It is Raining Cash from Alternative Lenders

By Warren Feder

We all hear about the incredible liquidity in the debt markets today, with loan volumes and structures harkening back, to and exceeding, the heady days prior to the Great Recession.  In the last week, three vignettes have popped up from discussions with lenders and lawyers that put it all in perspective.

First story: This weekend I was with a good friend of mine catching up as we walked on a gorgeous and pretty near perfect beach in Amagansett.  My friend is a partner at a major law firm and his group specializes in papering loans and doing work outs for alternative lenders, including hedge funds, BDCs, and specialty finance companies.  Although the work out part of his practice was dead, they were so busy documenting new loans for existing clients that they pretty much put their new business development efforts on hold. That is, they have so much work from a wide array of lenders that they are burning the midnight oil papering loans with no time to market for additional work.  In fact, they are actively looking to hire associates a few years out with some lending experience. (Appropriate candidates, feel free to call me and I’ll put you in touch!)

Second story:  It was announced over the past weeks that Keltic Financial was purchased by Ares Capital.  And, a few months back, Veritas Financial was purchased by Atalaya Capital after, what I understand, was a lively auction in which a number of other funds were at the table.  Now, Keltic and Veritas do asset based loans in the $2-10 million range, with many falling under $5 million, and have books under $100 million.  And the funds interested in purchasing them are managing hundreds of millions if not billions of dollars of capital.  What does it say when these large pools of capital go after these micro ABL shops?

Lastly, we are in the process of selling a company with about $30 million of sales that loses money.  They are asset rich and have no debt.  Our client asked us to shop for a one year, $2 million line to get them through the sale process.  The result: five term sheets from good firms all looking to provide a $2 million loan to a company that will be sold before the loan matures. And while some of the offers were fee heavy, others were not.

Put it all together and the conclusion: it is raining cash from alternative lenders.

Warren Feder is a partner at Carl Marks Advisory Group, LLC and a board member of ACG New York.