When one hears the name Siena, it isn’t likely that asset-based lending is the first association one makes. Instead, the name might evoke images of the picturesque medieval city nestled in the Tuscan hills and famous for its palio, or horse racetrack, that runs through its center. David Grende, President and CEO of Siena Lending Group, could be out to change that … at least, for ABL professionals. And while Grende and his Connecticut-based team of five other executives from the former Burdale Capital Finance operation have been organized under the Siena banner since last year, it was only until late last month that its private equity sponsor, Solaia Capital, issued a press release announcing Siena’s formal launch and the completion of its developmental stage.
Grende takes a moment to explain his move from the Bank of Ireland’s U.S. asset-based lending shop to this new venture. When, as Grende puts it, the world “imploded” and the International Monetary Fund required the Irish banks to delever and in turn, divest themselves of certain assets, Bank of Ireland eventually sold its asset-based lending business to Wells Fargo Capital Finance. That sale occurred in 2012. Grende recalls, “It became clear to us that Wells mostly wanted to acquire the Burdale’s UK platform and that those of us in the U.S. stood little chance of continuing with Wells post close.”
Undaunted, Grende and his colleagues began to explore various opportunities. “One was a bank deal and the other was with a financial sponsor to launch an independent finance company. The six of us decided that we didn’t want to do another bank deal. By then, the markets had recovered and we felt things had already become hypercompetitive on the ABL side. Rates were continuing to slide down; the structures weren’t getting any better … we couldn’t get comfortable with the fact that we could build a really solid business for the bank given its credit constraints and concerns over criticized assets, FDIC surcharges and the like,” he states.
In the meantime, Grende explains the team gained greater comfort with the prospect of starting a new independent finance company executing transactions in the lower middle-market and the smaller deal-market. “When we surveyed that landscape, we discovered an almost completely underserved market,” he says.
What ensued was the launch of Sienna Lending Group with the former Burdale Capital team almost completely intact along with the aid of Solaia Capital headed by financier Michael Carrazza. It is important to note that in 2010, Carrazza rescued and recapitalized the then failing Patriot National Bancorp. Both entities are independent of one another, but Carrazza's experiences with Patriot played a key role in the development of Siena’s business model.
Grende says, “Patriot is a small community bank with more than $600 million in assets in Connecticut and part of the recapitalization strategy was to diversify its concentration in real estate assets.” That, Grende notes, was the genesis of Solaia’s interest in wanting to start an ABL business within the bank. “But it’s impossible to build institutional platform within a small bank. It's difficult for banks to afford the startup costs and talented people. Then we thought, ‘What if we engineered it outside of the bank by forming an independent finance company, service transactions and syndicate transactions for the bank?’ And the more we talked, the more our business plan and our business model evolved into what we have today,” he says.
But what is it that makes this venture a horse of a different color? Grende explains, “We have a hybrid business model. We are a direct lender in the $1 million to $20 million range of ABL transactions and we’re also the servicer for Patriot National Bank. We are in the process of expanding our servicing capabilities to other community banks."
With that, Grende notes Siena will service transactions that its bank partners originate, will syndicate transactions to its bank partners that it originates and will service the banks' piece of the those transactions. In addition, Siena will assist its bank partners to originate and market transactions and collaborate with banks on deal structures.
“In terms of the transactions, if the partner banks don’t have a credit appetite for the deal today and we do, as in the case of most commercial finance transactions, we will put it on our balance sheet and we’ll let them retain all of the peripheral banking products and services. And should the credit grade ultimately improve to one that fits the bank’s credit box, then the bank partner can take back all or any part of the deal at any point in time.”
Grende continues, “If there’s a transaction they would like to have on their balance sheet, they may want us to have some skin in the game. So we’ll take a piece of it -- again, as little or as much as they want as long as it independently fits our credit criteria. Lastly, for the transactions we originate that are better than the typical commercial finance deal … in other words, those deals that are bankable, we’ll work with our partners to generate those transactions for them and we will retain a revenue stream for servicing those transactions.
“So, we have a very wide breadth of capabilities and enjoy a dual revenue model. But the basic tenet of what we’re doing is we are lending money to small companies and smaller middle-market companies and at the same time, we’re promoting the lending of other institutions to these companies in the U.S. as well. And if you think about it, there are about 5,000 community banks and credit unions in the United States that probably have the same desire as Patriot to diversify out of real estate and into C&I. At the same time, there are many institutions that want to get into the ABL marketplace but can’t build the necessary infrastructure internally. We can help them facilitate those transactions.”
While Grende admits that it has taken some effort to develop the infrastructure to expand the bank network, the reception on the outside has been enthusiastic. “It did take a while to get all of the pieces together, particularly from a regulatory perspective to bring them to a place where they have no pause about it. Now we are already speaking with banks of all sizes that have already expressed a deep interest in what we are offering. Our plan is to add a couple more bank partners within the few months before we roll these offerings out even further.”
In terms of geographic scope, Grende explains that he and his colleagues will concentrate on opportunities in the Northeast initially. “There’s plenty of work in this part of the country, but our plan is to expand nationally ... no question about it.”
As for his take on the current asset-based lending marketplace, Grende understandably prefers to comment on the smaller middle-market end of the industry. “There’s a good amount of demand out there, but there aren’t that many players that are able to satisfy that demand in an efficient way. That’s the opportunity we see for ourselves. Sure, there are players out there, but I think the demand side of the equation is huge. That’s why we’re excited about what we have to offer -- it’s something unique. So, we're off and running.”
But before we went, I had to ask: What was the inspiration behind the Siena name? Grende chuckles, “It came easily to us. Besides Siena being an absolutely beautiful city in Tuscany that runs a horse race twice a year, we closed the deal at a restaurant not far from our offices, which is named Siena.”
Of greater importance to Grende is the company’s logo, which includes the outline of a running horse. “Our horse logo signifies strength and beautiful forward motion … that’s really what we’re all about.”