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1.21.10
Restaurant Finance Monitor®
First Franchise Capital's Name is New, but Group Has Long Franchise History
Volume 21, Number 1, ISSN #1061-382X
Restaurant Finance Monitor, 2808 Anthony Lane South, Minneapolis, MN 55418
FINANCE SOURCES
First Franchise Capital's Name is New, but Group Has Long Franchise History
"Our marching orders are to do business as we've done it
before," said John Rinaldi, president of First Franchise
Capital Corporation. But now he and his team have
the resources to support a growing pipeline of financing
opportunities.
Rinaldi used to lead Irwin Franchise Capital, which in
September of 2009 was acquired by First Financial Bank NA.
Management renamed the company First Franchise Capital.
There was a connection between the two capital providers
before Irwin Franchise Capital was acquired: Claude Davis,
President and CEO of First Financial Bancorp, has a history
with Irwin Financial Corporation; in fact, he was a former
president of the Irwin Banks and a senior executive with the
parent company.
"He understood how we do business," said Rinaldi. When
Davis left Irwin for First Financial several years ago, he
continued his relationship with Irwin's franchise group by
purchasing participations in franchise loans. Because of the
performance of their loans, First Financial "had a leg up on
franchise lending," Rinaldi added.
As Rinaldi made the transition to First Financial, so did his
staff: "We retained the entire group, our portfolio, and our
business model," he said.
Many of those people have been with him since he got into
franchise finance in the early 1980s when his employer, Bell
Atlantic Capital Corporation, dipped its toe into franchise
waters. Another lending company was financing Burger King
franchisees, and Bell Atlantic officials learned how well that
portfolio performed. Bell started to lend to BK franchisees,
as well.
"Those were the days when franchise finance was just starting
to be recognized as a specialty," Rinaldi recalls. "If you adhered
to sound and reasonable lending standards and knew what
you were doing, you could make loans with returns that were
fair and adequate. There were just a few lenders doing it at
the time. At Bell Atlantic, we were a bit surprised that the
BK loans performed so well. After that, we expanded into
other concepts."
After leaving Bell Atlantic in 1992 and spending a couple of
years outside franchise finance, Rinaldi joined franchise lender
FMAC, and brought some of his Bell Atlantic staff with him.
FMAC specialized in securitized lending: pooling together
franchise loans and selling bonds secured by the franchise
loans to institutional investors. At the time, securitization
was new to franchise finance, and Rinaldi wore many hats at
the finance company, from COO to launching an equipment
leasing division for franchisees.
"It was an unbelievable learning experience," said Rinaldi.
When he left FMAC, he joined Federated Capital Corporation,
and his FMAC staff joined him again to launch a franchise
division there. The parent company of Federated, NIAC, a
large Japanese trading company subsequently decided to sell
the franchise division as the growth of the franchise group
outpaced the capital commitment of the parent. Rinaldi
and his staff put together a pitch book and Irwin Financial
Corporation acquired the people and the loan portfolio.
From January 2002 to September 2008, the franchise team
at Irwin grew the business. "Year after year, our top line
performance and new originations grew by double digits, as
did our returns," said Rinaldi. "Our portfolio performance
for those seven years was excellent."
But when markets started going haywire in the second half
of 2008, Irwin Financial Corporation was not immune. In
September of 2009, the FDIC took over two of the company's
banking units. First Financial stepped in and purchased
the banks' deposits, certain assets, and branches, plus the
franchise company.
"We continued to do business, up to the final days at Irwin," he
said. "When the bank stopped funding, we continued to fund,
even though sometimes it was at a slower pace. We funded
loans the first day that we were owned by First Financial.
Our business has a great opportunity for good growth with
the backing of the new organization."
And for everyone there, it is also clear there are advantages
to working together for a long period of time. "The benefit
of our group being together so long is that we all understand
the business plan, the objectives and how to coordinate and
function together," said Rinaldi. "And our customers, both
franchisees and franchisors, understand our business model
and that what we say we will do, we do."
At Irwin, the franchise division at one time was funding the
bulk of its business in 25 concepts along with a few others on
a limited basis, but cut back to 12 or 13 primary concepts,
he said. "Now we've expanded and are bringing back brands
on hold and considering adding more. We're always committed
to do business with existing borrowers who are credit worthy."
They work with both national and regional brands, and before
adding them to their list, examine what kind of support the
franchisors give to their franchisees.
First Franchise Capital's sweet spot is the multi-unit restaurant
operator with five or more stores that are performing well. The
operator should have some longevity in the business and of course,
the ability to repay the debt, and be in good standing with the
franchisor and approved for expansion.
Deal size is a few hundred thousand on up to $10 million.
Equity requirements vary with the project but range from 10
to 20 percent on real estate. They offer 100 percent financing
with equipment loans.
In 2010, Rinaldi expects sales to be flat for restaurants in the
first half. That will affect the lead time for building stores, but
he anticipates some acceleration in activity.
"We do expect activity to increase as we move out of this recession
into better times," said Rinaldi. "We're very pleased where we are
with First Financial Bank, because they are well capitalized and
stable. They have the resources to commit to our specialty."
For more information on First Franchise Capital Corporation,
contact John Rinaldi, president, at 201.326.4001, or by e-mail
at john.rinaldi@irwincf.com.
Reprinted with the permission of the Restaurant Finance Monitor, January 2010
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