Sponsored Profile: Bank of America

Bank of America, Business Credit (BABC) is a leading player in the developing European asset-based lending market established in May 1997. The team has arranged and managed facilities of over GBP250 million since inception. Headed by Paul Hancock, the leadership team includes Graham Moffitt (Portfolio), John Harrison (Marketing) and Tim Jacob (Due Diligence, Documentation and Operations).

Bank of America is a leading US bank, providing a comprehensive array of international corporate finance products for clients around the world. It is the choice of 80 per cent of Fortune “Global 500” companies, the number one in US corporate banking relationships and lending volume, with one of the most extensive distribution networks operating from offices in 37 countries and doing business in 190 countries. It employs 160,000 people worldwide.

BABC’s target customer base, as well as its business model, differ significantly from other players in the asset based lending (ABL) market. In terms of target market, BABC set out to focus upon and attract the corporate and large-mid sized marketplace. Traditionally, it was only the smaller end of the middle market that was targeted by ABL players. Established businesses with debt requirements in excess of GBP5 million are the focus, although the typical profile of a BABC client has facilities ranging between GBP15 million and GBP50 million.

In terms of business model, many players, often due to their factoring and invoice discounting roots, organise themselves as self-contained businesses, distinct from their bank parent. Typically, they have a “finder/ minder” approach to customer attraction and retention. BABC without such roots in the UK preferred to model itself more akin to the special-ised lending units of banks targeting the buyout or structured finance

market. In other words, a dedicated team of professionals market and manage new and existing portfolio clients, relying upon the support of the parent bank’s money transmission and disbursement capabilities. The team’s sole focus is upon the winning of and retention of target customers; all energies are directed at the customer and the relationship.

“Deal teams” handle new business transactions. These teams are dedicated to each transaction and will include marketing, underwriting, due diligence and account management personnel. This avoids the need for clients to be “handed-off” between the marketing function and the client management function. The new client’s management and the equity providers meet the relationship management at a very early stage in the execution of the transaction.

Relationship managers within BABC are not expected to handle more than six accounts each. The rationale for this approach is that they can develop a deep understanding of each client’s business drivers and therefore be able to quickly respond to client needs, be they acquisitions, disposals or re-organizations.

The background of the team is deliberately diverse ranging from acquisition finance to receivables and fixed asset finance. Most are either MBAs from UK or US business schools or qualified accountants.

Given the weight of money and vast range of structured and traditional finance options in the marketplace, how does asset-based lending from BABC add value?

In essence ABL from BABC provides a source of capital of a size and flexibility that may not otherwise be available to companies experiencing rapid expansion, leveraged acquisition opportunities or temporary downturns. Whereas the traditional lender and the structured finance provider, when evaluating a credit proposal, will generally look primarily to the earnings statement, BABC will look beyond this to the balance sheet. Whereas the traditional lender extends facilities to companies with a robust earnings history, lower leverage ratios and moderate credit risk, BABC will add the value of the underlying asset base into the credit evaluation process. Of course, market position, sustainability of cash-flow, management track record and earnings history are all evaluated in addition to the asset pool. However, inclusion of the assets as collateral often can generate larger facilities, especially to companies working their way through a business or economic cycle with leveraged balance sheets or uneven earnings history.

BABC offers facilities to “old economy” companies, typically manufacturers and distributors working in a wide variety of industries. These types of business have an asset base with a realisable value that can be used to secure a borrowing facility. Given the recent focus of equity towards the new economy, ABL from BABC is well suited to filling the capital needs of such businesses, particularly in a low interest environment.