The Last of the Mohicans – Article

Last of the Mohicans is a 1992 period drama film directed by Michael Mann and starring Daniel Day-Lewis. His 1757 film, set during the French and Indian War, depicts a dying native of his American tribe, the Mohicans, being dispossessed of their land among much larger tribes. The relationship with independent non-bank high-value asset-based loans (ABLs) is that they are a dying breed. The recently acquired Eclipse Business Capital (formerly Encina) may be the last truly independent non-bank platform formed for some time. The simple reason is that larger non-bank ABLs (defined by his $30 million facility size and above) are products as part of a larger platform rather than as standalone companies. While we’ll probably see the billions of incumbent asset managers form their own ABL group, it’s unlikely we’ll see another purely independent entity for some time. To be clear, this only concerns the upper end of the market and not the small ABLs where the opposite is probably true in that they require many independent groups. How the market has already changed with Ares – Ares Management, MidCap – Apollo, Wingspire – Blue Owl, Eclipse – Barings, CIT Northbridge – CIT/Allstate, White Oak Commercial Finance – White Oak Global, Siena – Benefit Street and more. Please check if there is

Putting all this into perspective, it means that the non-bank ABL market is following the bank ABL market. Over the past decade, ABL has moved from being an independent business within the bank to being a product. It’s not perfect yet, but the non-bank trend has moved in this direction and continues to do so. Leading national and regional banks now have strong platforms with product diversification such as cash flow, ABL and recurring income. Being a multi-billion asset management company, it makes sense for non-banks to follow a platform approach. Why own one product when you go to market as a platform, increase your AUM, achieve asset diversification and one-stop financing? It has the ability to provide mezzanine financing, cash flow lending and even ABL. Given the large number of credit funds and his BDC, I doubt this trend will stop. Plus, it takes a lot more capital to get his big ABL company up and running. Do you have anything else to boot? Probably yes. Is there a big trend for new large independents to launch? Probably not. Could the trend continue for asset managers to launch their own asset-based lending groups rather than acquisitions? Probably.

There is a reason bank-ABL became a product rather than an independent business. The first is market size. This means that the ABL market is small compared to other lending markets. Additionally, in large deals, ABL is rarely a stand-alone product, but rather part of a larger capital structure. Sponsor him one large sales team focused on his coverage so that a large bank can sell multiple products and offer options between cash flow or his ABL It makes perfect sense to have a The driving force for asset managers has become the same. That is, if an asset manager offers a large amount of equity or term debt in a transaction, it may make sense to manage the ABL portion as well. That’s at least the way the platform thinks. More products equals more assets and more options across the platform. So if you’re a large asset management company, it makes sense to add more products, and on the surface, ABL is an easy addition.

There are still many asset managers with strong sponsor coverage teams selling cash flow loans but not ABLs. It’s also very easy for these same groups to offer his ABL options to the same supporters. Generating deal flow is the hardest part of entering a new product line or business. There is also precedent for how the asset manager will launch his ABL group. Wingspire is the most recently observed similar company. Rather than an acquisition, Blue Owl (formerly Owl Rock) used its brand name and resources to recruit teams and launch de novo groups within its platform. Yes, the upfront investment has been substantial, but the key differentiator is to look for existing platforms rather than looking for large acquisitions that don’t exist or are costly, not to mention hyper-competitive. The list of multi-billion dollar asset managers that do direct lending but not ABL is long and includes Alliance Bernstein, TCW, Crescent, Blackstone and others. These companies could choose to start their own ABL group or move to first dollar on risk, similar to Carlyle, Pathlight and BlueTorch. What this does is defensively deter new entrants into cash flow and provide asset coverage without the need for heavy collateral monitoring and reporting that comes with ABL. The acquisition of Eclipse, the formation of Wingspire and the success of Blue Torch offer new avenues for large asset managers with existing direct lending capabilities.

The notion of true independence in large deals is less important given the consolidation that has taken place. Years ago there was an obvious need, but given the powerful platforms that exist today, is that really the case? We are simply in a new financial era and things are changing Non-banks ABLs are beginning to mirror bank ABLs from an evolutionary perspective in many ways, but not necessarily from a sales perspective. His ABLs other than banking must be able to maintain their own sales force and his P&L for a variety of reasons, but his ABLs at scale are now all part of a larger organization and this for several reasons. The first reason is that large ABLs have become more value-oriented, whether the group admits it or not. Yes, liquidation is possible, but not ideal given the size of the borrower. Second, many large ABL groups compete directly with cash flow groups, so they are essentially separate products. Third, structure and complexity require significant capital needs that are best met by being part of a very large organization. The fact that being an independent group makes it difficult for him to offer just one product is a result of several years of consolidation of the sector by asset management groups. But what is of great interest is the possibility that independent groups will form and innovate that could be stifled by existing groups now owned by large corporations.

The ending of Last of the Mohicans is significant. The good guys defeat the bad guys and declare themselves the last Mohicans. Have you seen the last of the Mohawks when it comes to independent high paying non-bank ABL? Probably not but certainly the big independents are a tribe in decline. After all being part of a bigger tribe is not that bad…or is it?