April 2011

Ever Expanding — EverBank Commercial Finance Forms Lender Finance Group

ABF Journal spent time with EverBank Commercial Finance’s chief operating officer Jeff Hilzinger and David D’Antonio, the recently appointed managing director of EverBank’s new lender finance unit. While the initial focus will be on equipment and specialty finance companies, both executives affirm this is the first of many undertakings EverBank will take on in ABL.

The evolution of the present-day EverBank Commercial Finance has been well chronicled by both ABF Journal and its sister publication, the Monitor. When one considers the fact that it all more or less began with a meeting between commercial finance icon Frederick (Rick) Wolfert and Aquiline Capital Partners’ founder Jeff Greenberg in the summer of 2007, the evolution has been a rapid one.

What followed was the largest initial capital raise in commercial finance history, the founding of Tygris Commercial Finance and a series of acquisitions that included MarCap and US Express Leasing, two middle-market equipment leasing companies. The evolution appeared to culminate when Jacksonville, FL-based EverBank acquired Tygris Commercial Finance. Therefore, since change is the only constant, it came as little surprise when EverBank Commercial Finance announced the formation of its new Lender Finance Group to be co-led by industry veterans David D’Antonio and S. Scott Gates, formerly of Diversity Capital.

From Tygris to EverBank — A ‘Truly Transformational’ Journey

I had the opportunity to speak with EverBank Commercial Finance’s chief operating officer Jeff Hilzinger and D’Antonio approximately one week before the formal announcement made industry headlines. Given the fact that EverBank’s acquisition of Tygris occurred in February 2010 with the official branding of EverBank Commercial Finance occurring the following July, I asked Hilzinger to comment on the milestones achieved since the EverBank acquisition. “It’s hard to believe that it has been a little over a year since we joined EverBank … but, the experience has been truly transformational, so I’d say it’s gone very well. Apart from the financial impact, we really feel like the cultures are compatible,” Hilzinger explains.

“And it’s a symbiotic relationship,” he continues. “The bank needs to grow assets, which is where we excel and we need low-cost funding and the bank provides that, so it’s a really nice combination. But looking forward, the exciting part is, because of these advantages, it has really widened our strategic landscape dramatically.” Reflecting on the last year, Hilzinger notes EverBank Commercial Finance has been able to move up market in its vendor finance business. He says, “We’ve expanded around our core small-ticket franchise into the mid-ticket market. We also launched an industrial finance group in late 2010 … so we’re growing and if you look at our expansion into the ABL market, it is a natural progression.”

To accommodate the expansion into new sectors, Hilzinger points to the fact that EverBank Commercial Finance elects to brand itself not as an equipment vendor finance business, but rather as a commercial finance business. That distinction makes a world of difference. “We left our name open on purpose and while we didn’t know exactly how things would unfold and what the timing would be, we always knew the strategic aim of the business was a broad one. So, just as the expansion into industrial finance brought on new capabilities in our equipment and vendor business, I think this movement into lender finance is the first of many things we’ll be doing in asset-based lending.”

As for the transformational journey, Hilzinger notes, “It’s been hard work, but not difficult or problematic. We’re now part of the bank and with that comes different compliance requirements. But in the end, that’s helping us deliver a more consistent experience to our vendors and our end-users.”

A Specific Focus … For Now

Beyond EverBank Commercial Finance’s core competency in the equipment finance business, Hilzinger says what could seem as a narrow focus of the new lender finance business makes a great deal of sense in the broader context of today’s economy. “Our view is that the ABS market itself has been permanently impacted by the credit dislocation in a way that has been detrimental for smaller issuers to access funding through that market. We really see that as part of the new normal … there have been a significant amount of accounting and regulatory changes as well as changes in the cost structure. The small- and medium-size independent specialty finance companies that came to rely on the ABS market for seven to ten years prior to the dislocation have been impacted the most.”

Hilzinger contends this has left a void in the funding landscape thereby increasing the overall demand for the lender finance product. It is perhaps ironic that many of the lender finance providers exited the market upon the emergence of the ABS market. He explains, “Those who have survived still have a need for stable funding sources and they are looking for alternatives. At the same time, there are many specialty finance companies out there that are ready to grow and they just don’t have access to the capital to be able to do that.”

As for the focus on equipment finance, Hilzinger reiterates it’s a logical jumping off point, but he anticipates EverBank Commercial Finance to move beyond equipment finance into other types of specialty finance in time. He sums up EverBank’s foray into the lender finance market as the perfect opportunity, as he puts it, “to marry the bank’s low-cost funding platform to the heart and soul of an entrepreneurial commercial finance company.” He says, “When you put it together, it’s a pretty powerful, yet rare combination in the market … it’s really a very exciting time for us.”

D’Antonio and Gates Take the Lead

To head the new venture, EverBank turned to commercial banking veterans D’Antonio and Gates. “My background is in commercial banking,” D’Antonio explains. “I ran a lender finance group at CoreStates Bank in Philadelphia that focused on transportation and equipment finance companies both nationally and internationally. It’s where I cut my teeth … both at CoreStates and at First Pennsylvania Bank.” CoreStates was eventually acquired by First Union Bank. After a year at First Union, D’Antonio ventured out on his own, forming Diversity Capital, a boutique investment firm that structured and arranged credit facilities for specialty finance companies. “I started the firm 11 years ago and in that time, we placed about $2 billion in various credit facilities. We did M&A work as well, but the market changed dramatically two years ago … and those changes constricted the delivery venues for our services.”

Firmly entrenched in the equipment finance industry and with more than 20 years of lender finance-related experience, D’Antonio was no stranger to the executives at EverBank Commercial Finance. “We met with the people at EverBank earlier this year and we found it to be a very good fit. To begin with, we share the same philosophy of conservatism. Scott and I are excited to join an institution that matches our professional style. EverBank is a very strong and profitable institution with a unique expertise.”

As for the market, D’Antonio asserts his unit’s prospective clients are in need of debt liquidity. “And it’s not just debt liquidity they need … it’s smart money and we’re going to be able to bring that to the table. But there’s another side to the equation,” he adds. “We’re going to be serving other funding institutions as well by acting as a participant or co-lender. We’ll be providing funding directly through our own efforts as well as indirectly through what we’re calling ‘the community of lenders.’ We think we can add value in both places as an intelligent source that understands the needs of the niches we serve.”

Regarding the competitive forces that offer the lender finance product, D’Antonio is quick to add, “We all have a high degree of respect for those three or four expert lending groups that service this area and we plan on working with them. It is a competitive marketplace, but we also see them as a resource … it’s less about competition and more about working to meet the needs of the market and our customers.”

Focusing on the Basics

EverBank’s lender finance group will operate out of newly leased space in Mount Laurel, NJ, down the pike from EverBank Commercial Finance’s headquarters in Parsippany and not too far from the parent’s Jacksonville, FL headquarters. D’Antonio notes, “We won’t be just a couple of guys working out of an office … we want to build a brand and operate on a nationwide level. In time, we’ll have more than just a few people here in Mount Laurel … we’ll be bringing on a chief credit officer and a number of portfolio managers as well, some best-in-class people similar to what we’ve seen from EverBank Commercial Finance. In terms of assets, we’ll be disciplined on how we grow the institution with this group.”

D’Antonio explains his customers will be those specialty finance companies that are principled with a substantial history under their belts. “There won’t be many hard and fast rules, but I will say that the common theme will be our customers’ character, their performance and their capital … it gets back to those traits I would have looked for ten or 15 years ago. That’s what we’ll focus on … the basics.”

At the end of the day, Hilzinger sees the new group as a well-timed opportunity to participate in an underserved market, a market he doesn’t take for granted. He says, “This is a serious commitment on our part. I think it’s an example of where the commercial finance industry is really playing an important role in providing capital to small- and medium-size businesses. I actually hope that we aren’t the last to re-enter this market because these specialty finance companies play such a critical role in our economy.”