Leucadia Expected to Take an Active Role at Finova
Leibowitz, Alissa, American Banker
Finova Group Inc., a commercial finance firm that has struggled with rising loan losses and profit disappointments for more than a year, may have gotten a reprieve Monday.
Leucadia National Corp. agreed to put $350 million into the Scottsdale, Ariz., firm.
The investment would give Finova some breathing room as it attempts to negotiate new terms for $1.6 billion of debt that is to come due in May. It would also give Finova more flexibility to wind down certain businesses, including corporate finance and business credit.
Executives from Leucadia, a New York financial services holding company, were not available for comment, but observers expect it to be an active investor, perhaps going so far as to shake up Finova's management.
Finova, which specializes in financing for middle-market companies, has been under increasing pressure from creditors and investors after a string of losses and profit shortfalls.
Last year the company had to restate prior-year earnings after dropping gain-on-sale accounting. In March its long-time chief executive officer, Samuel L. Eichenfield, resigned amid concerns over credit quality. The company hired Credit Suisse First Boston to help it explore strategic options.
Earlier this month Finova hired another adviser, Jay Alix & Associates, to help create a financial plan, including the reorganization of its bank debt.
"This agreement follows due diligence by Leucadia National and is the culmination of our strategic review process," said Matt Breyne, Finova's president and chief executive officer, in a statement Monday. "We expect to work quickly with Leucadia and Jay Alix & Associates to present a comprehensive plan to our bank group."
Leucadia has a history of taking stakes in troubled companies and helping to steer them to firmer ground. It was to play fairy godmother to Reliance Group Holdings this year, pledging to inject $1.03 billion in the debt-laden New York commercial insurer. That deal fell apart during the summer, leaving Leucadia with capital to invest.
Bankers who arranged a $237.5 million loan for Reliance that came due on Friday agreed to extend the loan indefinitely, helping Reliance to avoid bankruptcy.
Analysts said they would expect Leucadia to exert its influence on Finova without taking over direct, day-to-day management.
"I think they will be more active than passive," said Blaine Frantz, an analyst at Barclays Capital. …