Ambition is fine, but the deals have to be right
Lockdown has seen a surge in companies with new debt, but John Gribbon says that in his niche of the finance industry, things are getting back to normal, writes John Grainger.
LOCKDOWN HAS created interesting situations – to put it mildly – in all kinds of industries, and the asset-based lending (ABL) market is no exception.
With ABL, money is lent against assets, such as plant, machinery or inventory, to bridge the gap between corporate ambitions and hard reality. Sometimes it’s used to execute growth plans, but sometimes – as with its microscale cousin, pawnbroking – it’s about keeping the wolf from the door, and that’s been more apparent than ever throughout the pandemic.
But where there is crisis there is also opportunity, and John Gribbon has spent the last year spotting chances, although it hasn’t all been plain sailing. He is regional managing director for Yorkshire and the North East at Secure Trust Bank (STB) Commercial Finance, which works with private equity firms and corporate finance boutiques and has been heavily involved in lending through the government’s £23bn Coronavirus Business Interruption Loan Scheme (CBILS).
“There was a three-month period in Q2 when our income just fell through the floor and consequently the balance sheet sort of fell away,” he told The Yorkshire Post.
“But as that initial lockdown was eased towards the end of May, and people started switching their businesses back on again, it began to pick up quite nicely
“Whilst new business was slowing down and uncertainty prevailed, we had an opportunity to focus on our existing clients, and give them the liquidity that they were going to need.
“And then when we came out of lockdown, we actually kept the client base – they were happy – and it was then a case of switching on the new business pipeline. And I think we managed to get ahead of the market in that regard, and ended up doing pretty well.”
One piece of new business was a major deal with Jingye, the Chinese owner of British Steel, which saw STB provide £50m – its biggest deal yet – to keep the business running.
“Because we remained open for new business, we were able to win what is a very nice deal and support an iconic British business,” says Mr Gribbon. “It was a very exciting opportunity for us to get involved with.”
In common with companies across all sectors of the economy, some of STB’s existing clients needed all the help they could get, but despite the trouble some of them had keeping up with their repayments, Mr Gribbon says he kept faith with them.
“We had a number of clients who were breaching covenants, but for reasons they couldn’t control.
“So because we are close to our clients – our relationship guys probably run 12 cases at the most – we were able to work through the whole Covid process. I can say, hand on heart, that none of our clients through that process failed.”
He adds: “I’ve been in ABL for 30 years, and most of the team have 20-plus years’ experience. Experience tells you that kneejerking and playing hardball are completely the wrong thing to do. It’s about holding your nerve, staying close to your clients, understanding the stresses and strains that they’re under, working with them – and playing that patient long game gets you rewards. Clients will remain ‘sticky’ because of that.”
One thing he has steadfastly refused to do is see CBILS as a fast-fix “quick buck”, a way of tying new clients into arrangements whose benefits go only one way.
“We tried to exercise our approach to using that product with discretion because this is the Government’s money we’re lending – the taxpayers’ money – so you’ve got to do it with rigour and do it properly. We’ve had a nice clean audit on our approach. So we’re proud of what we achieved with CBILS.
“But I’ve seen some pretty aggressive lending in the CBILS market, where people released lots of CBILS to new business,
and often lending more than we thought businesses could afford. I’ve been surprised that some of our competitors have lent so much money on CBILS. That’s their decision, and they’ve done their due diligence, but we couldn’t see the affordability.
“They’re saddling business with an awful lot of debt, and I wonder at what point that will become a problem. The restructuring marketing will be busy in due course, as those debt issues have to be addressed.”
Nevertheless, he sees recovery coming sooner rather than later, and says that STB’s books, while still showing the impact of the pandemic, are getting back to normal.
Since the Leeds office opened nearly three years ago, it has lent more than £150m, and the company aims to dwarf that over the coming years. But the main thing, says Mr Gribbon, is that STB should choose quality over quantity.
“We clearly have growth ambitions, but we’re not chasing numbers. Previously in my career, it was constantly about chasing numbers. That’s not what we’re doing here.
“We’re not after growth at any cost. It’s not buying business in. We’ll do it if we get the right return. We’ll do it if it suits the needs of the client and not just us – we’ve got to do the right deals if we’re going to be successful in this market.”