It’s been nearly a year since Huntington Bancshares and FirstMerit Corporation merged their operations and became regional powerhouse in the provision of small- and middle-market banking services. In the process, Huntington picked up Doug Winget, who helped launch FirstMerit Bank Business Credit in 2009 and served as the President of the division.
Under Winget's leadership, FirstMerit’s asset-based lending division was ranked one of its fastest-growing commercial banking segments. It was little suprise then, that he was a natural pick to lead the newly established Huntington Business Credit. With nearly $100 billion in assets behind it and a footprint spanning eight states, Winget sees a wealth of opportunity on the horizon for the nascent division, including working with other alternative lenders to develop creative credit structures. ABL Advisor caught up with Winget, and asked him to share a glimpse of his playbook.
ABL Advisor: Since the acquisition of FirstMerit Bank in August 2016, Huntington Business Credit has emerged as one of the top domestic asset-based lending banks in the U.S. What have been the primary drivers of this success over the past year?
Doug Winget: That’s correct. Huntington Business Credit now operates with a presence in major markets in the Midwest, and East and Southeast United States. Our Huntington Business Credit team comprises a network of offices across Akron, Atlanta, Chicago, Cleveland, Detroit, Milwaukee, Nashville, Philadelphia, Pittsburgh and St. Louis. This becomes exponentially larger when considering our tie-in with the significant presence of Huntington’s broader middle-market, large corporate, private equity sponsor and other vertical industry specialty commercial banking teams across major markets throughout our now expanded eight-state geographic footprint. We’re now managing approximately $4 billion in commitments and growing, as one of the largest asset-based lenders headquartered in the Midwest.
Success this past year is a direct result of the compelling strategic fit that brought FirstMerit and Huntington together. The compatibility of our business models, our go-to-market relationship approach and our passion for community – including serving the banking needs of middle-market businesses across the Midwest for more than 150 years – have made us fundamentally stronger as one company. Our customers and colleagues acknowledge our powerful combination and value the tremendous emphasis we continue to place on relationships and team expertise.
ABL Advisor: The asset-based lending environment is described by many as “hyper-competitive.” Do you agree with this statement, and if yes, what does it take to win deals in such an environment beyond providing a low rate?
Winget: Commercial banking, in general, and the asset-based lending market, as a subset, are indeed hyper-competitive. This was compounded by the slow-growth economy in 2016. Aside from competitive pricing, the ability to generate new relationships and fully serve customers often comes down to an asset-based lender’s ability to demonstrate a thorough knowledge of a prospect’s and customer’s business and industry. Understanding their unique needs and financing goals, combined with an intelligent approach to underwriting and structuring credit, enables these businesses to accomplish their objectives.
Under the backdrop of an award-winning service organization at Huntington, acknowledged by customers through Greenwich Associates, J.D. Power and Phoenix Hecht, we’re focused on delivering a differentiated level of intelligence to businesses with experience, serving hundreds if not thousands of their peers. We also specialize in banking many of the industry sectors our customers serve and we bring that intelligence to bear as a well. So in addition to credit financings, we’re committed to providing insights and solutions that are much more far reaching in terms of helping our customers perform while also helping them manage their business risks.
ABL Advisor: Please describe the type of business your team is pursuing. What are your primary focus industries, targeted credit risk profiles, transactions sizes, and geographic scope? Have any or all of these expanded since the acquisition?
Winget: Huntington Business Credit principally focuses on the middle-market to large-corporate markets and maintains a general industry focus with a traditional asset-based lending credit-risk profile. With the more recent economic recovery, our customers have been seeking to expand and diversify. They have been making this happen by leveraging the value they have in their assets. Generally, our customers are looking for greater availability from their working capital, and to a lesser degree, their fixed assets. Our customers are primarily in the industries of wholesale, distribution, manufacturing, metals, auto, retail and some service companies. They typically find our asset-based loan structure allows for a powerful way to leverage their assets. Like most asset-based lending groups, our financings generally originate with an event, given a potential need to finance an acquisition, sales growth, a recapitalization or the stress of a cyclical downturn, while managing the credit profile risk of the company.
Of asset-intensive businesses, those with a lower ratio of earnings before interest, taxes, depreciation and amortization with higher working capital needs, are generally more likely to benefit from our asset-based structures.
Attributes of Huntington Business Credit’s credit structures generally require fewer financial covenants than a traditional commercial lending or cash-flow credit structure, but necessitate the additional collateral reporting based on the company’s accounts receivable, inventory, working capital and related materials and the requirement of cash dominion, which we accomplish through a comprehensive treasury management solution. As another differentiation between traditional middle-market commercial financings, business owners are typically not required to provide a personal guarantee. We will finance into a substantial turnaround situation, if the company has sufficient availability.
Geographically, our customers are highly concentrated in the Midwest, but also located in the Eastern and Southeast U.S. We are looking at expanding within this geography, with the addition of business development officers in new markets. To date and going forward, we have focused on direct and agency opportunities. Huntington Business Credit is the sole lender or the lead agent on the great majority of our portfolio. We have also partnered with our Huntington syndications team as the Lead Agent on syndicated transactions, which represent nearly 10 percent of our portfolio.
ABL Advisor: The lending landscape has evolved over the past five years with the emergence of numerous types of lenders entering the middle market. What challenges and/or opportunities do these new players present to Huntington as a bank lender?
Winget: The lending landscape has presented challenges to the traditional asset-based lending market, including the emergence of numerous types of lenders entering the middle market as you identified, but particularly specialty lenders and unitranche lenders. However the emergence of specialty term-debt capital providers has allowed for creative credit structure solutions. We have financed numerous transactions in conjunction with specialty debt funds, where we have provided an asset-based credit facility and behind us in the capital structure is a term lender, whether it be senior or mezzanine debt.
Huntington Business Credit has found structurally sound ways to partner with specialty term lenders (senior debt funds and mezzanine funds) to increase our financing opportunities and provide more flexible capital solutions for our customers. We’ve made it a priority to explore the best ways to optimize those partnerships to our customers’ benefit. Additionally, we have partnered with Huntington Bank’s mezzanine finance group, which has been a significant value to our customers.
ABL Advisor: Considering we are in a rising interest rate environment for the first time in almost ten years, what is your outlook for asset-based lending activity over the next 12-18 months?
Winget: For leveraged customers, rising interest rates will create stress and increase risk. A rising interest rate environment and increased market volatility will create opportunities for the asset-based lending market given this stress. Asset-based lending credit structures will be a potential solution for leveraged borrowers to manage through increased debt coverage requirements and tighter cash flows, given the more flexible nature of the credit facility structures and the reliance on collateral availability first. This will likely also create increased demand for creative debt capital structures and further the interest in asset-based lending groups that partner with specialty debt products. Cash-flow focused credit structures will become even less tolerant of leverage.
Huntington is uniquely positioned to provide a full range of risk-hedging solutions through our capital markets group, international group and insurance agency. In addition to helping customers manage interest rate risk, we’re also uniquely focused on enabling our customers to better manage any commodity volatility exposure, energy cost exposure, accounts receivables risk, domestic and international currency risk, and international business transaction risk.
ABL Advisor: Is there anything you’d like to add we didn’t cover that would shed insight into your vision for Huntington Business Credit?
Winget: Following the acquisition, Huntington Business Credit is very excited about the opportunities for the growth of our larger combined portfolio under Huntington’s asset-based platform. When you combine the experience of our professionals with the broader bank-wide industry partnership opportunities, Huntington’s growing financial strength, and the depth and breadth of our solutions, provide a distinct advantage in the middle market.