Monroe Capital Gives Backing To Health Lender

  • MC Healthcare Finance to target smaller deals
  • Monroe’s latest expansion since credit crisis
  • Lender to partner with community banks

The startup, MC Healthcare Finance LLC, plans to target medical companies with borrowing needs of less than $10 million.

James Irwin, the president of San Diego-based MC Healthcare Finance, said Monroe Capital will provide not only capital to the fledgling firm, but also access to deal flow through its extensive relationships in the mid-market.

“They have incredible market reach and cachet. They’re a known name. They provide a strong underpinning for the growth of this company,” Irwin told Buyouts. “We have the potential with Monroe to build this to be a powerhouse health care finance company.”

Monroe Capital, which provides senior secured and junior debt to mid-market companies, has been expanding its specialty finance business since the economic recovery began following the financial crisis. This year alone, it has expanded from its Chicago base by opening an office in New York. It also staged an IPO for a business development company to focus on smaller borrowers.

MC Healthcare Finance has backing from a second investor, HSP Group, a low-profile family office in La Jolla, Calif. that has invested in other specialty finance companies, Irwin said. The new lender expects to originate its first loan by early December, he added.

The medical lending initiative comes as the health care industry faces new legal and regulatory challenges, at a time of credit market volatility and demographic change, said Theodore L. Koenig, the president and chief executive officer of Monroe Capital. “Obamacare will provide many challenges to grass roots providers of health care services and those companies that provide goods and services to them,” Koenig said in a press release. “Through MC Healthcare, we will provide these companies with a complete range of value-added ABL credit solutions to meet their financing needs and successfully navigate today’s challenging economic environment.”

MC Healthcare Finance said it plans to finance all segments of the health care industry, including hospitals, nursing homes, home health service providers, durable medical equipment manufacturers, pharmaceutical laboratories, laboratory testing companies, physician practices, psychological and substance abuse facilities. It will provide loans of $1 million to $10 million and can participate with other lenders in syndicates on larger loans. Irwin said the company anticipates making 25 such loans in its first year, typically to be secured by accounts receivables.

Irwin, who previously founded another specialty lender, Meridian Healthcare Finance, which he sold in 2007, decided about two years ago to return to the field in the wake of the financial crisis, which has led to a consolidation in the community banking market and a contraction of health care credit. “There was a dearth of lenders out there. The credit market meltdown had taken out virtually all of the specialty finance companies that were focused on health care,” he said. “At the same time there was tremendous demand from health care providers, increasing demand.”

Obamacare, the health reform law formally known as the Affordable Care Act, not only imposes tighter regulatory requirements but also business-process changes, such as computerized patient records, while at the same time expanding the pool of potential patients by as many as 23 million to 30 million Americans, Irwin said. Apart from the legal environment, an aging population is driving business growth in the industry, while technological advances have prompted practitioners to invest in more sophisticated, but often expensive, medical equipment.

Most existing health care specialists, including CapitalSource and MidCap Financial, tend to focus on bigger transactions, while the withdrawal of community banks from health care lending leaves such lenders with little expertise to underwrite loans in the specialized market, Irwin said. “We are designed to fill the role that community banks used to fill,” he said, noting that large swathes of the industry remain highly fragmented and local. “The vast majority of health care providers fall beneath that $10 million mark.”

Indeed, MC Healthcare Finance plans to use community banks to generate dealflow, rather than trying to market itself to providers directly, Irwin said. “We’re building an infrastructure that will allow us to provide a full menu of services to community banks,” from origination to servicing health care loans.