Amalgamated Consolidates Cash-Flow, Asset-Backed Lending

Amalgamated Bank has begun to go to market with a unified financing program for buyout sponsors that includes both cash flow lending and asset-based loans, the New York labor bank plans to announce on Tuesday.

“Now I feel confident we have the underwriting and the account management capability” to serve both groups of borrowers, Robert Love, executive vice president of Amalgamated Bank and the head of Amalgamated Capital, told sister publication Buyouts. “Now when we go out to the private equity community, we can go as a one-stop shop.”

Amalgamated Capital wants to make as much as $200 million in senior commercial loan commitments in 2012, Love said. The lender, which targets lower mid-market borrowers, seeks to make loans in the $5 million to $15 million range, typically to borrowers with more than $15 million of revenue and $3 million to $12 million of EBITDA. At that level, the unit would expect to finance roughly 20 deals next year.

The consolidation of Amalgamated Capital with its sister commercial lender, Amalgamated Business Credit, began in June, when Love, the head of Amalgamated Business Credit, the asset-based lender, was given responsibility for both businesses after Timothy Clifford, who had launched Amalgamated Capital in September 2009, departed to join crosstown rival Emigrant Bank to found Abacus Capital.

Since then, Love has worked to cross-train the bank’s commercial loan experts in both types of lending, he said. “All our calling officers now have the ability to offer both and the knowledge to offer both.”

Amalgamated does little cash-flow lending other than to companies backed by financial sponsors, Love said. About 40 percent of its new asset-based originations come from sponsor-backed borrowers. Amalgamated, which was founded in 1923 to serve members of the Amalgamated Clothing Workers of America, formed Amalgamated Capital in September 2009 and Amalgamated Business Credit in July 2010 to diversify away from a heavy reliance on mortgage loans to union members, who remain the bank’s core depositor group.

Still, the bank has continued to face pressure on its capital reserves, so buyouts executives have stepped in to help. The bank announced in September that two firms, WL Ross & Co. LLC and The Yucaipa Companies, had agreed to put in around $50 million each. Once the deal closes, which is expected in fourth quarter, Yucaipa (which is led by Ron Burkle) and WL Ross will each own approximately 20% of Amalgamated’s common stock.

In the meantime, the progressive consolidation of the two commercial lending businesses, which will go to market as Amalgamated Capital, has actually served the bank well, Love said, during the credit dislocation that rocked financing markets since July in the wake of the sovereign debt crisis in the euro zone and the downgrade of U.S. government debt.

“I know that having more products allows me to get into more doors,” he said. And it has allowed the bank to keep a fair balance between the two categories of product. “It’s almost an evenly split mix right now between asset based and cash flow structures.”

Nor has the bank encountered pushback from regulators, Love said, although non-bank lenders have claimed that the government is discouraging regulated institutions from making riskier cash flow loans. The secret, especially in the lower mid-market to maintain high levels of EBITDA coverage, he said. “To the extent that you’re prudent, regulators recognize you’re doing the right thing.”

Steve Bills is a senior editor at Buyouts Magazine. Any opinions expressed here are entirely his own. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at greg.winterton@thomsonreuters.com.