When it comes to the world of asset-based lending, reports from the field can be conflicting.
A recent roundtable composed of leaders from some of the country’s top bank affiliate asset-based lenders — Bank of America, Wells Fargo, SunTrust and U.S. Bank — that appeared in the Nov/Dec 2016 issue of ABF Journal concluded that the market was flat and would remain so in 2017. They also doubted that non-bank lenders could compete with their deep pockets.
In September, Marty Battaglia, CEO of Encina Business Finance offered a different point of view. He told ABF Journal that he didn’t see banks as competition for the type of ABL deals Encina is seeking to close because of the tight regulations. “The banks can’t keep these types of deals on their books. Banks, especially community banks, don’t want to have to deal with DIP, bankruptcy and restructuring. They don’t want to put people in their community out of work,” he remarked.
Yet, despite what Battaglia called the “messiness” of the sector, community and regional banks across the country are entering the ABL world in full force. Just a few months ago, Blue Hills Community Bank in Massachusetts hired veteran ABL bankers Yvonne Kizner and Keith Broyles to start a new ABL division. New York-based Sterling Bank purchased Dallas-based NewStar Financial, acquiring CEO Michael Haddad in the bargain.
Diving into ABL
Not to be outdone, Texas Capital Bank, headquartered in Dallas with branches in the state’s five largest metropolitan areas (Austin, Fort Worth, Houston and San Antonio), has decided to become a larger player in the ABL market as it has done in equipment finance and loan syndication.
This summer, the bank hired ABL veteran Chris Capriotti from JPMorgan’s Dallas office to lead the division. Capriotti brought team members Jeff Tompkins and Olivia Pipitone with him to jump start the effort.
“Texas Capital had dipped their toe in the [ABL] water,” says Capriotti of his new home. But then the bank decided to take the full plunge by bringing this team in from JPMorgan. He laughed when asked if he thought the market was flat, adding that at Texas Capital, “it is anything but flat.”
Capriotti had spent most of his career — spanning more than 26 years — at JPMorgan and moved into ABL when the bank opened that division.
“What attracted me was the broader spectrum of deals and working on complex transactions,” he says. “It was good developmentally for me and enabled me to become a more complete banker.”
When Texas Capital came calling, the bank offered what Capriotti calls “a once in a lifetime opportunity. And I could stay here in my home town of Dallas. It was too good to pass up.”
While nothing in Texas is small, Texas Capital is definitely smaller than JPMorgan, which Capriotti says is an advantage when competing for ABL deals:
“We can be more agile and efficient than a large bank. Our mission is to help our communities grow, and we offer experienced bankers in a flat organizational structure.”
Capriotti points to the experienced bankers in other divisions that refer deals to the ABL team. He adds that the organizational structure enables his team to be more efficient when putting deals together: there are fewer people involved and the corporate ladder is not quite so tall.
“As a product group, we follow the bankers, and their relationships span the country. As the word has gotten around, we’re getting a considerable number of inbound calls from equity funds and hedge funds without doing much marketing.”
First Closing in November
Texas Capital is a “relationship-based bank,” Capriotti says, and his team is primed to take advantage of relationships the bank has already developed plus the experience of “insightful ABL bankers delivering solutions.”
Because a small ABL division was already in place, Capriotti didn’t have to start totally from scratch. He added some members, and the team hit the ground running.
“We had our first closing in November, and a couple in December,” he reports. “Our pipeline looks strong in December. The first deal was agenting a $100 million acquisition for a private equity fund in the mid-stream energy business. The second was a direct $20 million loan to a holding company to support its acquisition of a retailer.”
“We’re looking to expand, and we’re always in the market talking to people. We are not limited geographically or by industry.”
To that point, Capriotti says his group has clients coast to coast across a broad spectrum of industries including energy, consumer products, logistics and transportation.
Deals in the Pipeline
The atmosphere of uncertainty that prevailed before November’s U.S. election has increased as the country prepares for a complete changing of the guard in Washington. Would major changes in Dodd Frank have an impact on the ABL market?
“Dodd Frank is an enormous piece of legislation,” says Capriotti, pointing out that changes would have to be carefully crafted because of the intricacy involved. While he declines to make any predictions, he says that loosening the regulations could make cash flow loans more flexible and competitive within the ABL market. However, he does not seem to think that would have a major impact on his ABL deals.
“We’re seeing considerable deal flow on well-qualified ABL deals. Our target market of companies with revenues from $30 million to $100 million is very good,” he says confidently.
The bank is looking to grow, both in its product line and in its geographic outreach.
“We can compete with the best of the banks,” he says. “We’ re quick to market and provide exceptional value.”