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Interview with Andrew Hettinger, Chief Investment Officer of SG Credit Partners, Inc.
By Michele Ocejo
Pictured: Andrew Hettinger
Andrew joined with the goal of bringing his upmarket sophistication and breadth of experience to the lower middle market with the goal of helping SG Credit build a broad credit platform. On Monday, May 24, SG Credit Partners announced the extension of its comprehensive credit platform exclusively serving lower middle market entrepreneurs and new website illustrating its expanded capabilities.
You worked at larger credit funds including Cerberus and Crystal before joining SG Credit. Please tell us a bit about your career trajectory and what led you to the lower middle market.
Thank you to the SFNet for inviting me to talk. I started my career in commercial banking at NationsBank and later transitioned to the bank’s ABL group to work on larger and more interesting transactions. After ten years at the bank, I migrated to investment banking at Houlihan Lokey, where I worked with companies facing challenging situations requiring creative debt solutions that were often sourced from ABL and emerging private lenders. After Houlihan, I decided to become a lender again and spent close to 15 years building out the Southeast and Southwest regions, initially for Cerberus and later for Crystal Financial. While working at both firms was a fantastic experience, I was introduced to the great team at SG Credit and immediately saw the opportunity to help them in building out a unique situational capital debt platform focused on the inefficient and less competitive lower middle market. I have always been intrigued with the lower middle market and felt there was a real need for a situational lender with a broad range of creative debt products. After spending time with the quality folks at SG, I felt the firm was uniquely positioned to take advantage of the opportunity and decided to come along for the ride.
What was it about this new role with SG that attracted you?
What led me to SG Credit at this stage of my career was most importantly my desire to be part of a great culture and to build something truly unique. I got to know the people at SG as well as their new investor group and was offered the opportunity to join the senior management team. In my role as CIO, I felt I could pair my credit experience with the already successful lending niche at SG to build a differentiated and scalable credit platform that could solve funding gaps in the lower middle market. What I also felt was unique about SG is that it plays in the lower end of the market where the majority of lenders are focused on a singular product. SG, on the other hand, has a broad lending appetite, which is perfectly positioned to partner with traditional lenders and/or provide a full-debt solution when necessary. I also liked that SG already had an established history of being a good partner to banks and ABL lenders, which is critical in order to be successful in the lower middle market. A big part of my job at SG is making sure we have the necessary platform of products to be a leader in the market while maintaining a solid credit profile.
You have been successful at much larger firms. Can you compare and contrast between firms making larger loans vs. firms focused on loans under $10 million?
In addition to underwriting credit, you are truly making significantly more concentrated bets on management teams given the inherent risks in lending to small businesses. Another difference is that there is rarely a back stop in place that may be willing to invest liquidity into a situation if things aren’t going well. As such, I feel it is especially important to choose industries and business models wisely and attempt to stay away from binary risk given the higher margin of error. In addition, smaller businesses are just more susceptible to exogenous shocks, whether it be issues with key vendors, key executive departures and/or industry disruptions. We have learned the hard way to be hyper-focused on liquidity so the business is positioned to survive surprises.
The enjoyable part of the lower middle market is that it is more relationship-based with the business owners as there is a clear dearth of capital, and even at premium pricing, the majority of folks value the relationship. These transactions are incredibly meaningful to the small business owner, which is obviously a positive dynamic.
You joined as part of an institutional investment to lead credit and build an innovative credit platform meant to fill market voids. Can you give us an overview of the platform and how it fits into the marketplace?
SG was historically focused on financing stretch pieces, which was a great business, but faced cyclical and single-product risk. With the new investment, we have taken the opportunity to expand and diversify our debt offerings to meet what we see as opportunities to fill voids in the market. Our current credit platform spans five key areas: 1) recurring revenue/SaaS lending; 2) cash-flow lending; 3) collateral-based lending; 4) high net worth lending; and 5) special situations (including DIP loans). Our goal is to be the clear market leader in providing structured credit solutions to solve the funding needs of small and medium sized businesses that cannot be met through more traditional lenders.
Our platform was designed with key referral partners in mind. The majority of traditional banks have distinct segments such as commercial banking, asset-based lending, private banking, software lending and special assets that all line up with SG’s product offering. Our structures can be senior, junior or split-lien across these buckets, and we are capable of tailoring each solution as part of a larger facility or on a stand-alone basis.
You’ve spent your career in lending and restructuring. Where do you see the opportunities for SG in the current challenging market environment and where do you see SG’s role in the eventual downturn?
There is currently a tremendous amount of liquidity in the market given all of the capital that has been raised in the private debt market. Despite the pandemic and an economy late in the cycle, this liquidity continues to create a highly competitive debt market, providing attractive refinancing alternatives for capital constrained companies. In addition, we continue to see more traditional lenders stretching on transactions to meet aggressive budgets in an effort to maintain portfolio levels. Despite this environment, we continue to believe that SG is well positioned. The vast majority of private debt lenders are focused on sponsor-backed or larger deals, which means there continues to be a dearth of lenders focused on special-situation type transactions in the lower end of the market.
While we continue to evaluate and close quality transactions, in the current competitive market the opportunity for SG is often driven by factors such as a short closing fuse or other complexities making it challenging for more traditional lenders. We have also been increasingly active in developing a niche where we underwrite assets owned by high net worth guarantors who control businesses that may be challenging to finance on their own. While no one can predict the timing of the eventual downturn, we believe SG will be uniquely positioned to partner and/or provide full takeouts when banks decide to pull back and lower middle market borrowers have to seek non-bank capital. We also believe there should be a significant opportunity to purchase loans or debt portfolios and/or provide smaller DIP facilities, which is a newer offering for us and often hard to source.
Rumor has it that you’re a big Atlanta Braves fan. Tell us about that.
I have been a big fan of the Braves since the mid 1970s, as they were the only option for a kid growing up in Central Florida at the time. It has been a great ride, and the next few years should be a lot of fun given all of the young emerging talent.
Andrew Hettinger is the Chief Investment Officer of SG Credit Partners, Inc (“SGCP”). He joined the SGCP team in September 2019 and is based in the Atlanta office.
Prior to SGCP, Andrew was a Senior Managing Director of Crystal Financial and was responsible for originating and structuring new investments. Andrew has over 20 years of experience working with middle-market companies as a cash flow lender, asset-based lender, and an investment banker. Prior to joining Crystal, Andrew was a Managing Director of Cerberus Capital Management and was responsible for originating and managing new debt investments. Prior to Cerberus, he was a Director with Houlihan, Lokey, Howard and Zukin and was responsible for providing private placement, mergers and acquisitions, and restructuring advisory services. Prior to Houlihan, he served as a Senior Vice President of Deutsche Bank and was responsible for originating and structuring senior and mezzanine loans to private equity groups and middle-market companies.
Andrew began his career with Bank of America and served 10 years as a commercial lender and asset-based lender in the Southeast and Northeast markets. Andrew received a B.S. in Finance from Florida State University.