The Callodine Group became one of the newest entrants to the asset-based lending and private credit sector when it acquired Gordon Brothers Finance Company and rebranded it as Callodine Commercial Finance. With an experienced team in place, the new entity is looking to attack a market rife with opportunities. 

There’s always money in the banana stand, or so says the Bluth family in the TV comedy “Arrested Development.” In many ways, the asset-based lending market is the proverbial banana stand of the financing world. When a recession hits, asset-based lending is often a highly sought after solution as cash flow projections suffer and companies need more creative ways to access liquidity.

To some, the U.S. economy was already gearing up for a recession prior to the onset of the COVID-19 pandemic this year, but the pandemic only accelerated those trends, which has led to more opportunities in the ABL market. Of course, the pandemic-fueled recession isn’t the only reason for the boon in ABL, as such financing structures have become increasingly popular all on their own.

“As we enter 2021, asset-based lending has become the desired product, the desired financing for most U.S. and even global companies,” Mark Forti, managing director and head of origination at Callodine Commercial Finance, says. “Most companies realize the benefit of an asset-based financing structure. Most commercial banks, if not all commercial banks in the country, realize that they’re much better off making an asset secured loan versus an unsecured loan, and so we see the marketplace is just getting bigger and bigger each year.”

With ABL becoming an increasingly attractive segment due to the growth in opportunities, more and more companies are entering the fray. Just this year alternative investment financial technology company Yieldstreet launched its own private business credit business and more have followed since. One of the most recent entrants is the Callodine Group, an investment management firm that launched in 2018 under the guidance of founder and CEO James Morrow, a former portfolio manager at Fidelity Investments. Callodine’s strategy is built on income-oriented investments, which led it right to ABL and its acquisition of Gordon Brothers Finance Company in early November.

“ABL, in general, we view as sort of a niche but growing segment within the private credit market,” Morrow says. “It’s also part of the credit landscape where you’re able to generate outperformance and alpha via strong origination, underwriting and structuring capabilities.”

‘We Run Hard’

Part of building that broader platform was bringing on the entire team from Gordon Brothers Finance Company. This helped Callodine acquire not only a recognized name in the ABL space but the right people to help it succeed in this new frontier. In many ways the strategy was to acquire a group of experts, plug them in and let them keep doing what they’ve always done rather than trying to reconfigure an organization that was already producing at a high level.

Starting at the top, Callodine Commercial Finance is led by Gene Martin as CEO, Oz Street as COO and CFO, Forti as head of origination and David Vega as head of credit. All four have a tremendous amount of experience in the financial services world, specifically in the ABL side of the industry, and were in similar roles at Gordon Brothers Finance Company before joining Callodine.

Martin has 30 years of experience in credit and leveraged finance from roles at Shawmut Bank, Bank of America, Credit Suisse/Donaldson, Lufkin & Jenrette and Morgan Stanley. Street has a background in hedge and equity funds from time at Feingold O’Keefe Capital and Mt. Everest Fund as well as experience in accounting. Forti is similarly well decorated, having spent more than 30 years in the commercial lending space at Shawmut Bank, Fleet, Bank Boston, Bank of America and GE Capital. Vega also traces his nearly 30 years in commercial finance back to Bank of America.

The strategy of bringing in an experienced team makes sense because of the nature of ABL, which cannot be picked up in a short time.

“The technical skill required to originate and execute these deals is incredibly complex,” Martin says. “Having that team, who is well-known and well-regarded in the industry, is not only important for the underwriting analysis and structuring of investments but also the generation of investment opportunities.”

“We’re nimble. We’re very precise. And everyone on the team can sell, underwrite and manage credit,” Forti says. “We’re just lucky to have 10 or 11 folks that really are just coming together as one. And that’s the way we focus on the market — we run hard.”

Adding Muscle

Although Callodine hopes to support the new team and allow it to do what it has always done best, growing the business also will be a key imperative. Part of that will come by means of adding personnel to complement the professionals already in place.

“This is a platform that we expect to grow substantially. We will certainly look to add resources over the next six months,” Martin says. “We want to make this a destination for the best professionals in the ABL industry, and that’s certainly what we’re going to do.”

Creating that destination feel will be much easier with the expanded reach that the Callodine platform and its investment strategy will provide for Martin and company.

“Being part of a broader, more nimble platform is going to generate more investment opportunities,” Martin says. “It will dramatically broaden the funnel in terms of investment opportunities we look at.”

Callodine Commercial Finance also will benefit from having multiple financing partners, including KKR, East Asset Management and Axar Capital Management, along with BlackRock, which was Gordon Brother Finance Company’s sole financial partner.

“We see that having a multitude of benefits, and that was not possible prior to joining this platform,” Martin says, noting that there is a synergistic relationship between Callodine Commercial Finance and Callodine overall, providing more unique opportunities in business development and sourcing.

“Callodine is going to give us a broader reach and access to larger companies, larger financings, and certainly it creates a larger balance sheet for us,” Forti says. “Callodine is going to give us the polish and the muscle just to attack the market better.”

A Bigger Piece of the Pie

Martin says that structure discipline is critical in the ABL market, particularly when it comes to underwriting, so he does not anticipate any changes on that front for Callodine Commercial Finance. However, he does see there being some change in pricing, especially as the company’s expanded resources open larger deals.

“The reality is these larger transactions tend to be higher quality companies or companies that have a little more financial prowess or they’re a little more financially stable. So it lends itself to a little lower pricing,” Martin says. “The good news is with our new capital structure, we’re going to be able to meet the needs of clients at that end from a pricing perspective.”

As for where Callodine Commercial Finance plans to fit in the marketplace, Martin says it will be a partner rather than a competitor to senior lenders and banks, which is something Martin says has always been part of the company’s strategy, even when it was still under the Gordon Brothers banner.

“We are not competing with the large national banks and the regional banks, or any senior asset-based lender out there. We are an additive part of the capital structure,” Martin says. “We bring additional capital and liquidity to asset classes that most of the senior lenders either choose not to lend against or can’t lend against. And that’s where I really see the growth.”

Callodine Commercial Finance can lend against intellectual property and other alternative asset classes and provide stretch financing on working capital assets, according to Martin. Those are just some of the unique offerings the company brings to the market, and the plan is to keep expanding on those offerings to continue to capitalize on opportunities in the market and grow the business.

“This is all about growth for us, and we see a wealth of opportunities are there in this space,” Martin says. “As that ABL pie grows, we want to get our fair share of it and maybe a little bit more than our fair share.”

Phil Neuffer is managing editor of ABF Journal.