In a battle for the lead listing in the leveraged lending Yellow Pages, Timothy Clifford has left Amalgamated Bank of New York, where he began building the Amalgamated Capital business in 2009, to move to crosstown rival Emigrant Bank, where he will attempt to replicate the process under the shingle of Abacus Finance.
Meanwhile, Amalgamated has appointed Robert Love, the head of year-old Amalgamated Business Credit, to take on Clifford’s responsibilities at Amalgamated Capital along with his existing duties.
The moves are the latest sign of reviving lender interest in the lower mid-market, which observers say has long been starved for financing in comparison to larger deals. At the same time, however, some observers warn that demand for leveraged finance is likely to outrun its supply as the market slowly recovers from the credit crisis of 2008 and 2009.
In some ways, the two banks are quite similar. Both are regional New York institutions with a historic reliance on residential mortgage finance that sought diversification through leveraged lending. Emigrant, the flagship of an $11.9 billion-asset company and led by the real estate developer Howard Milstein, has its roots in the 19th century serving Irish immigrants fleeing the potato famine. The $4.5 billion-asset Amalgamated, which calls itself “America’s labor bank,” was founded in 1923 to serve union members.
Clifford said that Emigrant, with twice the asset base, would provide greater opportunity for leveraged lending. “We were deploying a lot of capital, but it’s a very capital- intensive business,” Clifford said. “The more success you have, the more capital it takes.”
The structure of the Emigrant organization also will give Clifford more flexibility to pursue alternative business strategies, he said. At Amalgamated, the leveraged lending business was a division of the bank itself, with the constraints of being part of a regulated institution. Abacus Finance, by contrast, is not part of Emigrant bank but is instead a non-bank affiliate under the umbrella of Emigrant’s parent holding company, New York Private Bank & Trust Corp.
As a result, Abacus Finance will be able to take larger hold positions in the loans it finances and will be able to offer subordinated debt, Clifford said. It also will be able to make some selective co-investments in the companies it finances and to make LP commitments to sponsors it works with.
Abacus Finance could develop a specialized lending vehicle like a small business investment company at some point, Clifford said. “At Amalgamated, we didn’t have the opportunities to set up those additional product lines.”
Abacus Finance will have $100 million to $125 million to deploy per year in companies with $3 million to $15 million of EBITDA and at least $15 million of revenue, he said. The firm is looking for borrowers with double digit EBITDA margins, typically with sponsor backing.
“We’re not trying to be everything to everybody,” he said. “We’re calling on private equity sponsors across the country for refinancing of their portfolio companies, add-on financing, buyouts and recapitalization of their portfolio companies. There’s still a wonderful opportunity to do that in this part of the market.”
In response to Clifford’s departure, Amalgamated Bank named as his replacement Love, who had joined the bank last July to form Amalgamated Business Credit as its commercial asset-based lending arm. Now both Amalgamated Capital, the cash-flow lending business, and Amalgamated Business Credit will be under a single management.
“The combination of the two groups is going to be good,” Love said.
Amalgamated Business Credit did its first deal in October and has made $100 million in commitments since then, Love said. About 40 percent of the asset-backed lending business comes from sponsor-backed companies.
Both the asset-backed and the cash-flow businesses focus on the lower mid-market, borrowers with more than $15 million of revenue and $3 million to $12 million of EBITDA, although the asset-backed side probably can go smaller, Love said. “When a company doesn’t fit for a cash-flow loan, we can provide the asset-backed product or a hybrid to meet the specific needs of the sponsor.”
A larger rival welcomed the arrival of new competitors to the market, but he expressed concern that a dearth of lending capacity threatens to smother business opportunities in the mid-market.
“There’s a dramatic lack of senior debt capital,” said L. Thomas Gregory, a co-founder and managing director of the Chicago leveraged lender
In a report in April, Maranon described a $185 billion gap between mid-market financing needs and sources from now until 2015. Lending capacity was dramatically winnowed during the financial crisis, and much uncertainty remains regarding the future of collateralized loan obligations, Gregory said. “All of these lenders with tens to hundreds to $150 million of capital, in a market where we think $200 billion of capital is needed, it barely put a dent in the amount needed.”