Fresh from a number of years out of the market, Blue Motor Finance was acquired by Cabot Square and has relaunched itself. Jonathan Minter speaks to chairman Bob Jones about how the deal came about, and what the company immediate plans are


Between 2005 and 2008 Blue Motor Finance was a successful independent lender in the motor finance market; however the company was forced to pull out when its main funder, Merrill Lynch decided to exit the market.

Without these funds, and with the market stagnant or falling as a result of the credit crunch, Blue withdrew. For some companies this would be the end, however, in this case chairman Bob Jones and a number of directors purchased the residual body of Blue from Merrill and continued to operate it as a vehicle to trade out portfolios of debt from an office in Warrington.

Together they kept at this task for approximately five years, keeping the company’s IT systems up to date, and keeping Blue going, and in 2013 they decided the time was right to relaunch as a motor finance lender.

What happened after this was relatively quick, says Jones: "After a period of nine or ten months with Cabot we raised capital with them for the funding, and pretty well in parallel with that we agreed to put in a facility of about £200m from a very substantial international bank. And we’re now going through the process, and we’ve got to the point where we’ve relaunched."

Debt funding

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According to Jones, Blue would have relaunched "a couple of years" earlier than it did, were it not for difficulties raising capital: "Probably at the beginning of this year it became clear the people providing debt funding were returning to the market. That’s what triggered it; it was more the ability to raise funds rather than opportunity in the marketplace because after the credit crunch a number of lenders, Blue being typical, withdrew from providing finance for car sales arranged at point of sale.

"That is a £23bn-a-year industry, much of which is provided by manufacturer finance companies. This year it’s increased by
about 12%, so coincidental with the fund-ing becoming available, the market is expanding."

Thanks to the growing market, and the fact that dealers have learned certain lessons from the recession, Jones says the room is there for new companies: "The market is dominated at the moment by three major players: Santander, Barclays Partner Finance and

Black Horse. There are then a plethora of manufacturer finance companies, which use the operation to support the sale of
vehicles. Below that there are a number, but not a very large number, of other providers. Dealers are keen not to repeat the problem that occurred in the credit crash where they have insufficient debt provision, so they welcome new providers.

"So there’s a desire for a greater spread of providers in the marketplace, providers that have good technology and very quick
service."

In order to start lending again, Blue needed capital. This came from two sources: the aforementioned international bank which provided a £200m lending facility, and Cabot Square Capital, which closed a deal to acquire the lender.

Prior to the acquisition, Blue was profitable, and had sufficient funds in order to launch. However, Jones says there was insufficient cash to become a large player. He says: "It was really an exercise in accelerating, rather than a slow growth of building equity ourselves, which would have meant we’d have been condemned to very modest levels of lending deep into the distant future. It really was a device to accelerate growth. It suited us because Cabot was looking for investments in the financial services arena, and we were looking for equity to expand the company more quickly."

Conversations with Cabot started approximately 12 months ago, with investment directors Tarun Sharma and Dan Rosenberg heading things from Cabot’s side.

One of the things Cabot brought to the table was a wealth of city connections, says Jones, adding they facilitated the relationship which resulted in Blue gaining access to substantial, well-priced debt.

Blue’s initial offerings will be principally hire purchase, though also personal contract purchase, and its route to market will
be through both broker relationships and dealers.

In terms of who Blue will lend to, Jones says it will be quite substantial: "So what we’ve done is segment the market into five levels of rate for risk. So you take a segment, you calculate from historic information what’s the likelihood of people who were scored in that band becoming delinquent, and you price accordingly. Or, if it was felt that person’s ability to afford what he was buying was not demonstrable, we would decline him. Other than that, we would find one of our five tiers or rate for risk as a slot to put him in.

"Now in the case of Blue, we would not expect to lend money in what has historically been called subprime. Subprime is again very difficult to get a precise description of, but I suppose a near enough one would be a potential borrower who had a delinquent situation, such as a county court judgement or defaulted loan, in the reasonably near past. It would be felt those guys could be described as subprime, and they would either be rejected or priced by other specialist companies in that arena."

The decision not to lend into the subprime market is one of the features that distinguishes the current incarnation of Blue from its previous self, something Jones credits to Merrill Lynch’s involvement: "We were encouraged by Merrill to reach more deeply into the rate risk arena.

In other words we were asked by them to provide some facilities that would be nearer subprime than the bottom-end of our present offering."

While they might not be targeting exactly the same segment they did originally, much of the same team has stayed together, and Jones says this is something that will help them to stand out.

"This management team has extremely deep roots in motor finance," he says. "The largest company that we were involved in creating was Barclay’s motor finance offerings."