Alaska Lenders Finding Good Borrowers
Lending opportunities present growth for Alaska businesses
Wells Fargo Alaska Commercial Banking Manager Sam Mazzeo, Peak Oilfield Service Company President Michael O’Connor, Wells Fargo Principal Business Relationship Manager Chris Horton, and Bristol Bay Native Corporation CEO Jason Metrokin after the announcement of BBNC’s acquisition of Peak, with lead financing provided by Wells Fargo.
© Chris Arend Photography
On October 31, Bristol Bay Native Corporation (BBNC) completed the largest, most technical transaction in its history. It acquired Peak Oilfield Service Co., thanks to commercial financing from Wells Fargo. The term loan supported a strategic acquisition for BBNC, which is owned by 9,400 Alaska Native shareholders in Southwest Alaska.
BBNC has engaged in business in the oilfield service industry for a number of years and is a staunch advocate of responsible resource development. Peak—which provides field support services on the North Slope, Cook Inlet, and in North Dakota—has a strong safety culture that produces a loyal workforce and happy customers, according to BBNC President and CEO Jason Metrokin.
“Peak Oilfield is a success story in Alaska, and we’re proud to have them as a part of the BBNC family,” he says. “Peak will significantly contribute to BBNC’s mission, Enriching Our Native Way of Life.”
Metrokin praises Wells Fargo for making the transaction a success. “The collective team at Wells Fargo was highly engaged and very professional during our acquisition process,” Metrokin says. “The breadth of resources Wells Fargo brought to the table were uniquely qualified to meet our needs.”
Alaska’s financial institutions offer the gamut of commercial loans, including real estate, working capital, equipment, and business acquisition and expansion financing. They also make bank portfolio loans, extend lines of credit, and work with other entities that facilitate financing, such as the Small Business Administration, Alaska Industrial Development and Export Authority, Bureau of Indian Affairs, US Department of Agriculture, and Alaska Housing Finance Corporation.
Commercial loans not only help businesses thrive and expand, but they also have a broader impact on the state’s economy, according to Stacy Tomuro, a vice president with First National Bank Alaska’s Commercial Lending Division. For example, lending money to businesses that aren’t holding enough cash to buy goods and services from other Alaska businesses injects immediate cash into the economy. Financing equipment and real estate gives buyers more purchasing power if they only need to make a 20 to 25 percent down payment. Sellers, in turn, can reinvest the cash in Alaska’s economy.
Eager to Make Good Loans
In general, the environment for commercial loans is very competitive now, and banks—coming out of the recent recession—are eager to grow loans again, according to Wells Fargo Alaska Commercial Banking Manager Sam Mazzeo. This has made for a very attractive environment for creditworthy borrowers. “In the last three years, the terms have become very competitive, as banks are looking for good borrowers, good projects, and good places to lend money,” he says.
Wells Fargo has a broad array of commercial lenders that cover all types of commercial loans and lines of credit, as well as equipment finance and asset-based lending specialists. For 2012 and 2013, the bank expected to make nearly $1 billion in commercial loans to Alaska businesses, Mazzeo says. “That kind of capital is critical to being able to support existing businesses, which, in turn, is the engine for employment and overall gross product for the state of Alaska,” Mazzeo says.
Incidentally, Wells Fargo is expanding its business banking team in Alaska to include more specialists in equipment financing and SBA loan programs.
Northrim Bank is also constantly searching for good lending opportunities. The bank’s business lending team is well equipped with local industry insight, solid business connections, and the ability to present creative financing options, says Vice President, Commercial Loan Unit Manager and In House Counsel Michael Martin. “We are engaged with our customers’ business, taking an innovative approach to their financial needs and objectives,” he says.
In today’s economy, every business is unique, Martin says. Financing needs are complex and constantly evolving, which is why Northrim strives to offer flexible terms and out-of-the-box, nontraditional financing for a broad range of industries. A prime example is Sitnasuak Native Corporation (SNC) and its recent commercial loan with Northrim. The Nome-based company worked with the bank to secure long-term financing to acquire Fidelity Title Agency of Alaska (in Anchorage) and Mat-Su Title Agency (in Wasilla). “We are very interested in fixing our loan rates whenever possible, given the forecast for higher rates in the future,” says CFO Tom Delamater. “Consequently, we chose to take out a long-term swap contract for the duration of our loan. This effectively fixed our rate for the full term of the loan.”
SNC looks long and hard at its balance sheet before taking on any debt, Delamater says. The company always wants to maintain a position of financial strength, so it never acquires more debt than it needs or can afford. That’s why Northrim’s creative financing was ideal for SNC. Delamater explains: “This particular loan replenished a portion of investment purchase price, enabling us to maintain the working capital required to meet near-term business goals. This also puts our investment in the position to pay for a significant portion of the initial purchase price with cash flow from current and future cash flows.”
SNC considered a number of institutions to meet its financing needs, but Northrim provided the best options. “They delivered,” Delamater says. “They are a great company to do business with.”
Like Northrim, First National Bank Alaska has a community approach to lending that is focused on making good, high quality loans and keeping capital well above regulatory requirements. This ensures the bank has plenty of money to lend, regardless of how the local economy is doing, Tomuro says. “We take a lot of pride in always having enough money to lend and thank our customers for having the trust in us to be there when they need us most,” he says.
First National is also proud of making Forbes magazine’s list of America’s Most Trustworthy Companies for the past two consecutive years.
There are a number of trends taking place in Alaska’s commercial lending industry. For instance, Mazzeo has noticed a considerable increase in merger and acquisition financing in the past few years. What’s driving the upturn? It could be related to baby boomers. “In general, baby boomers are retiring, so successful mom-and-pop businesses are looking for retirement strategies,” Mazzeo says. “If they’re not turning their business over to their children, they’re generally selling their business. The mid-size businesses in America are looking to acquire successful businesses that can generate sustainable cash flows.”
At First National Bank Alaska, some of the most common requests are for working capital and real estate financing to support business growth, according to Tomuro. He’s also seeing more financing activity in oil field services, health care industries, community development, and multi-family housing. The increase in multi-family housing financing is understandable, given the tight rental market.
National Cooperative Bank (NCB)—a unique lending source for member-owned entities—has seen a growth in financing for the retail industry, according to Anchorage-based Earl Carson, a vice president of NCB’s Commercial Banking Group. NCB offers commercial loans and lines of credit, real estate loans, and SBA loans for cooperatives and member-owned entities. The bank, which primarily does lines of credit, serves purchasing cooperatives, housing co-ops, Alaska and Native American enterprises, community health centers, and charter schools. NCB has provided financing for projects ranging from Class A office and retail space to Chester Park Cooperative senior housing in Anchorage.
Key Qualifying Factors
Typical qualifying standards for commercial lending revolve around the Five C’s of credit: character, capacity, capital, condition, and collateral. “The guy should have some type of track record,” Carson says.
However, that doesn’t mean potential borrowers with relatively short track records can’t secure financing if their credit history, assets, and other documentation justify it. Of course, financial reports done by accountants hold more weight, especially if they’re audited.
Carson says some people try to “phony up” documentation, which he ultimately detects. “I’m in the business of ferreting out who’s stretching the truth,” says Carson, who has worked in the industry for more than forty years.
Tomuro of First National focuses on two overall qualifying factors: company management and financial position. First and foremost, he strives to get to know the company by understanding what the business objectives are of its owners and management. Having good, quality management with a track record of good performance is very important to Tomuro because he sees banking as a partnership. “If I can’t reasonably meet the company’s current and future objectives, then I am not doing them a service just by lending to them on a transactional basis,” he says.
In terms of financial position, Tomuro evaluates whether the company is sufficiently capitalized to be in a position to meet its objectives. Does it have enough working capital to support stable operations or enough cash to make a down payment when financing equipment or real estate? A company needs to try and keep its total debt to equity within reason, which will depend on the ownership structure, industry, and other factors. Tomuro adds, “A good lender will be able to identify this very quickly, so think carefully about how you finance company assets.”
It boils down to management and relationships, Tomuro says. He adds, “In the long run, it’s about relationship banking.”
Mazzeo expresses similar thoughts. He says it’s essential for companies to have a good relationship with a financial institution that can satisfy all of their needs. More specifically, they need a relationship with a commercial banker that understands their business and their goals. “They should establish that relationship ahead of time, so they’re not starting at ground zero when they need credit,” he says.
Former Alaskan Tracy Barbour writes from Tennessee.
Posted: February 11, 2014