In early March, the industry learned of the formation of Stonebriar Commercial Finance backed by Topeka, Kansas-based Security Benefit Corporation (Security Benefit).
The launch of Stonebriar marks the return of industry professionals from financial services giants the likes of AIG and GE Capital and includes Dave Fate, Paul Bossidy and Steve White who serve in their capacities as president, chairman of the board and senior managing director respectively. Equipment Finance Advisor caught up with Fate, who shared his vision for this new provider of commercial loans and leases to underserved markets across the credit spectrum. With a powerful backer and a highly experienced team of professionals in place, the future is bright and filled with opportunity … exactly as Fate would have it.
Putting Stonebriar Together
We asked Stonebriar’s president to share how the entity came together. Fate recalls, “Things have fallen into place so quickly, that it’s been a bit of a blur. As you know, nine of us left AIG in March of 2014 as AIG continued to merge our business based in Plano, Texas into the private placement group in Houston. Almost immediately, we began to explore our options.”
For Fate, who is now in his 50s, the changes at his previous employer brought on by its continued move to focus primarily on its insurance businesses signaled a new era of opportunity. He states, “I’ve been in this business for 30 years. I have seen all facets of our industry operating through multiple economic cycles. So it was natural that during the months following my departure from AIG, I spent as much time thinking about what I did not want to do as I did thinking about what I might want to do in the future and particularly in this current market. I knew I did not want a job, per se; I was looking for an opportunity to assemble a world-class team and start something that would meet a need in the market. I love the finance and leasing business. The thought of an opportunity for another start-up was invigorating!”
His assessment of the commercial finance marketplace led to the rationale for a new player in the space. It also led to an interesting analogy explaining the current environment. “I like to think of the market opportunity this way,” he explains. “It’s like a barbell. One side is the lower end of the credit spectrum -- single ‘B’-rated credits that take very precise expertise to properly underwrite. On the other side of the bar are large, long-term corporate investment grade credits. The bar represents the spectrum of a tightly defined credit box in a highly regulated world. As you move away from lower end of the credit spectrum, the pricing becomes very tight because there are many more lenders, especially the regulated banks and other institutions, competing for deals in that space."
Fate explains, “Equipment finance is a $1.5 trillion annual market. Maybe one-third of that market is represented by cash purchases and the rest is financed or leased. With only a handful of non-bank-regulated lenders left in the single ‘B’ credit market funding transactions in the $5 million to $25 million+/- range, I see major opportunity there. The market conditions in that space are better today than I’ve seen in my 30 years in this business. So serving this market became an important part of our investment rationale.
The other end, he says, “Are longer-term opportunities in the large corporate market. They are Triple ‘B’ credits and above, and range from $50 million to $200 million with 10 to 30-plus year terms. Both ends of the barbell are very strong markets and we intend to strongly compete for business in both markets with our target deals ranging from $10 million to $200 million+/- across the credit spectrum.”
Pitching the Vision
With the help of a seasoned strategic advisor, Andy Salter, founder of Encina Capital Partners, Fate and his team began the search for a strong partner for the business. “Andy introduced us to a host of individuals who wanted to support our platform. He also introduced us to Paul Bossidy who ran GE Capital Solutions for a while. In fact, Paul was in charge when GE Capital bought our Transamerica Equipment Finance business.”
Over a four hour dinner, Salter, Fate, Bossidy and White, discussed the market opportunity and as Fate explains, “The rest just clicked.”
By the end of last November, Fate had been involved in some 30 high profile meetings. “These potential investors really understood our vision and unique opportunity to partner with the seasoned team we had assembled. They loved the team’s experience and history of success. After all, we had done this a few times; our first start up was for Transamerica. That equipment finance business was built out to more than $3 billion. When GE Capital bought that portfolio, we did the same thing for AIG with AIG Commercial Equipment Finance.
By February, the response from private equity firms, asset management firms, and family offices had been very positive. Choosing the right equity partner among a group of very qualified investors was a first class problem. “They were all strong and viable candidates as a financial partner for our vision.” Ultimately, Stonebriar leadership chose Security Benefit, an insurance holding company. “The quality of Security Benefit’s capital was very appealing to me. I wanted that patient long-term capital that we would be able to count on for ten-years plus. In terms of backers, I think we came out with exactly what we hoped for -- a like-minded and strong financial partner who will help us build a world class organization. They have been great to work with. SBC is a large organization with a lot of capital to deploy. That’s why I feel so good about this match.”
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Of ‘Fallen Angels and Hidden Gems’ -- Diversification is Key
Primarily, Fate and his team want the marketplace to understand that this endeavor is a diversified commercial finance company versus a monoline specialist. “We are interested in every industry sector and asset class and we have people on board who understand all of the nuances of each asset class. For example, the regulated institutions may be not as eager to lend into sectors such as energy and coal in the current market, but we see great opportunities there. Admittedly, Fate notes that one should proceed with caution in a sector like energy which can be volatile, but there are fallen angels and the hidden gems that when structured and priced properly are solid investments in the current market. “We can also compete for larger, stronger credits and we have the backing to make big plays in that market.”
In addition, Fate notes that organizationally, Stonebriar is designed to be quick on its feet. He states, “We are a private and unregulated entity and that’s the key. We can sift through the details of a transaction quickly. We have a defined set of policies and procedures that have been developed from the best practices we have established over the past 25 years. We are very deliberate in following the practices and procedures that have made us successful at what we do, but our processes are efficient and effective.”
Assembling the Team
Assembling (and to a large degree reassembling) the team has been one of the most gratifying experiences for Fate thus far. Joining Fate at Stonebriar for yet another run are Tim Milazzo as CFO; Andy Fletcher as general counsel; Jeff Wilkison as the chief risk officer supported by Dirk Stock; and Mark Gibson working alongside Steve White in capital markets. Since the March 11 announcement, Stonebriar has added Kevin Sensenbrenner as its asset manager, Tom Linebarger as Director of Originations in the Midwest and Carrie Stovall as office manager. “We will round out our team with a few more key hires in 2015 and beyond.”
A newcomer to this cohesive team is decidedly no newcomer to commercial finance. Steve White, an industry veteran from GE Capital, joins Stonebriar as a senior managing director. Fate shares, “I’ve known Steve for quite some time. He’s a high energy guy with many connections in the ELFA community as well as Wall Street money center institutions. Steve will maintain his office on the East coast for easy access to many important strategic partners.
And of course, there’s Paul Bossidy. Fate recalls, “Paul understood our value proposition from the very beginning. He said, ‘Dave, I think you’re spot on here. This is an underserved market and I’ve checked out your team. I think I can help.’” Bossidy, who today serves as Stonebriar’s board chairman, was as good as his word. In the period that followed, he was instrumental in arranging important connections with an impressive list of potential investors. Fate says, Bossidy's guidance has been and will continue to be invaluable in Stonebriar’s success.
Off to a Strong Start and Looking Ahead
With fewer than three months since opening its doors for business, Fate is confident he and his team have hit their intended mark. “We’ve seen a lot of interest from potential customers in a wide variety of industries and asset types. In terms of concentrations, we are for the time being, essentially at zero … no concentration on any one credit or in any one industry. We have the skill set in place to proceed intelligently and on our own terms … we intend to be patient. We are not in a hurry to build our book. We will evaluate each opportunity we see and choose those that meet our criteria.”
With that in mind, Fate shares that he and the Stonebriar team aspire to close up to $300 million of new business volume in 2015. “I think that’s achievable. We have already funded our first three deals in May in the rail, franchise and manufacturing industries … so we’re off to a good start.”
Looking ahead, Fate sees 2016 as the year in which Stonebriar undertakes building out its direct originations team with professionals located in key markets across the U.S., Canada and select foreign jurisdictions.