Encina Capital Partners is partnering with Oaktree Capital Management (NYSE: OAK) to launch an asset-based lender (ABL). Encina Business Credit is making loans to middle-market borrowers that cannot obtain traditional bank financing.
Encina Business Credit is the first significant venture of Los Angeles-based Encina Capital, which was founded in 2014 by former Oaktree senior vice president Andrew Salter to form specialized lending and leasing businesses. Los Angeles-based Oaktree has $97 billion under management.
Chicago-based Encina Business Credit is headed by Marty Battaglia, who helped build ABL businesses for PPM America and LaSalle Business Credit. The firm will provide revolving lines of credit and term loans ranging from $5 million to $25 million, and it is expected to build its loan portfolio to about $1.2 billion over time. The loans will be secured by accounts receivable, inventory, machinery, equipment and real estate.
Middle-market lenders have been expanding into the ABL arena, especially for borrowers with less-than-stellar credit, for several years . One example: Ares Management LP (NYSE: ARES), the Los Angeles asset manager, jumped into ABL in 2014 with its acquisition of commercial finance companies Keltic Financial Services LLC and Keltic Financial Partners II LP.
Increasing regulation and other factors are creating ABL opportunities with borrowers that have more difficulty getting financing from traditional lenders because of high leverage, inconsistent profits or lack of cash flow. For mergers and acquisitions, borrowers may have less difficulty obtaining asset-based financing than cash-flow loans. Encina Business Credit will lend to manufacturing, retail, automotive, oil and gas, and services companies, such as staffing businesses--companies that are working-capital intensive.
The firm is already underwriting proposed deals and is expected to close on its first loans shortly. Tron Allen in Houston is leading origination efforts in the Southwest, and Jim Kelly in St. Louis is heading origination in the Midwest. Janet Klinger, in Chicago, is vice president and operations manager.