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Encina Business Credit Takes on the Non-bankable Middle Market

Date: Apr 06, 2016 @ 07:00 AM
Filed Under: Company Profile

In mid-March, Encina Capital Partners, an investment firm focused on specialized lending and leasing platforms, and an affiliate of certain funds managed by Oaktree Capital Management, L.P. (“Oaktree”) announced the launch of Encina Business Credit, LLC (“EBC”), a new independent asset-based lending platform targeting middle-market borrowers in the U.S. and Canada. Encina Business Credit’s leader is Marty Battaglia, a 30-year industry veteran who has been instrumental in building highly successful asset-based lending platforms at PPM America and LaSalle Business Credit.

Joining Battaglia in directing this group is a powerhouse strategic leadership team including Andrew Salter, the CEO of Encina Capital Partners and newly named Chairman of EBC, and two former officers from General Electric Company – Paul Bossidy and William Brasser. Bossidy is the former CEO of GE Commercial Equipment Finance, which was the world’s largest equipment finance company with approximately $100 billion in assets, and Brasser was previously the Chief Risk Officer of GE Capital, Americas, where he served as co-head of the credit and risk function for a $90 billion portfolio in North America. Both Bossidy and Brasser are senior advisors to Encina Capital and board members at EBC. Rounding out this leadership team is Jason Wolff – chief investment officer of Encina Capital Partners and former hedge fund executive from The Baupost Group – who will also serve on the board.

ABL Advisor caught up with Marty Battaglia, Andrew Salter, Paul Bossidy and William Brasser to learn more about this team’s vision for this independent asset-based lender focusing on “non-bankable” middle-market companies.

“You can observe a lot by just watching” – Yogi Berra

As the economy continues to expand, so does demand for creative asset-based lending products. On the flip side, increasing demand spurs competition, and the lending environment is fiercely competitive today. We asked Andrew Salter to share his insights into the timing behind the launch of this group. Salter explains, “As we spoke to potential borrowers and intermediaries in the space and watched the lending landscape evolve over the past year, it became increasingly clear there is demand in the market for a well-capitalized, consultative, non-bank asset-based lender that can take a flexible approach to providing borrowers with customized liquidity solutions. As banks have become more rigid in underwriting transactions, a large group of borrowers has surfaced that cannot obtain bank financing. That 'non-bankable' segment of the marketplace needs a well-capitalized and unregulated lender focused on working closely with prospective borrowers to meet their needs. Encina Capital Partners and Oaktree together will provide the financing to scale this platform and meet this need in the market. This isn’t a bet on timing in the cycle; rather, it’s matching the need for an unregulated lender with the availability of a very talented management team to execute this vision.”

This talented team is led by Marty Battaglia, a seasoned veteran of the asset-based lending industry; and Salter couldn’t be happier with EBC’s choice in its leader, adding, “Marty came very highly recommended by people in the business I hold in high regard.  Marty came up through the risk side of the business and is an exceptional risk manager with very strong structuring skills. He’s highly adept at working with sales teams on the front-end of the process to create solutions that meet the needs of customers.”

While Battaglia came up through the risk side of the business, Salter says he also possesses very strong abilities to build a high-octane sales team and scale platforms. That combination of a strong risk DNA combined with Battaglia’s acumen on the commercial side to scale the origination side of the platform is what made him a perfect choice to lead this team according to Salter, who added, “Marty also possesses an extraordinary understanding of collateral and when you understand collateral, you can create unique solutions for customers.”

Battaglia brings a wealth of experience and knowledge to this role, having learned the ABL business from the ground up – from operations, to new business development, to managing offices. He’s also led the retooling of floundering ABL businesses in the past, successfully completed portfolio acquisitions and been the driver of new platform extensions. Battaglia is also highly experienced in providing first- and second-lien structures and CLO structuring for ABL deals, which he did at both PPM and LaSalle. Additionally, he has successfully closed a significant amount of business in the Canadian market.

Experienced Capital Support

Photo of Martin Battaglia - Chief Executive Officer - Encina Business Credit

Battaglia echoes Salter’s enthusiasm for this segment of the market and feels he and EBC’s senior team are well matched. “Andy and I originally connected in early 2015 and I quickly found we were very like-minded in regards to the ABL platform type and approach needed in the market. From our discussions, we realized we have all the right elements to make this venture successful,” said Battaglia who continues, “One of the most critical elements of this venture for me was finding the right partners – including the right capital partners. I’ve been down this path in the past and one of the things that has become very clear to me is that you need to have strong corporate governance, with like-minded people who understand the group’s focus. You also need supportive and experienced capital partners – such as Oaktree and Encina Capital Partners. They understand the type of transaction structures we will be offering and the nature of the type of businesses we will be pursuing. Many of the companies we will finance will be struggling, and this is not for the faint of heart. So we spent a lot of time with the board members and Oaktree walking through illustrative transactions in order to provide them with an understanding of the business we will be pursuing, how we will run this business, how we get comfortable with transactions, and our track record of success. Our capital partners understand this clearly and are 100% behind us.”

Salter is also very confident in Oaktree as an investment partner stating, “Oaktree is an investment partner that will be with us through strong and weak economic environments. This is important, as the need for the types of liquidity solutions we will be providing is going to increase with economic volatility. We have an investment partner that stands ready to deploy capital in all types of economic conditions.”

Collateral is King … and so is Talent

Financing “non-bankable” customers with borrowing needs between $5 million to $50 million covering a wide spectrum of industries is EBC’s focus. And, for this group, collateral is truly king. Battaglia explains this lending strategy, “First and foremost, this group’s focus is on collateral – more specifically receivables and inventory. Having said this, we will include facilities to finance term assets such as machinery and equipment as well as real estate. We start with knowing our prospective borrower’s collateral, understanding the valuations, and then we migrate to learn more about the history of the company and its cash flow. We are not really concerned about positive cash flow. We will evaluate situations and understand companies go through transitions and experience issues for any number of reasons. We will evaluate each situation separately and determine the appropriate level of liquidity required to execute their plan and work through the challenges they are facing.”

Encina Business Credit is focused primarily on sourcing transactions on a direct basis with a team of seasoned loan originators strategically positioned throughout the U.S. The team will also participate in selected “club deals.” The day-to-day operations and portfolio management are centralized in Chicago with a number of key hires already onboard.  Unlike many traditional lenders, credit underwriting professionals will be placed nationally alongside the loan originators. Battaglia views credit underwriting as having a much closer link to marketing. “There are cultural differences in parts of the country, and it makes more sense from our perspective to place the underwriting function in the field with our core marketing hubs,” explains Battaglia.

Finding and hiring talent for this type of market can be challenging, so we asked what qualities and skills EBC looks for when hiring. “We are looking for people who understand collateral and understand how to administer loans for companies undergoing transitions in terms of cash flow or other challenges. We’re looking for the person who’s been around the block and takes a consultative approach to lending. Our originators and underwriters must be capable of putting themselves in the borrower’s shoes.”

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