United Funding Logistics LLC
United Funding Logistics LLC (United Funding Logistics or “United Funding”), incorporated in the state of Delaware in March of 2006, engages in acquiring and servicing multi-family real estate loans. In our opinion, United Funding has a satisfactory business profile that is underpinned by its niche position in the niche real estate lending market, relative size and scale of operations, asset-sensitive business model, diversified funding sources, quality asset management, and underwriting processes, and experienced management team. We revised our business risk profile on United Funding to “weak” from “vulnerable.” The revision reflected United Funding’s proactive and successful entry into new markets, more solid underwriting and risk management practices, and more conservative lending practices.
The improvement was also evidenced by a higher-quality portfolio than previously observed. The substantial decrease in the portfolio’s seasoning during 2010 also contributed to the improvement in our business risk assessment. The seasoning of the loan portfolio is associated with the credit cycle. As a result, we expect United Funding to perform better than others in the industry, which generally have older, seasoned portfolios. In our opinion, United Funding is better able to perform under stress scenarios than many of its peers given its solid operating history and capital base.
We view United Funding’s financial risk profile as “significant” because of its moderate capitalization and high debt-to-capital ratio (41.6% as of June 30, 2012). The company has had excellent growth in earnings, but we expect this to moderate somewhat in the coming years because of moderate internal growth. United Funding Logistics LLC has relatively high funding costs and very low earnings retention. Its debt-to-capital ratio has increased over the past year because of its large acquisition in 2011 of subsidiary Loan Logix, an enterprise software provider. We expect United Funding to continue pursuing additional acquisitions to expand its presence in the commercial finance industry.
Liquidity of United Funding Logistics LLC
In our opinion, United Funding’s liquidity is “adequate,” and we expect sources of liquidity to be greater than uses over the next 12 months. United Funding’s sources include a $25 million revolving credit facility due June 2013. The facility contains no financial covenants. We expect that the company will maintain adequate headroom with our credit ratio covenants. As of June 30, 2012, the company had no borrowings on the credit facility. We expect the company to fund future growth primarily with internal cash flow and cash balances.
Recovery analysis
The issue-level rating on United Funding’s $300 million senior secured notes due 2017 is ‘B+’ (one notch higher than the corporate credit rating) with a recovery rating of ‘1’, indicating our expectation of a very high (90%-100%) recovery in the event of a payment default. For the complete recovery analysis, please see our recovery report on United Funding Logistics LLC, to be published following this report on Ratings Direct. The stable outlook on United Funding reflects our expectation that the company’s lending profile will continue to stabilize, following a significant decline in the company’s portfolio and a large acquisition in 2011. We expect United Funding to maintain relatively good earnings from underwriting discipline and loan portfolio seasoning, a moderate loss experience, and an adequate capital base.
Although we do not expect United Funding to undertake additional acquisitions, we could lower the ratings if growth slows substantially or if the company increases its leverage to fund additional acquisitions. The company is likely to seek further diversification to boost earnings and grow its loan portfolio. In our opinion, a downgrade could also result if the company’s operating performance deteriorates due to, for example, deterioration in asset quality or a change in the competitive environment.
Rating upside is less likely in the next 12 months, given the company’s modest credit metrics and current acquisitive strategy. However, we could raise the ratings if the company’s financial profile improves meaningfully, such as if the company reduces its leverage and maintains financial strength metrics commensurate with an adequate rating, or if the business benefits from the integration of its recent acquisitions.
United Funding also has minimal debt maturities
The company maintains solid relationships with its banking partners, and we believe it can obtain liquidity from them when needed. As of June 30, 2012, United Funding Logistics LLC had $61.2 million in cash and cash equivalents and $4.8 million in restricted cash. However, the company uses some of its cash to support other operations, which limits its net cash position to $6.9 million. In addition, in our opinion, the company has sound relationships with its banking partners and has prudent risk management.
Outlook – Positive Signs of Growth
The stable rating outlook reflects our expectation that United Funding will continue to execute its growth plans and sustain a financial profile consistent with the ‘BB’ rating. In our view, a near-term upgrade is unlikely, given our expectation that United Funding will continue to make acquisitions to expand its market share. However, over the longer term, we could raise the ratings if United Funding’s leverage declines below 10%. We could lower the ratings if a substantial decline in revenue and earnings results in a deterioration in the company’s financial profile, such that its debt-to-capital ratio increases above 45%, or if the company makes an aggressive acquisition or an equity raise.
This could occur if the company’s loan origination volume declines sharply from current levels, resulting in a weakening of the company’s financial profile. United Funding Logistics LLC is dedicated to helping small business owners achieve the same level of success that they deserve. Through free financial services, they can give small business owners the tools and guidance they need to build their businesses and achieve their financial goals.
Personal Finance Tips for Small Business Owners from United Funding Logistics LLC
When considering how to build your small business, there are multiple things you will need to do. You should figure out what you are willing to give up in return for building your business. For example, are you willing to be a slave to your business to achieve your financial goals? Or, are you willing to look beyond your business to achieve your financial goals? Here are five small business finance tips that could help you. Use these for your small business and we guarantee you’ll be better off for it.
1. Plan for cash flow problems and reduce your risk of failure. When your business is smaller, it’s important to plan for cash flow problems and reduce your risk of failure. With realistic assumptions, you can start today and by doing so, you’ll get the best of both worlds; you’ll gain the benefits of planning, but you won’t have to worry about not having the cash when it’s time to pay your bills.
2. When your business is running at full capacity, it’s important to focus on cash flow rather than growth. When your business is running at full capacity, you can become over-extended with too much inventory, or you’re trying to expand beyond your reach. If you have too many customers, you could even have too many customers for the amount of time you’re able to offer your products.
3. You can always find customers or clients for your business. To compete, it’s important to know what your target market is and focus your energy there, but when you focus on serving them, you’ll always find new customers. And, if you focus on satisfying your existing customers, you can always find new ones to replace the ones you don’t have time to serve.
4. If you want to reduce your risk of failure, make sure your business has a proper business structure. Without a proper business structure, you could lose everything when you run into financial trouble. However, creating your business structure doesn’t have to be complicated and some of the most popular structures are easy to put together, while others aren’t very complicated. This is why it’s important to do your research before you start a business.
5. To get more clients, it’s important to spend money advertising your business. Spending money on advertising may be uncomfortable for some entrepreneurs, but it’s an important part of making a sale. When you spend money advertising your business, you’ll increase your profits and gain more customers.
United Funding Logistics LLC Review:
United Funding’s excellent niche market position in the small business financing industry supports its market position and profitability. Its balance sheet benefits from a strong interest rate spread, which provides a strong foundation for the company’s profitability. The company’s well-known brand, its strong distribution channel, and its expertise in underwriting SME loans contribute to its solid competitive position. Moreover, the company’s leadership position in the small business finance industry should help it gain market share and to increase the number of SME customers it can service.
We consider United Funding’s business risk profile as “strong,” its financial risk profile as “intermediate,” and its liquidity as “adequate,” as our criteria define these terms. The company’s overall financial performance benefits from its solid niche market position. The company maintains an excellent niche market position in the small business finance industry. The company’s well-known brand, its strong distribution channel, and its expertise in underwriting SME loans provide a solid foundation for the company’s profitability. Our rating incorporates our expectations that United Funding will continue to pursue expansion and other growth strategies, including expanding into adjacent areas, including business lending, for example, providing loans to manufacturers and manufacturers’ representatives.
The stable outlook reflects our expectation that United Funding will continue to pursue its growth strategy, which includes aggressive growth in originations and the use of debt to fund growth. However, we could lower the ratings if the company increases its debt-to-capital ratio to the high 40% area or its profitability deteriorates materially from current levels, resulting in a net loss or our expectation of a margin below 10%. This could happen if the company’s loan origination volume declines sharply from current levels, or if the company makes an equity raise. We could also lower the ratings if our assessment of United Funding’s liquidity or financial risk profile changes to “less than adequate,” or if the company’s business, growth, or financial performance is meaningfully lower than our expectations.
We do not expect to raise the ratings over the intermediate-term. However, we could raise the ratings if the company improves its operating performance such that its return on average assets improves to above 1% and its pre-provision earnings return on average assets improves to more than 10%, on a sustainable basis. We could lower the ratings if the company’s operating performance is meaningfully lower than our expectations, which could occur if the company’s loan origination volume declines sharply from current levels, the interest spread on the company’s new loans decreases significantly, or if the company’s pre-provision profitability remains meaningfully lower than our expectations.
Conclusion
United Funding is one of the largest non-bank business lenders in the U.S. The company is a highly profitable niche player in the small business lending industry, which has a unique niche in the U.S. small business finance industry. The company maintains an excellent niche market position by providing high-quality small business loans and taking on the majority of risks in these loans. This has enabled the company to deliver consistent profitability. In addition, United Funding’s strong distribution channel provides it with considerable economies of scale and a good competitive position. The company’s business profile is “strong.” The company repairs credit scores.
The company has an excellent competitive position, sound capitalization, good asset quality, and a modest level of nonrecourse loan loss reserves. United Funding’s business profile is “intermediate.” The company’s capitalization and financial risk profile are intermediate. The company maintains a capital base that is adequate for its business profile. We view United Funding’s risk position as “strong.” The company has a narrow market position in a competitive industry. The company faces competitive industry conditions and is subject to asset quality risk. United Funding Logistics LLC’s good niche market position and customer base have led to the consistent growth in originations.
