In June, Mountain Ridge Capital ("MRC"), an asset-based commercial finance company, announced its official launch. This newest entrant into the asset-based lending community is strategically backed with equity from Arena Investors, LP. Mountain Ridge Capital is focused on originating, underwriting and managing asset-based commercial loans from $5 million to $30 million in commitment size, targeting lending to privately held family owned and private equity backed businesses requiring liquidity to support business transitions, including turnarounds, restructuring, acquisitions and changes in ownership or control.
 
ABL Advisor met with Craig Winslow, the newly named President and Chief Credit Officer of MRC and Dan Zwirn, CEO and CIO of Arena Investors to learn more about this new non-bank lender and their strategy to differentiate themselves from on the asset-based lending playing field.

ABL Advisor: Craig, please tell us a bit about the Mountain Ridge Capital asset-based lending model – more specifically targeted markets, transaction sizes, transaction structures and credit profiles.

Craig Winslow: Mountain Ridge is a middle-market ABL finance company. We're focused on originating and underwriting customized ABL revolvers and term loans within the lower-middle market. Our deal size will go as low as $5 million and up to $30 million, however we can originate and underwrite larger facilities where we can find partners to work alongside us. We'll consider most industries as we are industry agnostic. As it pertains to collateral, we will underwrite all collateral types, which I believe makes us a bit different. Accounts receivable and inventory are obviously traditional ABL collateral, but we will lend on machinery and equipment, real estate and intellectual property. In other words, any collateral with value that can be easily monetized.

We are focusing on refinances as well as event driven financing opportunities where the borrower is growing and needs working capital commitments that are above and beyond their current working capital provider’s capabilities, or when the current lender has fatigue and asked them to find a new lending partner. These situations will create many opportunities for us. These are great opportunities for us to provide fresh capital and take a new look at a borrower’s situation. Additionally, if an acquisition or divestiture is part of a transaction, we can help finance that as well.

From an underwriting perspective, we cover the entire credit spectrum. Operating and performing companies are a great fit for us, but we'll also target stressed and distressed situations where we believe the borrower has a good business model, but maybe a bad balance sheet for example. We're not afraid of restructurings, turnarounds and special situations.

ABL Advisor: Will you consider start-ups or venture deals?

Winslow: We typically want to see companies with two to three years in existence. Although, it depends on the situation. There could be companies that are sponsor owned or have a strong parent that we will evaluate. Overall, we are looking for two or three years of history so that we know we have a business model that is predictable and sustainable.

ABL Advisor: Will Mountain Ridge Capital participate in transactions that you do not originate?

Winslow: With the right partners, absolutely. There are situations that other lenders may too big for them or out of scope; or they may like the ABL revolver and not the term loan, which might be secured by real estate or M&E. Those will create great opportunities for us to participate alongside another partner. There are some lenders that can only do term loans and can't do revolvers which provides us an opportunity to fund the revolver portion of the capital structure.

ABL Advisor: Please tell us about the team you are assembling – credit, operations, business development, portfolio management, etc.

Winslow: In May we hired Katrina Buckingham (she is more commonly known as Tree Buckingham), as our EVP of Operations. She's an all-star and we were very lucky to have the opportunity to bring her on board. She was formerly with Webster Bank (Sterling Bank). Tree also worked for the company that provides our software for our back office which makes her an expert on our platform. We also hired Chris DeFabio as a Senior Collateral and Operations Analyst and he is handling all the loan administration and collateral analysis on a day-to-day basis. We have two business development officers on board including Bill Drmacich who was formerly with Ares and is located in Atlanta, and Jay Fabian who will be joining us in mid-August covering the Midwest and west region. We will be adding additional senior and junior business development professionals to cover different sections of the country. We are also hiring a senior and junior portfolio and underwriting professional. We already have a robust pipeline, most of which has been sourced from Arena-based referrals.

ABL Advisor: Are you doing business only in the U.S., only or is Canada also in your sites? Where will your headquarters be located?

Winslow: Our headquarters is in Texas. As for geographical coverage, the U.S. and Canada are all in scope. We'll lend against collateral wherever we can get a perfected security interest. Some of our borrowers may have collateral in the United Kingdom, Netherlands, or perhaps in some parts of Europe, which are senior secured lender friendly. We'll lend on collateral in all those jurisdictions.

ABL Advisor: Craig, what attracted you personally to this opportunity?

Winslow: The first 23 years of my career I was at GE Capital where I started as a field examiner. I have been in the ABL space most of my career. My first ABL role was in a highly specialized receivable financing group. I did that for eight years and then moved to lead a retail finance group, which was mainly all inventory-based finance. It was in that role that I gained a lot of turnaround experience. I was one of the final GE Capital employees to leave…or as they say in sitcoms, “turn off the lights.”

After GE Capital I worked for L Catterton for four years, which is a private equity firm based in Connecticut where I was able to view companies from an ownership perspective. That was very different as you think about security in a very different way than you do as a senior lender. With this opportunity, it’s great to get back into the ABL space. This is also a great time in my career to do something like this.

We're kind of changing the tires on the cars as we're moving, but we've got some great people and we are building a strong culture, and it's great to get back into the ABL space. I missed it for the last four years.

ABL Advisor: Dan, I'm going to come to you now. Please tell us a bit about Arena Investors – what you are focused on and your role in the company.

Dan Zwirn: Arena is approaching about $4 billion in assets and is growing. It was co-founded by me in conjunction with a public holding company in Canada called Westaim, that also has a controlling interest in a property casualty insurance company called Skyward Specialty. We are basically a multi-strategy credit and asset-oriented firm, with a wide mandate.

We have over 120 people with headquarters in New York and offices in London, San Francisco, Auckland and Melbourne. We also have a controlled special servicer named Quester Advisors out of Jacksonville with satellite offices in Dublin, Singapore and Bangalore. We are doing private transactions in 25 countries. We're equally comfortable with corporate versus real estate versus structured finance.

We've been planning for the last few years to put together something like what we have in Mountain Ridge.

ABL Advisor: What makes the middle market so attractive to Arena Investors, Dan?
 
Zwirn: What attracts us to smaller and middle market situations is the fact that we have all the resources necessary to be global and cut across all different types of collateral. But at the same time, we can operate on a case-by-case basis at a level much lower than global funding giants. Ideally, we're in a position to be makers of price, not takers of price.

ABL Advisor: Does Arena Investors also invest in other finance companies such as Mountain Ridge that are focusing on the middle market?

Zwirn: We have about 40 what we'll call joint ventures around the world. In instances where the nature of the collateral we're aggregating is more heterogeneous, we'll tend to do a joint venture of sorts. In instances where it is more homogeneous, where we can get appropriate rediscount financing and potentially create a business worth the premium to NAV, it'll be more like a company.

ABL Advisor: Middle market borrowers are facing significant challenges today including inflation, supply chain problems, rising interest rates, and much more. Why do you feel good about the middle market?

Winslow: This creates an incredible opportunity for us when you think about timing. There are significant headwinds in our economy, and everyone is looking for the silver lining, but I’m not sure there is one, yet which will impact many middle market borrowers. We are already starting to see cracks in bank portfolios. Banks are regulated so tightly that once a borrower gets to a “non-pass” status, many banks will ask borrowers to refinance them, which creates opportunities for us.

Everything we do is underwritten to a worst-case scenario and it’s all asset-based lending. We understand the value of assets and we understand what those assets are worth even if we need to sell them in a worst-case scenario. As borrowers get more and more stressed, that creates opportunities for us to provide more liquidity than they may have otherwise gotten, and to provide them more runway. But in the event things continue to decline and borrowers don't end up making it, we're comfortable because we've underwritten in such way that if we had to take possession of the assets in a worst-case scenario, we could be repaid in full.

ABL platforms have traditionally grown and done better in downturned economic cycles. When the economy is doing well and the banks are lending at lower rates with aggressive structures, it's hard for us to compete with our ABL structures. It’s an almost perfect time to create a platform like this and help these borrowers through the headwinds they are going to experience.

Zwirn:  I've been doing this a long time. In my prior business, we were the largest U.S. partner with Wells Fargo Foothill. In 2010 I was a founding investor and credit committee member at Northfield Capital, which was sold to Solar. So, I've been through many years of this. I think it's a particularly good time to begin this business and with Craig and the team, we're very excited about our ability to not only be a real competitor, but also leverage all the other resources we have at Arena.

ABL Advisor: Is there anything we left out that you would like to discuss?

Winslow: I’d add to what Dan just said because that was important. It was also an important part of my decision to come on board. There are many ABL platforms and many investors. But having the right partner is very important. Having the right partner that understands the market and understands what a lending platform is and how it operates is important.

Mountain Ridge's access to capital is a huge competitive advantage. A lot of our competitors may have very limited equity at their disposal. They may be funded by family offices for example, and they rely heavily on lender finance facilities to provide most of the capital they can lend. We will also have a lender financial facility in place, but if there's a transaction or risk appetite that we like, we have access to enormous amounts of capital to put to work in those situations. Having Arena as a partner is a huge competitive advantage for us because it's not just a partner with resources, it's really the right partner to launch a platform like this today.