In times of dislocation such as we now find ourselves, the more credit solutions a manager can offer the better. With that in mind, and with the opportunity to bring on two industry veterans to lead the initiative, Boston-based First Eagle Alternative Credit said it was adding asset-based lending to its $23 billion direct lending platform.
Chris Flynn, president of First Eagle Alternative Credit, told Private Debt Investor that the firm “had been trying to figure out a way to enter the $500 billion market for a number of years”, but needed to find the right team. Enter Larry Klaff and Lisa Galeota, both formerly of Gordon Brothers Finance Company, a Blackrock Capital majority-owned portfolio company. Klaff joins as a senior managing director and head of asset-based loans; Galeota as a managing director.
Expanding into asset-based lending makes strategic sense for the firm, Flynn said. “We’re trying to have more solutions for our mostly private equity clients.”
At a broad level, there are businesses facing liquidity needs for working capital, inventory, real estate, machinery and equipment and even intellectual property, which don’t have access to traditional forms of capital, but which carry pools of collateral on their balance sheet that are unencumbered, he said.
With these type of investments, “either the company rebounds, and we are repaid in the normal course, or if it doesn’t rebound, we are able to look to the specific assets for repayment”, Flynn said. “This is a very nice attribute of ABL investments – even in a stressed situation there should be a low loss given default.”
Flynn thinks these investments provide a very good risk-adjusted return and given their niche nature, differentiated dealflow.
From the outset, First Eagle will allocate capital from existing accounts, but “the firm may consider a dedicated fund in the near future”.