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From Retail to Energy, Exciting Times Lie in Store for ABLs

November 19, 2014, 07:00 AM

It is an exciting time to be in the asset-based lending business for a number of reasons. There is a tremendous amount of interest in asset-based lending today and a fair amount of competition, which can make it a challenging environment in which to do business.  Second lien ABL is not easy, it’s actually hard if you are going to increase advance rates beyond traditional norms in order to win new deals. But I love what I do and following our recent partnership with BlackRock Kelso Capital Corporation and the formation of Gordon Brothers Finance Company, we have the opportunity to support senior lenders even more vigorously. It’s also a very active field to work in because of the market trends that are affecting the industries we serve — most notably in industries such as retail and energy.

On the retail side, companies, including some very well-known historical brands, are struggling to maintain relevance. Reconciling with new forms of competition and omni-channel pressures to find the right balance of online, mobile and in-store sales are the primary drivers of industry change.  Retailers of all kinds need to reassess the effectiveness (or lack thereof) of their footprints. Many of these companies are in need of liquidity in the wake of what was a lackluster 2013 holiday season. 2014 hasn’t been much better so far, with the U.S. Census Bureau reporting retail sales growth remaining between 3.5% and 4.0% year-over-year right through the back to school season, which was also viewed as below expectations.

Conditions leading into the 2014 holiday season are similar to last year, with an economy that seems to be rebounding with a more inclusive jobs picture, but lagging in consumer confidence.  This holiday season will in large part determine the future for many retailers and performance is going to be measured daily. The hard truth is there are retailers that won’t survive it.

The energy market is experiencing volatility due to a recent drop in the price of oil, reaching its lowest point since 2010. Even with infrastructure progress in the form of additional pipeline and processing capabilities, this price drop is causing a shift in production and exploration. For example, Conoco Phillips and Shell announced plans to scale back production in some of the nation’s largest oil plays, including the Permian Basin and Eagle Ford, respectively. Continued pricing compression will likely have a material impact on the viability of some operations, but with the proper knowledge, resources and partnerships, some volatility can be mitigated.

Companies in these sectors will have to rely on their own wiles to adapt, however ABL will also have a big impact on their outcomes, for better or worse. The nature of capital can determine the investment approach. With the additional resources of BlackRock Kelso Capital Corporation, Gordon Brothers Finance Company will have great flexibility to execute on new opportunities. The fact that we can now maneuver more nimbly than other lenders due to different regulatory structures makes our partnership with senior lenders particularly compelling. Additionally, we have always thought creatively about structuring and are willing to consider underleveraged or less conventional assets due to the expertise we draw from Gordon Brothers Group. In some cases, this may provide the lifeblood borrowers need to survive this challenging period in key industries.

For me personally, this is an exciting time because we now have the opportunity to participate on a greater scale. We will have access to a significant amount of permanent, patient capital. This translates into a greater ability to execute deals, pursue broader opportunities, and be profoundly helpful to our partners and their borrowers. It’s what we’ve always done — only now we’ll be able to do more of it. We believe there will be no shortage of other lenders needing pockets of capital and expertise like ours.

Patrick Dalton
President & Chief Executive Officer | Gordon Brothers Finance Company
With over 20 years of exceptional credit and investment experience, Patrick Dalton’s primary focus is maintaining and growing Gordon Brothers Finance Company. Prior to this role, Dalton was the President, Chief Operating Officer and Chief Investment Officer at Apollo Investment Corporation. His contributions were instrumental in the development and growth of the Apollo Investment Corporation which made over $8.6 billion of investments across 165 portfolio companies during his tenure. As president and chief operating officer, Dalton worked closely with the firm’s executive team on the day-to-day management of the publicly listed company including portfolio management, business and strategic planning, corporate governance, investor relations, capital structure management, staffing, portfolio valuation and fundraising. Earlier in his career, Dalton served as a vice president of Goldman Sachs & Co.’s GS Mezzanine Funds. Prior to this, he was a vice president at Chase Securities, Inc. and The Chase Manhattan Bank, N.A. Dalton holds an MBA from Columbia Business School and a BS in Finance from Boston College.
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