Franklin Templeton expands asset-backed finance with US$480m Encina portfolio

Franklin Templeton and Benefit Street Partners have completed a transaction with Encina Lender Finance that brings approximately US$480m of lending commitments and a specialist investment team into their expanding asset-backed finance business.

Under the agreement, a newly established fund backed by Franklin Templeton and funds affiliated with Benefit Street Partners (BSP) has acquired a seed portfolio containing about US$480m of commitments originated by Encina. Fourteen members of Encina’s investment team have also joined BSP, where they will continue managing and originating financing transactions.

The deal strengthens Franklin Templeton’s position in lender finance, a segment of asset-backed finance that provides capital to companies originating loans rather than lending directly to the ultimate consumer or business borrower.

Encina’s team focuses on senior secured, unitranche and first-out financing for consumer and commercial lenders in the United States and Canada. The underlying assets can include consumer loans, credit card receivables and small-business loans, with financing supported by diversified pools of those obligations.

The distinction is important. While lender finance shares some collateral principles with receivables-backed lending, it is not necessarily conventional invoice factoring. The borrower is often another lender, with the financing provider taking exposure to a portfolio of loans and the performance of the originator managing them.

The new team joins a BSP asset-backed finance operation spanning corporate asset-backed lending, equipment leasing, aircraft leasing, consumer finance and lender finance.

Following the transaction, BSP said the combined operation has access to approximately 100 investment professionals. The manager has completed more than US$10bn of investments since the platform’s inception and believes it now has the capacity to originate more than US$3bn annually.

That annual figure represents BSP’s assessment of potential origination capacity, not financing already committed or deployed.

The transaction illustrates how large alternative asset managers are seeking to secure specialist origination teams and established loan portfolios as private credit expands into asset-backed markets.

It also concentrates attention on collateral quality, borrower performance, servicing controls and the ability to enforce security across multiple underlying asset classes.

Franklin Templeton reported US$1.8tn of assets under management at the end of September, including more than US$300bn in alternatives. BSP accounted for approximately US$97bn.

The parties did not disclose the purchase consideration, financing terms attached to the acquired portfolio or how much of the US$480m in commitments had already been drawn.