In September, White Oak Commercial Finance (White Oak CF), an affiliate of White Oak Global Advisors (White Oak), announced the acquisition of Veritas Financial Partners’ (Veritas) asset-based loan portfolio. Upon making this announcement, Robert Grbic, President and CEO of White Oak Commercial Finance stated, “This transaction presented a unique opportunity for White Oak CF to expand its national presence while further diversifying our portfolio.”

White Oak Global Advisors was founded in 2007 and is an SEC-registered investment advisor and private credit firm that provides small and middle market businesses with over 20 lending products, inclusive of the business activities of its financing affiliates, including asset-based loans, term loans, invoice factoring, trade finance, equipment financing and treasury management products across the U.S., Canada and Europe. Since inception, the company, together with its financing affiliates, has invested over $8 billion of capital.

ABL Advisor met with Robert Grbic to learn more about this highly strategic acquisition, and why he believes White Oak’s strategy of taking a multi-product approach to the lending market has resulted in years of success as a specialty lender in numerous markets.

ABL Advisor: Thank you for your time Robert. White Oak has enjoyed great success since its inception in in multiple markets. Please tell our readers why the Veritas portfolio of asset-based loans was of particular interest to White Oak CF among the many players in today’s market.

Robert Grbic: The Veritas transaction represented an opportunistic purchase of well-structured and managed loans that add to our national presence and portfolio. Additionally, we have known the management team at Veritas for many years and have a great deal of respect for them. We share many core values which made the due diligence relatively easy and painless. At the end of the day, it was a great fit for our portfolio.

ABL Advisor: This was an acquisition of a portfolio, not a team correct?

Grbic: We acquired individual accounts. It turned out to also be a good opportunity to pick up a few talented people to fill existing openings in our company who we would have been looking for in the marketplace.

ABL Advisor: Veritas specializes in providing $2 million to $20 million asset-based loans for working capital, growth, recapitalizations and M&A transactions. What types of lending opportunities is White Oak CF seeking to capitalize on most as a result of this acquisition?

Grbic: I think their market focus was very similar to ours, although they underwrote deals a bit smaller than us on the lower end – they started at $2 million and we prefer to start at $5 million. There are always exceptions to those rules, but for the most part we covered the same ground. We can take larger hold positions than Veritas did. Once again, it goes back to the same business philosophy and credit underwriting they employed – meaning they looked at a company’s business model and management team. They were very good collateral lenders.

ABL Advisor: How will the companies in the Veritas portfolio benefit from White Oak CF being their lender now that you have acquired the lending relationships? As a follow up, will the full slate of products provided by White Oak be offered to these newly acquired relationships?

Grbic: We have a much larger transaction hold position versus Veritas – which had a $20 million hold position. As a result, we can accommodate borrower growth without the need to sell down our position to another lender. In addition, we can lend deeper into non-working capital assets. And, where warranted, we can also provide stretch advances for seasonal requirements. That’s the importance of understanding a borrower’s business model. There’s an entire host of products available to these borrowers now from White Oak, and we have a creative staff that looks to problem solve for our clients and capitalize on opportunities.

Also, the benefit for White Oak – in terms of being able to provide all these different products for the borrower – is client retention. If a lender has a lower hold position and can’t sell down a portion of the loan, the client will eventually look for a new financing partner. Furthermore, in some cases, if a lender can’t provide additional advances on non-working capital assets, a borrower may seek a new lender that can provide more lending capabilities. We believe our diversity of products provides us greater opportunities for longer-term relationships with borrowers because we help solve their problems by looking at their asset and capital structures, and we also understand their present and potential future needs – which we can typically meet due to our higher hold positions. This benefits both White Oak and the borrowers.

ABL Advisor: Is White Oak CF industry agnostic?

Grbic: Yes we are, and we take time to understand a borrower’s business model. We are not keen on progress billing or milestone billings unless we truly understand it, and in high tech we take a close look at what the barriers to entry may be for a borrower. But for the most part, we are industry agnostic.

ABL Advisor: Today’s lending market is considered by most to be the most competitive in history with private credit firms such as White Oak taking significant market share over the past 10 years. What do you attribute this growth in market share to? Do you anticipate this trend to continue despite the rumblings of an economic slowdown in late 2020 into 2021?

Grbic: It’s very competitive today. I believe that is partially due to the banks coming out of the great recession being put in a tighter box, plus we have a low interest rate environment with a tremendous amount of liquidity allowing lenders to lend money. I believe that today’s advent of “jump ball” competitive bidding for deals puts pressure on rates and structures. But, we do very well compared to our competition because we are creative. We look at structures that work for both White Oak and the borrower.

As for a downturn in the economy, my gut tells me there will be an economic recession. At minimum, there’s an increased mindset that there will be one, as we have been talking about this downturn for several years now; but it hasn’t happened yet. I do believe there will be a competitive shift in the market – where more marginal bank deals will find their way to the non-bank players. I think it will remain a competitive market, but I also think the risk premiums improve in that environment. I do think the banks will contract, and we are starting to see that already. We are entering uncharted waters as we have not experienced a recession in ten years, but we do think it will be an opportunity for non-bank lenders to increase their portfolios if they manage credit properly.

ABL Advisor: What are your thoughts on the market’s move toward underwriting more covenant lite loans?

Grbic: If you understand a business model, there are a couple of covenants that are important. I think many lenders default to fixed coverage and leverage ratio covenants. There are different covenants we look at in the market that are based specifically on a borrower’s business model, which we believe make greater sense than requiring a borrower to pass traditional tests. It’s very important to understand a borrower’s business model so you can develop covenants that you can test more readily, and identify possible red flags facing a business and its business model. Covenant lite loans will likely be problematic for some lenders when the market goes into a recession.

ABL Advisor: Is there a sweet spot for White Oak CF in terms of deal size and product?

Grbic: Our sweet spot is north of $10 million and as high as $50 million, and we can go significantly higher with the assistance of White Oak's other affiliates, but the market is less competitive as you go up in deal size. There are many ABL lenders that can do a $5 million to $10 million deal, few can do a $20 million deal and as you go to $30 million or $40 million, the number of lenders drops off quickly, so you are only dealing with a handful of competitors.

ABL Advisor: To clarify for readers, is White Oak CF primarily an ABL shop?

Grbic: It’s important to remember the genesis of this operation. Prior to White Oak CF entering the ABL space, it was primarily a factoring organization, and we still have a large factoring operation. We are a tier one factor, so we are doing non-recourse factoring transactions. This remains a large portion of the White Oak CF offerings. Today I would say our business is split roughly at 50/50 between factoring and the ABL business. The factoring side is a core part of our operation and it is also is an underlying strength of our ABL operation. Few other lenders have in their businesses. This gives us a great amount of flexibility in being to offer clients higher advance rates on receivables because we understand the receivables more deeply.