesses, we’ll be working the referral network each of us has. Between Rick, Ken and myself, we probably have 100 years in the industry. We know a lot of great people out there — consultants, lawyers, appraisers, other lenders, borrowers and former prospects,” he says.
The group has decided to focus on smaller private equity firms, hedge funds and BDCs, he explains: “We really can’t play in the big sponsor arena and compete with Wells, nor do we want to.”
Fagnani believes the personal relationships Hudson Valley Bank establishes with its clients provide a competitive advantage, and he plans to meld his new team’s large lender experience and the bank’s down-to-earth approach.
“We can bring our big-bank, fast-paced, very transactional-oriented experience and merge it with HVB’s high-touch approach to deal with borrowers, and make every company feel special, whether it’s a large deal or a small deal,” Fagnani says. “And one of the things I like about being in a small organization, our BDOs know they have the luxury of being able to bring myself, our chief credit officer or even our CEO to a sales meeting. I’m not sure you can really do that in every other organization.”
Getting Deals Done
Fagnani doesn’t foresee any internal obstacles to building the ABL business since everyone inside the bank is “incredibly supportive.” Externally, competitive pressures are the top obstacle to booking loans. But Fagnani is confident the team will see, and win, its share of loans: “Our senior vice president of sales, Ken Murphy, has around 30 years in the industry. He’ll be busy looking for deals. We’ve already made an offer to one BDO, and he has a good pedigree and comes with a long list of deals he’s booked in the past.”
In December, the team was looking at some syndicated deals and had even approved its first deal. “The phone has been ringing since the first announcement went out,” Fagnani says.
Instilling a get-it-done attitude is a high priority for Fagnani. “For my entire career beginning with Congress Financial and then Wachovia Capital Finance, our credo was: Don’t say ‘no,’ say ‘how.’ Our people booked so many loans so successfully, we always thought about: How do we do a deal responsibly for both the borrower and the bank? And I’ve brought that culture here.”
His past experience as a chief credit officer will help Fagnani proactively monitor portfolios to avoid problems and anticipate client needs so that “when we submit a deal for consideration, it will have a very high probability of getting approved.” In addition, Fagnani says, “I’m a little old-fashioned, I’ve been in the business some 30 odd years, and our word is our bond. When we say we’ll do something, we will do it. I hope that will differentiate us. I think my large-bank, large-deal background will be attractive to the sponsor groups. They want to be confident that we know how to get a deal closed, that we’re not a small bank doing small bank deals. And with myself and Rick Lampack, I think they can be confident that that’s exactly what they’re getting.”
Shifting ABL Market
It is a good time for working capital lenders to be entering the ABL market, Fagnani says, as the economy appears to be strengthening, sales and inventories are slowly expanding, hiring is up, and money is being spent on CAPEX.
“I think ABL in general will benefit from all that economic activity,” he says. “Loan losses are low, non-accruals are really low. Pair that with intense competition, and I believe we will see some organizations becoming increasingly aggressive with pricing and structure. I think that’s partly economic necessity, partly symptomatic of the short-term memories of some of our industry participants. Discipline sometimes takes a backseat to greed. Each market participant will have to decide where on the spectrum they want to play. I think we’ll see some very aggressive deals done in 2014 at very low rates. It’s likely we’ll probably see a few more entrants into the space. We entered the space in 2013 as did a number of other players, and that’s likely to continue.”
Eventually the market will get too crowded and someone will have to be pushed out, Fagnani says. Overall, he expects ABL volume to have relatively few defaults and workouts based on the fact that everyone he talks to tells him their portfolios are exceptionally clean.
Competing with the Big Boys
HVB’s new ABL team is banking on its flexibility and ability to respond quickly to borrowers’ needs to carve out a place in the market and make it competitive with older, more established players.
“Every bank has growth objectives and the bigger you are, the harder they become to meet,” Fagnani explains. “I think booking small loans doesn’t really move the dial for [large lenders] and so they put more of their efforts into closing large deals that have a greater impact. I don’t mean to imply that large banks won’t make loans in the small deal market. They do. But I don’t think it’s their primary area of focus. And one thing I know for sure: They’re not agile in the space because they approach the small deal the same way they approach the large deal that needs to be underwritten with care, and syndicated. This gives us an advantage because we can be nimble, so I feel like the small deal space is a space we can compete in and really be effective.”
Jill Hoffman is editor of ABF Journal.