Clarus Capital – Leveraging its extensive experience as a programmatic capital markets issuer – Article

All successful businesses are invariably shaped by the backgrounds and experiences of their founders. It stands to reason that the more diverse these experiences are, the more flexible and agile the organization can be during times of uncertainty and change. This is certainly the case at Clarus Capital, where our unique approach to the market reflects the diverse heritage of our management team. In the case of Clarus, this includes a complementary skill set merging decades of expertise in equipment finance, leveraged finance and securitization. Here we provide a brief history of the organization, its leadership and its experience as a programmatic capital markets issuer.

A confluence of events over the period 2017 – 2020 presented the optimal conditions for the launch of Clarus Capital in 2021 by former executives of NewStar Financial; execution of a strategy that they had considered for several years. During this period, a wave of mergers and acquisitions in equipment finance led to a wave of consolidation, with many independent organizations being absorbed into banks. Shortly thereafter, global markets witnessed the sharp COVID-19 dislocation that rocked the first half of 2020. In response, Clarus’ management team seized an enticing opportunity from the blue ocean to lay the foundations of a well-capitalized specialty finance company that would focus on providing large-scale capital solutions to finance the mission-critical tangible assets of corporate borrowers. The firm has assembled a talented group, led by Managing Director Steve O’Leary, Chairman Tim Conway and Chief Financial Officer Mike Eisenstein, combining deep skills in the private credit market with proven experience in executing securitizations.

Securitization markets function as a vital epicenter of wholesale credit formation and distribution in the US economy, allocating capital to both commercial and consumer financial intermediaries, and ultimately to their end users. Historically, the asset-backed market has served as an anchor funding source for many high-caliber commercial and specialty finance companies through careful architecture and design. Achieving “benchmark issuer” status has been a benchmark metric for many platforms over the past few decades.

Securitizations are powerful financing vehicles that offer a continuum of economic benefits, and the market itself is infinitely scalable. These structures provide issuers with access to long-term committed capital from a broadly diversified global institutional investor base. In addition, they allow, throughout the term, counterpart funding of assets and liabilities and, in many cases, minimize or stabilize interest rate, refinancing and market-to-market risks. Asset-backed capital markets provide tailor-made solutions that contribute to each corporate treasurer’s goal of fine-tuning and achieving the optimal capital structure.

Opposite the issuers is the universe of structured credit investors, which is made up of an assortment of sophisticated, trained and committed bond managers. As part of any strategic asset allocation framework, fund and portfolio managers invest enormous resources in researching, analyzing and comparing the relative worth of asset classes, issuers and their vertical markets. Issuers are advised to be well prepared before engaging with asset-backed securities investors and, after the transaction, to proactively maintain a collaborative dialogue with a high level of positive engagement. Rating agencies also play a decisive role during and after each securitization offer.

Recently, the US securitization market has experienced some volatility as public and private markets adjust to a new inflation and interest rate regime. Over several decades, securitization capital markets have proven to be strong, resilient and viable. Asset-backed issuers and investors have successfully withstood the test of the Great Recession by emerging from a difficult cycle and adapting to new rating agencies and regulatory frameworks and appear ready to evolve again. With over $700 billion in securities outstanding by SIFMA, it is a dynamic and sophisticated exchange that we believe will remain fluid despite any potential near-term economic turbulence.

Clarus Capital’s management team has a long history and exceptional track record in the commercial securitization markets dating back over 25 years. Over a quarter of a century together, members of the firm have provided constructive and innovative leadership to asset-backed markets. From issuing the first Secured Loan Obligation (CLO) backed by middle market loans and syndicated as a master trust in 2000 to completing the market’s first commercial loan securitization after the Great Financial Crisis in 2009 in the creation of a leading direct lender (NewStar Financial) which was one of the largest managers of private credit securitizations before its sale in 2017, structured credit markets are deeply embedded in the DNA of the Claris team.

Just as there are many different recipes for building a great financial services organization, there is no single plan or path to becoming a benchmark sustainable issuer. But the formula requires, at a minimum, the right mix of talent, quality institutional infrastructure (ie, business methods, processes, systems and controls) and capital.

Above all, building a cohesive team with the right chemistry and a mutually shared investment vision and philosophy is key. At Clarus, we carefully recruit the right talent at the right time and never compromise on quality and integrity. Since our inception in 2021, we’ve collaborated at our Boston, Massachusetts headquarters, in-person, full-time, which has allowed us to consistently instill our corporate culture. Our company is powered by versatile, high-performance corporate athletes with an entrepreneurial spirit.

Second, a robust infrastructure is imperative. Not only does a leading independent equipment finance company need core competencies on the asset side of its balance sheet – a strong direct origination franchise, capital markets presence, underwriting capabilities and acute in structuring – but also an integrated and agile operating platform to support the right hand side. This requires allocating substantial resources to liability management and optimization, debt compliance management, investor partnerships, rating agency relations, corporate governance, compliance, business analytics and data science, financial planning and analysis, accounting information systems and technology. This foundation requires careful planning, disciplined construction, and execution with intention, and it is absolutely essential to success. Our Controller and Chief Administrative Officer, Dan Crowley, has used his extensive experience in public financial institutions to develop the framework for Clarus Capital. Infrastructure alone can make or break a commercial finance company and the market cycle is often the trigger that distinguishes those who have institutionalized their operating platform and use it as a source of value creation, from those who are poorly prepared.

The third element is knowledgeable investor partners with a long-term vision and commitment that can provide stable funding in all-weather market conditions. Strategically aligning with a sponsor experienced in trade finance, private credit and alternative investments that understands the full business life cycle, enables shareholders to achieve maximum franchise value. Our sponsor, BharCap Partners, led by Bharath Srikrishnan, is a specialist in the financial services industry. The private equity firm has access to a long-term capital base from which it made an initial commitment of $300 million with Clarus Capital. As a seasoned investor-operator, BharCap recognized the value of building a world-class platform that would support a large-scale portfolio and serial securitization issuance. Under BharCap’s leadership, Clarus invested early in its lifecycle in a modern, state-of-the-art infrastructure, including integrated systems, processes and technology, and is well prepared for accelerated growth.

After successfully navigating the debt capital market issuance process on more than two dozen occasions, through unforgiving macroeconomic conditions, credit cycles and micro-market disruptions, the team at Clarus has leveraged best practices, historical experience and deep insights to design and engineer a solid framework to support its capital markets ambitions. We are excited to return to the securitization markets as a serial issuer of asset-backed securitizations secured by equipment leases and loans originated, structured and guaranteed by the Clarus Investment team. Management.