Colford Capital Holdings LLC announced the sale of 100% of the equity interests of North Mill Capital LLC (NMC) to Solar Senior Capital Ltd. NMC, based in Princeton, New Jersey, is an asset-based lending and commercial finance company that provides senior secured financing to U.S.-located small-to-medium-sized businesses primarily in the services, manufacturing and distribution industries. Solar Senior invested approximately $51 million in the transaction.
Founded in 2010 by its senior management team, NMC has underwritten more than $500 million of total credit facilities to approximately 150 borrowers. As of September 30, 2017, its highly diversified portfolio consists of $121 million loans to approximately 85 borrowers, with an average loan balance of approximately $1.4 million. NMC’s loans are collateralized on a first-lien basis, mostly by accounts receivable, inventory and other assets.
The acquisition further diversifies and expands Solar Senior Capital's senior secured direct lending investment channels and provides differentiated sources of growth. The addition of North Mill, with its infrastructure and experienced underwriting team, enhances Solar Senior's platform as a diversified specialty finance company focused on senior secured cash flow and asset-based lending. Solar Senior directly sources and underwrites senior secured cash flow loans to sponsor-owned upper middle market private companies, senior secured asset-backed loans to health care companies through Gemino Healthcare Finance, and now senior secured asset-backed loans to small-to-medium sized businesses in diversified industries through North Mill. Pro forma for the NMC acquisition, over 35% of SUNS' investment strategy is expected to be generated from senior secured loans collateralized by current assets with the remainder from directly originated investments in senior secured cash flow loans.
NMC is expected to distribute substantially all of its earnings to Solar Senior on a quarterly basis. Solar Senior anticipates its investment in NMC will generate a cash yield of approximately 11.0% and expects the acquisition to be immediately accretive to investment income in Q4 2017. Based on NMC's existing portfolio, it is currently anticipated that the investment would generate investment income for Solar Senior in the range of $1.4 million to $1.5 million per quarter. Pro forma for the acquisition, Solar Senior's net leverage is expected to be approximately 0.5x debt-to-equity.
"We believe this acquisition further positions us as a diversified specialty finance company, providing floating rate, senior secured cash flow and asset-based capital solutions to middle market companies. NMC, with its 100% collateralized loan portfolio across diversified industries, complements Solar Senior's healthcare asset-based lending business led by Gemino Healthcare Finance," said Bruce Spohler, Chief Operating Officer of Solar Senior. "We believe NMC's business is scalable and provides the Company with access to another differentiated middle market corporate credit platform which operates in a less competitive market focused on senior secured, collateral-based lending. NMC offers attractive risk-adjusted returns and has a low correlation to the broader non-investment grade credit markets."
"We at North Mill are excited to partner with Solar Senior Capital and the growth opportunities it provides the NMC platform," said Jeff Goldrich, President and Chief Executive Officer of NMC. "Solar Senior's stable, long-term funding will enhance North Mill's ability to provide innovative financing solutions to our clients."
Colford is also the majority owner of North Mill Equipment Finance LLC, a separate commercial equipment finance company based in Norwalk, Connecticut, which finances the purchase of business-essential equipment for small businesses throughout the United States. Colford will invest some of the NMC sale proceeds in, and continue as majority owner of, NMEF separately and independently of NMC. NMEF has 60 years of experience originating and servicing equipment leases and loans and primarily serves the transportation, construction, distribution and manufacturing industries, with a focus in heavy-duty, medium-duty and vocational trucks, as well as “yellow-iron” construction equipment. For more information, visit www.nmef.com.
David Lee, Chief Executive Officer of both Colford and NMEF, said, “The sale of NMC enables Colford to accelerate the growth of North Mill Equipment Finance and strengthen its ability to originate commercial equipment leases and loans. The demand for commercial equipment financing is growing, particularly in the market segments served by NMEF.”