A helicopter swooped over Brooklyn's skyline and landed at a heliport in lower Manhattan. By the time its rotors finished spinning, the passenger, Lynn Tilton was sitting in a van sipping coffee and reading her Blackberry.
Tilton, the founder and chief executive of the private-equity firm Patriarch Partners, had been checking e-mails since 6 a.m. — responses to ones she sent at 2:30 a.m. — and getting her bearings on the 73 companies her firm owns.
For someone who said she got fewer than four hours sleep the night before, Tilton seemed peppy. She was eager to talk about an undertaking that will probably constrain her sleep time even further: buying or starting a bank that would lend to midmarket companies.
The bank would provide capital to a part of the nation's economy that has little access to credit, she said. And she wants to buy nonperforming loans from the Federal Deposit Insurance Corp., which would mark a return to her roots as a player in the distressed-debt market in the 1990s. Investing in an existing bank is another possibility, she said.
"I'm taking hundreds of millions of dollars of my personal money and I'm putting that into either a bank holding company or to purchase FDIC assets," Tilton said, "because my great fear is we are not focusing on saving and rebuilding America."
If you read editorials Tilton has written, you'll get an idea why she is interested in banking; all of them bring up the lack of available loans for small and midsize businesses and what it means for the broader economy.
Tilton has even gone to Washington to talk with lawmakers and regulators about the shortage of financing for these businesses.
"We rebuilt the large banks, we got the commercial paper markets back and high-yield markets followed," she said. "The larger companies that got hit hard and lost 30% of their top line were able to find loans." But "small and midsized companies did not have the ability to find those working-capital loans."
Recent Federal Reserve Board surveys of loan officers have found that banks are pulling back their lending and the cost of credit for all businesses is still high. The central bank found that many loan officers simply don't want to take on the risk, because their existing loan portfolios have been hobbled by the economic downturn.
Complicating the situation is that $800 billion of leveraged loans come due in the next five years, and it's uncertain whether all of this debt can be refinanced.
"We have to get working-capital loans available to small and midsized businesses," Tilton said, adding that "over 80% of our work force comes from small and midsized companies, those companies that have fewer than 500 employees. Without the capital necessary to get through the period [of an economic slowdown], these companies have been pushed to death's door. When a company liquidates, you lose the industrial knowledge, you lose the technology and you lose a skilled work force. These people have nowhere to go back to when the economy picks up."
Asked about the recent bankruptcy of CIT Group Inc. and what it means for businesses that rely on specialized loans like factoring, Tilton said the specialty lender is a lifeline of credit for many businesses — including Snelling Staffing, a Dallas company that Patriarch owns.
"There is an absolute and utter need for secured business lending," she said. "If we let CIT leave that business, we're not going to have it anywhere."
When asked if she would consider buying CIT or part of it, Tilton responded: "I'd certainly buy some of its assets. I like their old asset-based lending business."
Tilton then offered a back-of-the-envelope estimate of why CIT plays a key role in the overall U.S. economy.
As she sees it, if CIT has a million corporate customers and each has five employees, and half of these customers are left without a source of financing, then 2.5 million jobs are in danger of being lost. She's not alone in making the link between a maimed CIT and further problems for the economy — several Wall Street economists have done so.
Tilton provided few details about her plan to acquire, invest in or charter a bank. She said it would not lend to any of Patriarch's portfolio companies.
Those companies, in 12 different industries, make everything from fire trucks to helicopters to maps to car parts. They have 100,000 employees combined.
Patriarch manages $7 billion of assets. The investors in its funds include banks and insurers. Each fund has generated an internal rate of return on realized assets exceeding 25% every year.
Early in her career Tilton worked for Morgan Stanley, where she was an analyst in the firm's mergers and acquisitions department, and for Goldman Sachs & Co. Eventually she ended up on the distressed-debt team at Kidder Peabody.
The roster at that firm included Tom Bernard, "the human piranha" in Michael Lewis' book "Liar's Poker"; Alex Kirk, who would go on to run capital markets at Lehman Brothers; and Michael Meagher, who later co-founded Seaport Group.
The early distressed-debt market involved buying high-yield debt from failed thrifts taken over by the government. The Resolution Trust Corp. would sell blocks of the debt and Wall Street firms bought it for their own balance sheets or purchased it on behalf of clients.
After the Kidder Peabody stint, Tilton worked at Amroc, another specialist in high-yield debt. In 1998 she founded Papillon Partners, which specialized in research and trading of loans. Two years later she started Patriarch.
The private-equity firm purchased bad loans from FleetBoston Financial Corp. and Canadian Imperial Bank of Commerce. The debt totaled $2.3 billion and involved 150 companies.
What made the workouts tougher was that there were about 300 different loans and each had its own group of lenders with different ideas about how to cure the loan. "That's when I learned that the real way to get value was to outright own the businesses," Tilton said. So she switched from buying bad debt and taking control of companies to buying them outright.
