PE Firm's Founder Plotting Midmarket Lending Venture

By Rozens, Aleksandrs | American Banker, November 30, 2009 | Go to article overview

PE Firm's Founder Plotting Midmarket Lending Venture


Rozens, Aleksandrs, American Banker


Byline: Aleksandrs Rozens

A helicopter swooped over Brooklyn's skyline and landed at a heliport in lower Manhattan. By the time its rotors finished spinning, the passenger, Lynn Tilton was sitting in a van sipping coffee and reading her Blackberry.

Tilton, the founder and chief executive of the private-equity firm Patriarch Partners, had been checking e-mails since 6 a.m. - responses to ones she sent at 2:30 a.m. - and getting her bearings on the 73 companies her firm owns.

For someone who said she got fewer than four hours sleep the night before, Tilton seemed peppy. She was eager to talk about an undertaking that will probably constrain her sleep time even further: buying or starting a bank that would lend to midmarket companies.

The bank would provide capital to a part of the nation's economy that has little access to credit, she said. And she wants to buy nonperforming loans from the Federal Deposit Insurance Corp., which would mark a return to her roots as a player in the distressed-debt market in the 1990s. Investing in an existing bank is another possibility, she said.

"I'm taking hundreds of millions of dollars of my personal money and I'm putting that into either a bank holding company or to purchase FDIC assets," Tilton said, "because my great fear is we are not focusing on saving and rebuilding America."

If you read editorials Tilton has written, you'll get an idea why she is interested in banking; all of them bring up the lack of available loans for small and midsize businesses and what it means for the broader economy.

Tilton has even gone to Washington to talk with lawmakers and regulators about the shortage of financing for these businesses.

"We rebuilt the large banks, we got the commercial paper markets back and high-yield markets followed," she said. "The larger companies that got hit hard and lost 30% of their top line were able to find loans." But "small and midsized companies did not have the ability to find those working-capital loans."

Recent Federal Reserve Board surveys of loan officers have found that banks are pulling back their lending and the cost of credit for all businesses is still high. The central bank found that many loan officers simply don't want to take on the risk, because their existing loan portfolios have been hobbled by the economic downturn.

Complicating the situation is that $800 billion of leveraged loans come due in the next five years, and it's uncertain whether all of this debt can be refinanced.

"We have to get working-capital loans available to small and midsized businesses," Tilton said, adding that "over 80% of our work force comes from small and midsized companies, those companies that have fewer than 500 employees. Without the capital necessary to get through the period [of an economic slowdown], these companies have been pushed to death's door. When a company liquidates, you lose the industrial knowledge, you lose the technology and you lose a skilled work force. These people have nowhere to go back to when the economy picks up."

Asked about the recent bankruptcy of CIT Group Inc. …

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PE Firm's Founder Plotting Midmarket Lending Venture
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