Capital Ideas

December 7 2007 by Jennifer Pellet


With the U.S. economy reeling from the triple threat of defaults among subprime mortgage holders, a housing market correction, and market volatility, most lenders are tightening purse strings, if not running outright for the hills. But not GE Commercial Finance Corporate Lending, where the current market uncertainty is cause for celebration. “Regional banks, hedge funds, CLOs [collateralized loan obligations]-all those lenders who’ve been popping up on street corners are going to the sidelines now,” says CEO Tom Quindlen.  “But we’re wide open for business.” In fact, GE Corporate Lending is on track to lend $20 billion by year-end.

And why not? After all, as the corporate lending business of the GE behemoth, Norwalk, Conn.- based GE  Corporate Lending has deep coffers and an even deeper bench of experienced risk managers. Name an industry-steel, retail, timber- and chances are Quindlen has a lender on board who knows it inside out, who maybe even ran a steel, or retail or timber company, before joining GE.

That industry expertise is critical to GE Corporate Lending’s competitive edge. Going up against the likes of Bank of America, Citigroup and Goldman Sachs among others, GE’s corporate lending arm has to distinguish itself in an arena dominated by big name lenders. The company, which provides lending products, growth capital, revolving lines of credit,  cash flow lending and asset-based financing, does that by having the ability to weigh far more than just financials, says Quindlen. “When we go in and talk to a steel company, we’re talking about the industry, what’s going on in that world,” he notes. “It’s very important to customers that they partner with somebody who understands the business. Because at the end of the day when your business goes south, you don’t want to be sitting there with a hedge fund manager who  may react by saying, €˜I’m getting out.’ At GE, we’ll restructure your debt and bring you out on the other end.’”

Until recently, however, the value of that understanding sometimes paled against the cushy terms being offered by other financiers. But in today’s more uncertain market, the terms of pending deals are starting to change. “We’re calling companies and saying, €˜You had a commitment to do financing with X. Is that commitment still good?’” says Quindlen. “Because we have a triple A rated balance sheet, and we like to use it.”

On one recent $400 million transaction, GE Corporate Lending had planned to hold $200 million on its balance sheet and syndicate the remaining debt to other lenders. When the market winds shifted, instead of backing out, GE opted to underwrite the whole $400 million. “We know the industry, the company, and the collateral, and we’re very comfortable with it,” he explains. “Now the CFO of that company has a fully underwritten deal and doesn’t have to worry about the deal getting sold into the capital markets.

GE Corporate Lending also trades on the GE name, luring clients by letting them in the hallowed halls of the Jack Welch Leadership Development Center, known most simply as “Crotonville.” Clients who meet with GE lenders about financing an acquisition, for example, can be offered a session with the integration expert at Crotonville. “That’s unique to GE,” says Quindlen, who has been with GE for 23 years. “A CEO or CFO can say, €˜This is a partnership I can leverage for my operating issues, not just financial engineering.’”

On the flip side, Quindlen has to contend with GE’s legendary reputation as a tough – even ruthless- negotiator. Back when the division was known as GE Capital and run by Gary Wendt, GE was notorious for taking ownership of companies that it invested in and applying GE management practices to turn them around.

It was a strategy that worked well for GE-the division’s five-year annual growth topped 15 percent- but not so well for the management of the companies whose jobs Wendt stepped into. A decade has passed since the Wendt era, but Quindlen still struggles with his shadow. “It’s a hangover from years gone by when we were a different kind of company,” he notes. “We were in a high-growth mode; we were organized differently; we had different leadership; and quite frankly, we changed the deals at the last minute in some high-profile situations.”

Today, he says, the operating philosophy is quite different. “We’re tough negotiators and we’re still not perfect,” adds Quindlen, “but we have good people in our company who have built incredibly strong relationships with so many customers. Today we are a customer-focused company.”

INBOX

Stock Ownership Guidelines on the Rise

A growing number of companies are adopting stock ownership guidelines for executives, according to a new study by Equilar, an executive compensation research firm located in Redwood Shores, Calif. In 2006, 75.5 percent of Fortune 250 companies reported the use of ownership guidelines for executive officers, an increase from the 70.2 percent of companies with guidelines in 2005. While the majority (79.1) of guidelines define ownership targets as a multiple of base salary (see chart), fixed values of shares, fixed number of shares, and a mix of fixed shares and a base salary multiple were also used.