“There’s always money available,” says Howard Levkowitz, “but not always for what people want.”
That simple statement is at the heart of the business of nonbank lenders, including Santa Monica’s TCP Capital Corp., where Levkowitz is chairman and chief executive.
TCP Capital makes loans to companies that can’t borrow from banks because of financial problems or regulatory restraints, or sometimes because companies are in a line of business that’s temporarily out of favor. Those difficulties create a market for Levkowitz and TCP.
“You often find imbalances between supply and demand,” he said, “sometimes with respect to labor, sometimes with respect to raw materials. And often it applies to capital.”
TCP is structured as a business development company. It’s essentially a publicly traded fund that makes mostly floating-rate secured loans, distributing its profits in the form of quarterly dividends. It lends to companies with between $100 million and $1.5 billion in revenue, meaning they’re probably too small to raise money by issuing corporate bonds.
Like other nonbank lenders, TCP can make riskier loans than banks, but it also pays more than banks for its capital. (Banks get capital from depositors; TCP gets capital from investors.)
To make up the difference, TCP’s loans carry higher interest rates than most bank loans. For instance, Bashas Inc., an Arizona grocery store chain, owes TCP $15 million, at a floating interest rate that’s now at about 10 percent.
That’s high, but Bashas and other borrowers likely wouldn’t be able to get a lower-interest bank loan – or a loan in the amount they want.
TCP went public two years ago, but Levkowitz had been making loans for years through a predecessor fund and through a private equity firm he co-founded, Tennenbaum Capital Partners.
Tennenbaum raised its first institutional fund in 1999, and Levkowitz said one of the firm’s first deals was a loan – one that looks a lot like the kind TCP might issue today.
The borrower was party-supply store chain Party City in Rockaway, N.J. The company’s stock had plummeted, its founder had resigned and it needed to restate its financials after missing reporting deadlines.
“They’d had some growing pains and banks had pulled the plug,” Levkowitz said. “We were able to see that, notwithstanding all the noise, there was a wonderful business there.”
– James Rufus Koren
HOWARD LEVKOWITZ, 46
Chairman and Chief Executive,
TCP Capital Corp.
RESIDENCE: West Los Angeles
FAMILY: Married to Elayne; four children, ages 10, 12, 14 and 16.
ACTIVITIES: Road biking, travel and spending time with family and kids; serving on executive boards of a high school and K-8 school.
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