Pictured: Gene Martin and Mark Forti

On November 5, Callodine Group, an asset management firm focused on yield-oriented investment strategies, announced it had entered into a definitive agreement to acquire the loan portfolio and assume the employees and operating costs of Gordon Brothers Finance Company, LLC (GBFC). In connection with the closing of the transaction, GBFC has changed its name to Callodine Commercial Finance (CCF). Led by CEO Gene Martin, and the current investment team, CCF will be the successor firm to Gordon Brothers Finance Company, LLC. Callodine’s acquisition represents approximately $400 million in assets and is being funded in part by new strategic financing from KKR, East Asset Management and Axar Capital Management. BlackRock Capital Investment Corporation (“BCIC”), the most recent majority owner of the business, will also remain a financial partner to CCF. TSL Express' senior editor spoke with Gene Martin and Mark Forti at Callodine Commercial Finance about opportunities in the asset-based lending space and what lies ahead.

TSL: Gene and Mark, please provide our readers with an overview of your background.

Gene Martin:  My background is a little different. I was in leveraged finance for 25 years.  Most recently, I was co-head of Global Leverage and Acquisition Finance for Morgan Stanley. I was at MS for 10 years and sat on the firm’s credit committee and ran the High Yield Underwriting Committee. I was also part of the management committee in capital markets. I left Morgan Stanley in ’13 and was very intrigued by what was going on in private credit.  I was looking to do something in private credit, and had a long relationship with BlackRock, the previous owner of the business, and they contacted me in early ’16 to ask me to run the former GBFC.  So, I’ve been at the predecessor of Callodine Commercial Finance since early 2016 and it has been a lot of fun working in this business.

I started my career at Shawmut Bank way back in 1990 and did some asset-based lending, believe it or not, back then.  So it was a product I was familiar with, but I had spent most of my career in leveraged finance, running and building those businesses in a couple of the investment banks, Donaldson, Lufkin & Jenrette Credit Suisse, and then Morgan Stanley.

Mark Forti: I started in the industry in 1987, with the majority of that time spent in the asset-based lending segment.  Similar to Gene I began my career with Shawmut Bank and then spent the next 19 years with Bank of America and its predecessor banks working in a variety of credit roles in asset recovery and asset-based lending. In 2006, I was recruited by GE Capital to help them build out a retail asset-based platform, where I spent nine years until thedecision was made to sell their portfolios to Wells Fargo.  At this point I was fortunate enough to be asked to join Gordon Brothers Finance Company as a senior originator. Now at CCF I will perform a similar role as head of originations.

TSL: What opportunity do you see in the asset-based lending space?

Martin: We think there’s a huge opportunity in the asset-based lending space.  Obviously the overlay of COVID-19 has enhanced that opportunity, not just in the lower and middle market segments of the marketplace, but in larger companies looking for pools of liquidity and asset-based lending is one that they are already beginning to explore and tap.

From a Callodine perspective, we are looking to build out a broader credit business and credit platform, one that focuses on income-oriented investments.  Callodine had been studying this space for quite some time and the opportunity came up to get involved with GBFC.  The Callodine Group management team spent a lot of time with the CCF team and got to know all of us very well.   We’re thrilled to have a partnership between the Callodine Group and the Callodine Commercial Finance team, previously the GBFC team, to take the business to the next level. It’s sort of the next step in the evolution of the business.

TSL: What made this year the ideal time for the acquisition?

Martin:  The whole team moved to Callodine, and that was clearly the attraction for the senior management at Callodine.  It is a world-class and incredibly experienced team.  Mark has mentioned he’s got 30-plus years of experience. Our head of credit, David Vega, has substantial experience, similarly 30 years.  Our CFO and COO have been in the business for 35, 40 years, first in public accounting and then as CFO of a number of investment-oriented vehicles like hedge funds and real estate investment. Folks who are the next level down have a lot of experience and energy.

In terms of timing, asset-based lending is a space that we see not only just opportunity here in the U.S. but also in certain jurisdictions in Europe.  I would say overall, the pie is growing. Having been around the credit capital markets for many years, it was a pretty quiet and smaller corner of the credit markets, one generally the domain of a lot of retailers.  The reality is, it’s a much bigger market than that and touches many, many industries. That’s where we see the opportunities being, not necessarily in traditional retail, but also in a variety of industries. 

We’ve got investments in high-tech manufacturing, pharma and in the AG world, so we see the opportunity set as growing. I won’t say exponentially, but growing substantially as we go forward.

TSL: What are some first steps or goals for Callodine?

Martin:  First off, it’s to deploy capital like we always have in a smart and prudent way.  Asset-based lending is a highly technical area of credit; it takes a very specific skillset. So, the goals are, like any investment business, find good investments, structure them well and benefit from that. That’s what we’re going to be focused on. The goals really haven’t changed a whole lot.

TSL:  What are Callodine Commercial Finance’s product offerings and loan sizes?

Forti: As we come out of the gate with the new Callodine platform, I think our product offering is going to remain unchanged. We provide fully secured asset-based term loans.  We are not a senior lender, mezzanine lender, subordinated debt, nor are we an equity investor.  We lend money and we charge interest, and our one product at this juncture are asset-based term loans with a size range anywhere from $10 million up to $100 million which we would underwrite to.  Our sweet spot is probably in the $20 to $30 million range.  At times there will be chunkier deals, which we are happy to get involved in, but we’re also perfectly happy making those $10 and $15 million loans because that’s what our clients need.

Martin:  From a size perspective, you’re seeing sizes of some ABL term loans grow significantly, a couple hundred million dollars in some cases. Those are things that we can easily do.  We’ve got a lot of friends, family and financial partners who want to co-invest with us, so that’s something that we can easily accommodate with the new platform. 

TSL: What are your observations of the asset-based lending space now?

Martin: My observation of the space in general is that it’s all about the team and that this is a highly specific, highly technical segment of the credit market and it’s not something you can just wade into and start buying and trading. I spent almost all of my career in, as I used to say, slinging loans and bonds for a living.  This is a different segment of credit. The analysis is not only a credit analysis, but a heavy focus on collateral analysis, this is purely lending money. It’s easy to lend money, particularly in difficult times when a lot of people need it, but it’s also about lending money and getting paid back. That is the science and the art of this business.

TSL: What are some of Callodine’s strategies in partnering with ABLs?

Forti:  Our primary clients are in the asset-based lending community and all the major national and regional banks throughout the country. That’s our primary referral base and our client. That’s how we fund our business and where we get our deals. So, we always like to make it clear to the market that we do not ever want to be viewed as being a competitor to the senior asset-based lending community. Bank of America, JP Morgan, Wells Fargo, all have their relationships, and they lend to certain clients.  If there’s a need for additional liquidity or a situation that requires another form of capital in the capital structure, they can come to us.  We very rarely, if at all, ever call direct on a company.  We almost always go through our primary client, the senior asset-based lender. 

Martin:  We partner with those senior banks. We’re not a revolving lender, we’re a term loan lender and we’re always working in partnership with them. They may be comfortable at a certain attach point on the asset base and we may be comfortable a little bit deeper against the assets, just given our knowledge and given where we play. So it oftentimes works out that the bank’s client may need a bit more capital than the bank is comfortable with providing and we slide in aside or behind the banks to get the client that capital and provide a complete solution.

TSL: When you’re not at Callodine Commercial Finance, what can you be found doing in your spare time?

Martin:  In my spare time, I really enjoy spending time with my wife Renae and our 2 boys – Colin (17) and Ryan (15).  We’re a pretty active family and love the outdoors.  We ski a lot and surf a bit.  I really enjoy playing golf, but anyone who has seen me play would hardly call it golf!

Forti: Outside of the office my time is focused on my wife Mary and trying to keep up with the active lives of our daughters Madeleine (2020 Elon University Graduate) and Lydia (a sophomore at Boston University). Beyond that I am a voracious reader of the classics and history and I also really enjoy riding Harley