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Finance Finesse

Middle Market Lenders Gravitate to the ABLs

Mid-market lenders are looking to expand their loan offerings

Multiple middle-market lenders have been gravitating to asset-based loans (ABLs), allowing them to expand their loan offerings. Competition for making ABLs is high, which has caused interest rates on those loans to stay low and led traditional banks focus on lending to companies with good credit. But companies that lack perfect credit scores stil need ABLs.

This, according to a quarterly report from investment bank Morgan Joseph TriArtisan LLC, opens the door for non-bank ABL lenders to charge more to lend to companies with not-so-great credit.

White Plains, N.Y.-based Fifth Street Finance Corp. (Nasdaq: FSC), a middle-market lender that has been actively working to increase its loan offerings, is paying $110 million to buy Healthcare Finance Group LLC (HFG) in a deal announced on May 8. HFG, headquartered in New York, is a specialty lender that provides ABLs - loans secured by a company's inventory or assets - and term loans to health care companies.

Now if someone brings in a deal that requires an ABL component, Fifth Street has a portfolio company that can make that loan, says Juan Alva (pictured), Fifth Street partner.

HFG had financed more than $21 billion in receivables and has an outstanding loan portfolio of 57 loans valued at about $270 million when the deal was announced. In March, HFG provided a $15 million senior secured revolving line of credit to Premier Research, a contract research organization that provides clinical development services to biotechnology, pharmaceutical and medical-device companies.

"The benefit for HFG is that they have access to capital so that they can grow their business," says Alva.

The buyer generally provides revolving loans, first- and second-lien debt, mezzanine debt and equity co-investments in partnership with middle market private equity firms.

Fifth Street is not the only lender looking to expand in the ABL space. One day after Fifth Street announced the HFG acquisition, National Bank Holdings Corp. said it had formed a special unit to make asset based loans.

The Greenwood Village, Colo.-based division, called NBH Capital Finance, will focus on making loans to lower middle-market companies in Colorado, Kansas, Missouri and Texas.

"The bank is serving a whole array of customers, and we're just coming in and providing a more focused product," says Chris Randall, NBH's executive vice president.

"You've seen a lot of the specialty lending areas become attractive, because they allow organizations to focus on segments of the market that they haven't been in before," says Randall.


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