A former lender to RadioShack Corp. and a one-time chief executive officer of Frederick’s of Hollywood are teaming up to provide a new source of funding to retailers, aiming to capitalize on upheaval at shopping malls.
Andy Moser and Thomas J. Lynch, two industry veterans, are starting a Boston-based firm called Scargo Hill Capital that will make asset-based loans to consumer companies. The founders expect to work with emerging businesses that may not be able to get a loan from a traditional bank, in addition to providing a lifeline to struggling chains.
Retail dislocation, spurred in part by the rise of e-commerce, has created opportunities for new lenders to step in. A decline in mall traffic has left many chains fighting to survive. And yet, many have brands that still resonate with consumers and could live on with the right support.
With consumer spending habits changing so rapidly, “there’s plenty of turmoil in the market for us to focus on,” Moser said in an interview.
While asset-based lending has tended to focus on distressed companies, emerging retailers often have similar profiles, Moser said. They lack a history of solid financial performance but need capital to expand their businesses. Scargo Hill also will target loans to smaller suppliers and merchants that have been getting squeezed by consolidation, he said.
Nonbank debt has gone from a “niche strategy to becoming institutionalized,” Lynch said, but it’s been concentrated on larger transactions. Scargo Hill aims to offer loans of $25 million and under, though it will also provide financing for larger deals.
Moser, who worked most recently at mid-sized lender Monroe Capital, previously founded Salus Capital in 2011. That entity made loans to deeply distressed retailers, including American Apparel and Delia’s. Both those chains filed for bankruptcy.
Salus’s parent company, HRG Group, began winding down the firm after it suffered losses from a $250 million loan — its largest ever — to the bankrupt RadioShack.
Lynch, meanwhile, was CEO of the ailing Frederick’s of Hollywood chain when HRG helped take the company private in 2014. Frederick’s, a chain of lingerie stores that claimed to be the first to sell push-up bras, filed for its second bankruptcy in 2015 and sold itself to Authentic Brands Group.
In their new endeavor, Moser and Lynch also are working with two established finance and liquidation firms: Schottenstein affiliate SB Capital Group and 360 Merchant Solutions.