National Bank Holdings Corp.’s new specialty finance division, NBH Capital Finance, will focus on making loans to lower middle-market companies, executive vice president Chris Randall tells Mergers & Acquisitions. The lending market has shown increasing interest in the middle market and the lower middle market. The NBH announcement came on May 9, just one day after Fifth Street Finance Corp. (Nasdaq: FSC) bought an asset-based lender.
Why are new lending units, like NBH Capital, emerging in the lower middle market?
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, as a compliment to what they do. NBH Capital Finance is going to bring on some new capabilities and serve a segment of the market that is underserved. It’s a great compliment to our existing banks and the existing markets that we’re in. We’re going to be doing broad-based loans and structured loans to private equity sponsor-owned companies and to non-private equity-sponsor owned companies. Loans will have different structures, including asset-based. We’re going to be providing a pretty broad product. The bank is serving a whole array of customers, and we’re just coming in and providing a more focused product, and a compliment. It will hopefully expand the products for all of our banks.
How is NBH Capital different from other lenders?
The difference between us and the others is we’re going to be providing a pretty broad base of loans beyond the traditional asset-based loan market. We’re especially providing the private equity world with a source of capital. That market we feel, when you get into our footprint in the Midwest and west, and where we have a presence, [such as Colorado, Kansas and Missouri] is very attractive, because the deal flow and M&A activity with PE firms generally has a lot more activity and less competition than the other markets. The big centers in Chicago and New York are much more competitive, and it’s tougher on deal flow.
Will we see more lenders gravitate towards the lower middle market?
Traditional bank lenders are coming down, and the bigger banks are coming down, but it’s still tough for them to put out a smaller amount of capital for a loan. Loans below $15 million are very attractive - which is where we’ll focus. For some of the big lenders, they need something bigger.