In June 2017, Encina Capital Partners, LLC and an affiliate of certain funds managed by Oaktree Capital Management, L.P. together announced the launch of Encina Equipment Finance (EEF) – a new independent equipment finance company targeting non-investment grade borrowers in the U.S. and Canada. Headquartered in Danbury, CT, EEF provides loans and leases ranging in size from $5-25 million, secured by essential-use machinery & equipment, targeting both privately-owned and publicly-traded companies across a wide range of collateral types and industries.
Only 15 months earlier (March 2016), these same two investors launched Encina Business Credit (EBC), an independent asset-based lending platform targeting middle-market firms. Much like the asset-based lending unit previously established, this new equipment finance unit leadership team is comprised largely of GE Capital veterans.
From a top management perspective, EEF is led by four founding partners – Andrew Salter (Encina’s Chief Executive Officer), Jason Wolff (Encina’s Chief Investment Officer), along with William Brasser and Ron Fontana. Brasser most recently served as Co-Chief Risk Officer for GE Capital, Americas from 2005 – 2014, where he led the risk management function for a more than $50 billion portfolio across six businesses in North America (including multiple business involved in equipment lending and leasing). Prior to retiring from GE Capital in 2016, Fontana served as Senior Risk Officer, and was responsible for the risk management function at the company’s direct equipment finance business.
EEF’s founding partners are joined by three senior executives who also spent the majority of their careers at GE Capital. Rick Matte, EEF’s newly appointed President and Chief Commercial Officer, most recently served as President of Webster Capital Finance, where he was responsible for the commercial, risk management and operations functions at Webster Bank’s equipment finance subsidiary. Prior to joining Webster Bank in 2015, Matte spent 13 years at GE Capital in various commercial roles of increasing responsibility.
In addition, James Giaquinto has joined EEF as Vice President, Operations & Underwriting. Giaquinto is also a GE veteran, having spent approximately 18 years at GE Capital, where he most recently served as Global Compliance Risk Assessment & Data Analytics Leader. Finally, Shila Ray recently joined EEF as Chief Financial Officer. Ray previously spent 16 years at GE Capital, including CFO roles for GE Capital India, GE Global Electronics Solutions and GE Trailer Fleet Services as well as Global Pricing leader for GE Capital Solutions (which comprised a number of large equipment leasing businesses).
Equipment Finance Advisor sat with Salter, Brasser and Matte to learn more about this newest entrant into the equipment finance industry, their go-to-market strategy, and why the GE Capital “pedigree” is so attractive to the investors backing the platform.
Equipment Finance Advisor: Andrew, let’s start by addressing the elephant in the room. This new company is comprised of former GE Capital leaders and professionals. This same model was followed with the launch of Encina Business Credit over a year ago (with the exception of CEO Marty Battaglia, who was a veteran of LaSalle Business Credit). Why is the GE Capital “pedigree” so attractive?
Andrew Salter: While there are many terrific equipment finance platforms, we admire the way GE Capital built a direct equipment finance franchise that was focused on under-banked credits. At the same time, the attributes and qualities GE Capital represented – from a commitment to learning their customers’ business, to offering bespoke solutions and to doing so with consistency and integrity – are the same qualities we strive for at EEF. We’re proud that our team has such a strong GE pedigree.
Internally, we joke about “Bringing the Band Back Together.” I think it speaks to the value we place on company culture and serving our clients, and our goal of building a stable, enduring institution that will focus on serving our clients throughout various business and economic cycles.
Equipment Finance Advisor: What makes this the right time to enter the equipment finance market, and how will your team differentiate itself from other players serving the middle market? Will your credit underwriting strategy be a big differentiator?
Salter: While it’s certainly true that there is no shortage of capital for traditional, “plain vanilla” deals, we think there is an opportunity for a nimble, well-capitalized new entrant that is willing to underwrite all types of transactions. We do not see our group competing with regulated banks for traditional leasing opportunities with investment-grade credits. Rather, we’re the ones you want to call for deals that require a more creative structure, have a very tight timeline or face other challenges, such as companies with highly leveraged balance sheets, companies that are in transition, industries that are facing headwinds, or collateral that may be a bit unique.
William Brasser: From an underwriting perspective, our emphasis is on essential-use, revenue-producing assets that are integral to a borrower’s operations, with a defined exit strategy and appropriate credit enhancements. We will be pursuing senior secured first-lien loans and leases on new and existing equipment, and focusing on public and private companies with revenues over $50 million with highly leveraged balance sheets and/or inconsistent financial performance (positive EBITDA is not required). EEF will focus on the borrower’s collateral value and its cash-flow capabilities to ensure there is adequate liquidity and collateral coverage. In situations where EEF believes there is a high risk of liquidation, we will focus on collateral for which there is an available secondary market and observable pricing; similarly, in these situations we will avoid collateral that is unique and highly specialized for which there is a very limited set of buyers.
Equipment Finance Advisor: Rick Matte has been named EEF’s President & Chief Commercial Officer. Please explain why Rick is the best choice in your mind to lead EEF?
Salter: Rick has great hands-on experience as an equipment leasing professional, both within GE Capital and also more recently at Webster Bank. So, in addition to all the qualities you’d expect – he’s smart, experienced and an aggressive advocate for his customers – his recent experience gives him a very good understanding of what can and cannot get done in today’s regulated environment. He’s able to focus on the specific piece of the puzzle that he knows is going to be more challenging, and help his customers solve for that most difficult piece.
Equipment Finance Advisor: Rick, please tell us why you found this particular opportunity to lead and build a new equipment finance company so attractive?
Rick Matte: When I started in equipment finance things were quite a bit different than they are today. The financial crisis brought an intense level of regulation that caused the culture within lending organizations to shift dramatically. I experienced that shift gradually at GE Capital and then again during my time at Webster Bank. From my vantage point, that shift continues, which allows less creativity and encourages an “underwrite by the numbers” mentality.
When I got the initial call from Willie Brasser, it was refreshing to hear what Encina was putting together. With the exit of GE Capital and the successes of newer independents, I felt that this was the right time to jump back into a true independent finance company.
The status of the firm as an independent was one reason I joined, but the most important factor is the team that you go to battle with each day. From Ron, Willie, Jamie and Shila who I have worked with for many years to Andy and Jason whom I have only recently been exposed to, this team is a great group with a tremendous amount of domain expertise. I couldn’t be happier to be partnered up with this crew.
Equipment Finance Advisor: Please tell us about your short-term and long-term strategy and goals for EEF? Will you be building a direct origination salesforce, or focusing on the intermediary market?
Matte: Our primary objective is to build an industry leading independent equipment finance organization that is the go-to finance partner for companies in transition. We are deploying an intermediary based origination strategy versus building a large direct sales force. We feel this will allow us to build a portfolio without having to incur large setup and overhead costs. Over time, as we continue to grow the portfolio, we will add both originations and support staff to take advantage of opportunities we see in the market.
It’s also important to mention from a strategy point of view the role Encina Business Credit (EBC) will play in our efforts to grow. EBC is a sister company that focuses on lending in the non-bank ABL market; we will work closely with EBC to provide joint solutions to customers looking for an ABL as well as a term loan secured by machinery & equipment or discrete asset financing.
Equipment Finance Advisor: How will these two finance units (EBC and EEF) partner to serve lessees/borrowers seeking equipment financing? Also, please describe your leadership role as well as Jason Wolff’s, William Brasser’s and Ron Fontana’s leadership roles within EEF.
Salter: Borrowers will have the benefit of a solutions-based capital provider that will work to help the borrower optimize its balance sheet and provide a comprehensive fix – not just push a single product. Working with both EBC and EEF can reduce inter-creditor issues, and it means that the company or its intermediary can have a single point of contact and discussion.
As for the roles of our management team, both Jason and I come from a private equity background. We understand the goals of private equity firms, the investment cycle, and how capital efficiency can really impact investment returns. In addition, Jason has personally owned and operated a number of different businesses, so I think he’s particularly attuned to the needs of business owners and CEOs since he’s sat in that chair. Willie and Ron bring years of equipment leasing experience. Together we have a tight, unified team that can look at an opportunity from a number of different perspectives and arrive at a creative, effective solution.
Equipment Finance Advisor: Rick, as the President of EEF, what do you see as the keys to success in a seemingly crowded and hyper-competitive market?
Matte: There are five areas I can immediately point to where we will differentiate ourselves. Quick turnaround is the first. We are a small team that meets regularly to review transactions at the earliest of stages. We are consistently able to give quick feedback to any of our customers and intermediary relationships. Next is our ability to provide a total balance-sheet solution. In addition to meeting the fixed asset financing needs of our customers, we can also provide working capital solutions through our sister company, Encina Business Credit.
Additionally, our team’s depth of experience is vast. Both Willie and Ron have each spent a lifetime in the underwriting function. We are leveraging that expertise on the front end of our business to help drive positive outcomes for customers. We also possess the ability to work with companies in transition. As the market begins to cycle, our ability to invest creatively will only increase. Lastly, I will mention that we can provide “bespoke solutions.” Our team collectively has experience investing across asset classes and industries, and our capital base is flexible and patient. Within EEF and the larger Encina group, we have the ability to provide creative, bespoke solutions that may fall outside of what one may think of as an equipment finance transaction.
Equipment Finance Advisor: What equipment finance products will EEF offer – for example, tax leases, operating leases?
Matte: Our goal as an organization is to provide the best solution for our customers – both the end user of the lease and the advisor or intermediary who is working with them. We have the flexibility to do loans, tax leases, operating leases, and most other structures that a customer may need. In some instances, we will be providing a basic term loan to support the working capital needs of the obligor. Alternatively, we may execute a sale/leaseback structured as a tax lease because the tax lease may have a more beneficial outcome on a company’s covenants. In the end, we will work with our customers to deliver the solution that works best for them and addresses key accounting, liquidity, tax and other considerations.
Equipment Finance Advisor: What qualities will EEF be seeking in its credit underwriting team and overall risk management team? What type of experience must the underwriting team possess in order to achieve the enterprise risk management profile you have targeted?
Brasser: We require our underwriting team to possess an in-depth understanding of leasing products – meaning each team member must understand equipment values, appraisals and collateral liquidity. They must also be well versed in residual value setting, equipment remarketing and related risks, as well as possess proficiency in structuring tax leases and loans. Our underwriting team members each possess strong backgrounds in underwriting non-investment grade credits across a wide range of industries; and they are proficient in understanding all aspects of financial and cash flow statements through a number of economic cycles. Compliance is also important. Our credit underwriters must understand compliance risks and be proficient in completing appropriate Know-Your-Customer, Anti-Money Laundering, OFAC and Patriot Act reviews. In addition, bankruptcy and workout experience is highly desirable.