ABFJ: How did your career lead you to NXT Capital?

RR: NXT Capital is less of a destination for me than it is a continuation of the successful middle-market commercial finance businesses my colleagues and I built at Heller Financial and Merrill Lynch Capital. Most of NXT’s management team has been at all three organizations, as has much of our staff. The two decades we’ve spent building leading companies give NXT an unusually cohesive team that offers the middle market quick, reliable decisions, responsive service and seamless execution.

ABFJ: What types of financing does NXT Capital offer? How did you decide to offer these products?

RR: NXT provides structured financing solutions to middle-market companies, emerging growth companies and real estate investors through four business groups: Corporate Finance, Equipment Finance, Real Estate Finance and Venture Finance.

Our Corporate Finance group offers senior secured, stretch senior, unitranche, second lien, term loan over revolver, last-out term loans and equity co-investment financing to private equity-sponsored middle-market companies. It underwrites facilities up to $150 million and offers holds up to $50 million. Corporate Finance is recognized for leading deals — we’ve acted as a lead agent, co-agent or titled agent in more than 80% of our transactions.

Equipment Financing is NXT’s newest group. Launched in April, it fills an important need — underserved middle-market companies and larger corporations at the lower end of the credit spectrum that haven’t been able to get financing to obtain or replace essential equipment. The group provides secured term loans, tax-oriented leases, finance leases, operating leases and TRAC leases from $2 million to $20 million.

NXT’s Real Estate Finance group focuses on non-recourse first mortgages of $10 million to $50 million for multifamily, office, retail, industrial, hotel, data center and student housing properties owned by experienced real estate investors.

Our Venture Finance Group provides senior and subordinated term loans from $1 million to $20 million to later-stage, venture capital-backed businesses seeking more efficient growth capital.

These products are a natural fit for NXT — we’ve been providing some version of them to our target markets for more than 20 years. As a result, we understand what our clients need and how to deliver it very effectively.

ABFJ: What types of borrowers are a good match for NXT Capital in your Corporate Finance, Equipment Finance and Venture Finance groups?

RR: For our Corporate Finance Group, borrowers are private equity sponsors who are acquiring, recapitalizing or refinancing middle-market companies with an EBITDA of $5 million to $50 million. We’re generalists, but we do a lot of deals in healthcare, business services, niche manufacturing, distribution, software and technology. Our typical borrowers have been in business for a while. They have diversified revenue streams, stable cash-flows and experienced management teams and sponsors.

Our Equipment Finance Group serves companies with annual revenue from $200 million up to several billion that have a sub-investment grade profile and annual CAPEX requirements of $10 million-plus. The group works in a broad range of industries, including transportation; manufacturing; energy; construction; mining; healthcare; technology; distribution; food, beverage and agriculture; retail; media and communications; and business services.

NXT’s Venture Finance Group provides growth capital to later-stage venture-backed companies primarily in the technology and life sciences sectors. It looks for companies with $10 million-plus in revenue that are growing by at least 20% in rapidly expanding markets. These companies aren’t necessarily profitable because they’re investing in growth, but they have a strong business model, high quality revenue and big market opportunities.

ABFJ: What is NXT’s “brand”? What differentiates it from competitors?

RR: We provide tailored financing solutions in a flexible, responsive way from start to finish. You hear words like “flexible” and “responsive” from many companies. What sets NXT Capital apart is that we actually deliver on those promises and provide predictable, dependable transaction execution time and time again. NXT’s ability to offer quick feedback on a transaction, a reliable term sheet and a smooth close deal-after-deal is one result of our unique history. In the last 20 years, we’ve had plenty of opportunity to finely hone our process.

ABFJ: What is the source of NXT’s funding? Is it leveraged?

RR: Since NXT Capital’s founding in 2010, we’ve raised $850 million in institutional equity capital to support growth. We also maintain more than $1.6 billion in committed bank financing from 13 different lenders and have completed two CLOs totaling $650 million in funding capacity. In addition, we have an SBIC that funds many of our venture debt deals. Asset management vehicles are equally important to growing NXT Capital’s funding capacity, and complement our balance sheet with third-party capital that we use to fund deals side-by-side with our own investment. Today, these vehicles represent more than $2 billion in capacity.

ABFJ: Describe NXT’s organization and culture.

RR: NXT has almost 100 employees and a national origination footprint, but we also have a very flat organization. Senior decision-makers get involved with a deal early on and provide a quick, reliable yes or no. Culturally, NXT is fast, flexible, nimble and very team-oriented with a strong external focus. Taking care of clients and borrowers comes first. Being creative is an important part of what we do. A broad product offering helps us craft solutions for each borrower’s unique situation.

ABFJ: As a nonbank lender, how does NXT Capital compete with banks that have a lower cost of capital?

RR: We compete effectively with banks on a number of fronts. First, NXT’s credit expertise lets us underwrite transactions most banks don’t pursue. In addition, our extensive operational experience helps us run an efficient process from initial contact to closing. Second, the regulatory framework that banks operate in results in lower leverage, tighter covenant packages and higher amortization. As a commercial finance company, NXT can be more flexible on all of these.

ABFJ: How does NXT Capital find prospective borrowers? How does it go to market?

RR: We believe in the personal touch and have a network of dedicated originators who call on private equity sponsors, company management teams, real estate investors and venture capital firms. These “feet on the street” help build relationships and drive business.
Another part of our strategy is what we call “over-originating,” which means seeing as many deals as possible from a broad set of sponsors and intermediaries, or directly from the companies we serve. By continually generating strong deal flow, we improve our ability to identify quickly the deals we can do really well, then rapidly deliver reliable deal sheets and an efficient process to closing.

ABFJ: What do you want referral sources to think of when NXT Capital comes to mind?

RR: First, I want them to know about the kind of companies we serve — private equity sponsors doing middle-market transactions for companies with an EBITDA of $5 million to $50 million in our Corporate Finance Group; middle-market and larger companies on the lower end of the credit scale in our Equipment Finance Group; and later-stage venture-backed technology and life sciences companies needing efficient growth capital in our Venture Finance Group. Second, I want the market to know that NXT is very quick to review deals and provide feedback. When there’s a fit, we’re equally fast to deliver financing proposals. Last, when we get a financing mandate, we provide smooth deal execution.

ABFJ: How has NXT Capital developed since it was created? What are some of the milestones in NXT’s history of which it is most proud?

RR: NXT was launched in 2010 and has very quickly grown into a leading middle-market lender with a national footprint — we’re headquartered in Chicago and have offices in New York, Atlanta, Boston, Charlotte, Dallas, Phoenix, San Francisco and Silicon Valley. In approximately three years, we’ve closed more than 232 deals totaling over $5.3 billion in commitments (through June 2013). The speed of our growth and the scale we’ve achieved ratify our platform and vision on many levels. First, it shows that the market needs our products and appreciates how we deliver them. Second, NXT’s impressive growth demonstrates the financial and institutional community’s validation of our direct loan origination capacity and disciplined risk management practices. The institutional capital we’ve attracted has helped us achieve critical mass financially, strategically and competitively, and positioned us well going forward.

ABFJ: What are your plans for NXT Capital? Where would you like to see NXT Capital in five years?

RR: NXT Capital will continue to grow in ways that are consistent with who we are: flexible, responsive, service-oriented and committed to our clients’ success. We’ll expand in our core markets and tackle new sectors where we have substantial expertise. We’ll also continue to seek additional capital and institutional support, so we can serve more clients. This will extend our hybrid strategy of on-balance sheet and asset management financing.

In five years, NXT Capital will solidify its position as a leading middle-market lender, while becoming a diversified, high-returning commercial finance company. NXT Capital will be widely recognized for the same outstanding client focus, high standards and market leadership that characterized Heller Financial and Merrill Lynch Capital. I’m pleased to say that we’re already well on our way to reaching these milestones.

Howard Brod Brownstein is a Certified Turnaround Professional, the president of The Brownstein Corp. and a contributing editor of ABF Journal. He can be reached at [email protected].