Seeing Dearth Of Lending, Patriarch Proposes Govt.-Backed Program
By Beina Xu

8/11/2009 New York -- In October, Patriarch Partners LLC Chief Executive Lynn Tilton was so worried about the state of the financial markets that she took out a full-page ad in the New York Times and Washington Post espousing the initiation of a provisional Federal Bank.

Nearly a year later, small businesses still aren't getting the financing they need. Many, lacking liquidity, have been forced to shut down after banks rejected the small, high-risk loans they requested.

With that in mind, Tilton is proposing the Rescue Loans Program, a plan for a public-private partnership that would operate under the Treasury Department's Public Private Investment Program and provide rescue loans to small and midsize companies.

After seeing the initiation of the Legacy Securities PPIP and Legacy Loans Program in Washington, D.C., Tilton said she felt the need to expand the breadth of the asset classes treated.

Tilton's proposed plan, which she has submitted to the administration and is outlined at SMERescueLoans.com, suggests private investors raise a minimum of $150 million, 10% of which must come from the asset manager's own firm. That would be paired with $850 million of PPIP funding for a pilot program that would grant such loans to small businesses lacking financing.

RLP would co-invest with private investment managers in senior secured, first-lien loans to companies that have been denied capital loans. The plan would share profits with the taxpayer, but private investors would take the first loss layer by putting up 75% of the equity per fund, Tilton said. RLP doesn't yet have other private equity backers.

"It's just a time where everyone recognizes that small and mid-sized companies have not benefited from what the government has provided thus far," Tilton said. "I have got to take another shot at really getting this to Washington."

The firm will start by making loans itself, targeting deals of more than $10 million in companies with at least $20 million in revenue.

Patriarch also is using the Web site to reach out to business owners and gather data points about the types of loans needed in the marketplace. The site has a link that enables business owners to apply for one from Patriarch .

"Frankly there's only so much that one person or one fund can do to stem this problem," she said. "But we want to start being able to make some of these loans, and not have to wait for a program to be in effect."

The firm likely will raise a private equity fund dedicated to such loans sometime in the fall, Tilton added.

"We can't do this alone," Tilton said of private equity interest in investing in small rescue loans. "There's not enough bandwidth. There's just not enough profitability. I think with government leverage, PE will tap into it."