To wrap up 2012 and gain insight on how asset-based lenders are approaching 2013, ABL Advisor spoke with Bob Trojan, the recently appointed chief executive officer of the Commercial Finance Association, a few short weeks after the Association’s 68th Annual Convention in Phoenix. Trojan, an ABL industry veteran turned industry advocate, was pleased with the three-day gathering of more than 900 industry professionals. The excitement was still discernible in his voice. “The energy was great, it was really positive,” Trojan says. And for the most part, he notes attendees are looking optimistically to the coming year, albeit with a degree of caution.
From an industry perspective, the most recent data received from Thomson Reuters Loan Pricing Corporation indicates total issuance of ABL deals for the first nine months of 2012 is down 45% year-over-year compared with issuance in 2011. From all observations, the fourth quarter doesn’t look so promising either. So, what’s the source of the optimism, cautious though it may be?
Trojan explains, “We hear that people are doing a good amount of business these days. There’s a lot of capital out there that’s interested in the deal pipeline. And depending on the size and structure of the deal, we’re hearing there’s pressure on pricing too. Many thought opportunistic financing – like mergers and acquisitions financing – would bubble up in 2012. That didn’t play out as hoped, but there’s thought that these opportunities will present themselves in 2013.”
Pressure on pricing suggests competition. We asked Trojan if we should expect relaxed credit underwriting standards to follow. He states, “Many of the originations are happening in banks or banking institutions. Given that regulators are looking at every deal, not only ABL deals but every commercial deal, I don’t think we’ll see anything in the way of relaxed credit standards that we’ve seen historically.”
As for throwing caution to the wind, Trojan notes lenders aren’t quite ready to do that as they remain concerned about both impending and lingering issues. As of press time, the threat of the fiscal cliff has yet to be resolved and the Eurozone is still mired in economic turmoil. And of course, there’s the biggest concern of all: regulation. The implementation of components of Dodd-Frank and Basel III continue and Trojan expects lenders to face 2013 hoping for the best, and, at the same time, to remain conscious of all issues that could impact the economy in a negative way.
If the industry has concerns over regulatory measures, it follows that Trojan and his staff at the CFA do as well. “Our concern is that our members’ regulators don’t fully appreciate the benefits of asset-based lending versus other types of commercial lending … the low risk and historical low losses of our form of lending. If we’re grouped together with other commercial lenders, then the subtleties of asset-based lending are lost.”
In Trojan’s view, the subtleties of asset-based lending are of considerable importance; not to be trifled with, nor are they to be dismissed as inconsequential. “After all, what do our members do? They provide capital to small and mid-sized business that both create and sustain millions of jobs at low risk to the banking system. As we get to the full implementation of Basel III and Dodd-Frank, we have to consider what will happen if additional costs of capital are tied unnecessarily to asset-based lending. Well, that will cause the cost of capital for ABLs to increase and the flow of capital to decrease to American businesses. And that’s a concern.”
To address the concerns, Trojan and his staff have prioritized initiatives that “get the message out.” He states, “This is a big mission for 2013 … to launch our public affairs initiatives designed to increase the awareness and understanding of the leadership our industry has demonstrated in supporting American businesses.”
Trojan assures the Association is ready to cast a wide net in this regard. “We need to get that word out to regulators, to legislators and to the media … and of course, to prospective borrowers. We’ll accomplish this through enhanced advocacy and public relations as well as by optimizing our industry data collection. These actions will serve to reinforce our message and enlist our members to get this message out wherever possible.”
And why not, Trojan asks? “It’s a great message. Our members are providing capital to fuel economic growth … that’s the best message there is these days.”
On a global scale, Trojan explains that CFA is seriously involved in advocating for effective secured transactions laws in other countries by working with UNCITRAL, the United Nations Commission on International Law. “This is critical work and I’m proud to say that CFA has actively participated in the development of a number of significant UNCITRAL projects over the past 15 years. I think it's fair to say that we have been more involved in secured transactions law reform than any other U.S. financial trade association ... I’ve just returned from Vienna where I participated as a delegate representing the CFA on the current UNCITRAL project, which is the development of a guide to help countries establish and run a modern secured transactions registry."
Trojan adds, “This is exciting because we’re seeing more and more interest in cross-border lending from our members. And it’s not just from our larger members. Many of our small entrepreneurial members are looking to see how they can grow their businesses in smart ways with cross-border transactions. We see significant upside there and we’re very well positioned as a trade association to accomplish a great deal that benefits our members.” And the proof is in the pudding, so to speak. Trojan notes a 40% increase in attendance at the CFA’s International Lending Conference held in London in April of this year.
On the educational front, Trojan assures the Association took great strides this year by expanding its existing offerings and by developing and introducing two formal certification programs: one for asset-based lenders and the other for factoring professionals. “We have 27 classes that we’ll conduct this coming year, including three completely new courses: an Introduction to Syndicated ABL, a Commercial Credit School for Community Banks and Managing Client Risk.
“So if you want to be a certified asset-based lender or a certified factoring professional, you’ll now be able to do that through the CFA.”
Trojan also notes the launch of the Association’s BizCapNet, a member benefit that connects small or mid-sized companies seeking capital with lenders best suited to provide that capital based on transaction size, type or industry. “This is a great resource for both borrowers and our members alike.”
Equally exciting is the ground taken on networking opportunities the Association provides to its members. In addition to the Annual Convention and the International Lending Conference mentioned earlier, this year members had the opportunity to attend the CFA’s first ever Lenders Finance Conference. Trojan says, “Last May in Dallas, our commercial lenders had a new opportunity to connect with funding sources that support their operations. And we’re looking forward to an even more dynamic Conference in 2013.”
But as the new CEO of the asset-based lending industry’s largest trade association, chief among the many accomplishments was the success of this year’s Annual Convention. “We had a convention with 900 plus people in attendance. As things turned out, we also had a hurricane hit our part of the country two weeks before and that brought about a little bit of mayhem with things like power outages and the inability of our team to make it to the office so close to the event. Admittedly, we were all a little stressed. But all of that was invisible to our members who had a great experience and that’s because our team got the job done.”
Armed with the cautious optimism of his constituents; a strong staff and supportive board; and solid accomplishments, Trojan looks at 2013 with both optimism and conviction. He stresses his primary challenge is to get the Association’s message out and beat the drum of advocacy for the industry. “That’s really the challenge … our members are vitally important to the economy. They provide much-needed capital and the right people need to know that. Dozens of members came up to me in Phoenix to tell me how much they wanted to get involved to help the Association and its mission. I’m very encouraged by the current level of engagement as well as what the future holds in that regard … it’s all very exciting.”