White Oak Capital Management of San Francisco is an alternative lender specializing in supply-chain financing for middle-market companies. This business has become important because of changes in bank lending and because of the current tangles in the global supply chain.
“This was not a pre-COVID issue,” said Darius Mozaffarian, White Oak’s president. No matter the cause, though, White Oak is taking advantage of the opportunity.
The firm offers a range of non-bank financing services including term loans, lender finance, and asset-based lending. Its Finacity division specializes in export and trade finance and handles an annual volume of $100 billion in receivables. As a non-bank, White Oak’s lending team can offer a larger and more flexible range of direct loans to its mid-market customers in a range of industries, especially healthcare.
Retailers and manufacturers have long relied on a range of trade and working capital financing services to get products from one place to another. In normal times, this comes in the form of short-term loans and, for prime credits, commercial paper.
Mozaffarian said that the time for shipping to the US from China has stretched from 21 days to 73 days, “and that’s If you can get loading and unloading,” he said. The extended and unreliable term makes financing less attractive for some lenders. Although banks remain White Oak’s largest competitors, they are not as interested in the market’s current conditions.
When the time it took to get goods from the manufacturer to the store shelf was short, companies kept smaller inventories. Now, Mozaffarian said, “When companies do buy product, we find they have been buying more,” which increases the demand for asset-based lending.
In October, White Oak completed fundraising for the White Oak Yield Spectrum Fund V, with $1.3 billion of committed capital alongside an additional commitment of up to $1.0 billion for specialty finance and asset-based lending. The firm has about 150 institutional investors, a diverse mix of pensions, foundations, endowments, and family offices. Mozaffarian said they are looking for predictable fixed income returns.
Mozaffarian expects the supply chain situation to get worse before it gets better. Many businesses will see a slip of revenue and margins into next year. They’ll take an income statement hit and reconfigure asset-management practices as COVID plays in the shadows. That creates a need for financing, and White Oak is ready to meet it.