Syndicated facilities pick up steam amid acquisitions

Syndicated credit facilities are growing in prominence in the commercial auto finance space as lenders look to tap into growing dealership acquisition and consolidation activity. Dealership profitability has reached record levels over the past three years, driven by large vehicle margins amid tight inventory, setting the stage for dealers to put that capital to work through expansion and acquisitions, Jason Smith , head of dealer commercial services at Truist , told Auto Finance News . “We're coming off some of the best-ever performance years from a profitability standpoint; sales were down, but margins were up,” he said. “That worked in the dealers’ favor as far as the amount of free cash flow and profitability they had. That generated an enormous amount of liquidity on the balance sheet. … That continues to fuel the buy-sell [transactions] we’re seeing in the sector.” Truist provides commercial financing solutions for dealers, including floorplan, real estate and acquisition funding , according to its website. The Charlotte, N.C.-based bank specializes in financing for new-vehicle franchised auto dealers, Smith previously told AFN . Syndicated credit facilities — a setup in which multiple finance providers come together in a single credit agreement with one set of loan documents for the borrower — provide established capital for dealerships to fund acquisitions or CapEx projects, Smith said. The setup allows the dealership to tap into funding without having to establish relationships individually with multiple banks or captives, he said. “It's more efficient than having multiple relationships out there with multiple sets of loan agreements, documents, terms and conditions,” Smith said. American Honda Finance Corp. participates in syndication as well as traditional floorplan financing for dealers, Petar Vucurevic , senior vice president of financial services , told AFN . “We're not aggressive on floorplan. … We’ve been consistent for some time,” he said. “A good number of [our financing transactions are] through syndication. We participate in syndications with our public companies as well as floorplan.” Larger, public dealership groups typically rely on their established syndicated credit facilities to fund growth, Smith said. Dealerships that use syndication financing typically “have a business plan or strategy to continue to scale and grow their enterprise by buying other dealerships or dealership groups,” he said. “It seems like the consolidation trend is going to continue. … Syndications are becoming more prevalent in this sector.” Asbury Automotive , for one, has a syndicated facility with several banks and captives, including American Honda Finance, Bank of America , Truist and U.S. Bank . Asbury is funding its $1.2 billion acquisition of Jim Koons Automotive Companies using its existing liquidity, credit facility and cash. Honda specifically offers syndicated facilities to public dealership groups, Vucurevic said. “We're looking at the private [groups], but we haven't gone down that path,” he said. “It's been more of the publics because all the information is easily accessible [about] their financial strength.” Syndicated facilities, however, are gaining traction in the private space, Smith said. “Over the past seven to 10 years, they have become more prevalent in the privately-owned space,” he said. “That's because of how much consolidation is occurring. It's a very capital-intensive industry, and this is an efficient way for these groups to procure capital and scale their organizations.” More family-owned businesses and private equity are also entering the dealership acquisition space, Smith said. “Those investors are more accustomed to having their credit facilities in a pretty efficient structure via a syndicated credit facility,” he said. “They're bringing some of their traits and trends into the space.” Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas and features a fireside chat with F ord Credit. To learn more about the 2023 event and register, visit autofinance.live/afs/ .

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