Minutes of the Regular Meeting of NMSBIC, May 21, 2012
A regular meeting of the New Mexico Small Business Investment Corporation was called to order on this date at 8:00 a.m. in the conference room of the WESST Enterprise Center, 609 Broadway Blvd., N.E., Albuquerque, New Mexico.
A quorum was present:
Members Present:
Mr. Joseph H. Badal, Chair
Mr. Sam Cobb
Mr. Alan Fowler, Secretary/Treasurer
Mr. Lupe Garcia
Mr. Clarence L. Smith [designee of Hon. James Lewis, State Treasurer]
Ms. Launa Waller
Members Excused: Ms. Roxanna Meyers, Vice Chair
Legal Counsel to Board: Mr. Randy McDonald
Financial Advisor to Board: Mr. Paul Goblet
Recording Secretary: Ms. Judith Beatty
Guests Present:
Ms. Sharon Wiedenhaupt, The Loan Fund
Mr. Alex Gurule, The Loan Fund
APPROVAL OF AGENDA
Mr. Fowler moved for approval of the Agenda, as published. Ms. Waller seconded the motion, which passed unanimously by voice vote.
REVIEW AND ACCEPTANCE OF BOARD MINUTES: April 16, 2012
Mr. Cobb moved approval of the April 16 Minutes, as submitted. Mr. Fowler seconded the motion, which passed unanimously by voice vote.
REVIEW AND ACCEPTANCE OF FINANCIAL REPORT
Mr. Fowler reviewed the April financials.
Referring to the schedule of activity, Mr. Fowler noted a $93,000 loss under ACCION and reminded the Board that this is the result of the change in their collections policy in terms of writing off loans. He said ACCION is still actively collecting on these loans, however, so anything that comes in will be counted against the loss.
Mr. Cobb moved to accept the financial statements. Ms. Waller seconded the motion, which passed unanimously by voice vote.
PRELIMINARY DISCUSSION OF 2012/13 BUDGET
Chairman Badal commented to Ms. Wiedenhaupt that, at the last meeting, he had questioned why The Loan Fund needed more money from the SBIC and was willing to pay the SBIC interest for it, given its very healthy cash position.
Ms. Wiedenhaupt responded that there was a large loan in the pipeline that did not materialize. She said she updates the pipeline on a weekly basis and has to have enough money to fund these loans, although not all of them will ultimately be approved. She said it is a bit of a juggling act trying to anticipate The Loan Fund’s needs.
Responding to the Chair, Mr. Goblet said The Loan Fund’s blended cost of capital is about 2 percent. He said the NMSBIC is required to respond to The Loan Fund’s capital calls within 10 days.
Chairman Badal expressed concern about the fact that The Loan Fund is having to pay interest on money it doesn’t necessarily need right away, which just adds to its operating costs.
Ms. Wiedenhaupt stated that their new agreement, effective in January 2012, gives them the option to make monthly rather than quarterly capital calls.
Mr. Goblet reviewed the preliminary 2012/13 budget.
Chairman Badal noted that, because of the economy, the projected life of some equity funds is being extended beyond the legal requirement. He said he thought it very important to keep the GP involved with some of these funds after the agreements expire, and asked Mr. Goblet to prepare an estimate of how much the NMSBIC might have to contribute for two additional years, assuming the other GPs would be interested in staying in the fund. He recommended that an upcoming agenda set aside sufficient time to discuss this issue in depth.
Mr. Goblet stated that the projected budget shows $11 million in cash at 6/30/13, which does not include a return on capital.
Mr. Cobb stated that the Board will need to focus on how it will fund the NMSBIC’s annual operational costs of $285,000 going forward.
ADVISOR’S REPORT
a. Discussion Regarding Directors and Officers Policy
Mr. Goblet stated that he has just been notified that Carolina Casualty, which has been providing D&O insurance for the NMSBIC, will not be renewing its policy because of changes in their underwriting guidelines. He said there are a number of other entities that provide this insurance, which the Board has always carried. He stated that the cost is about $2,600 a year. The policy expires on June 23, and the Board can take action to approve a new policy at the June 18 meeting.
Mr. McDonald stated that he would seek quotations.
Mr. McDonald noted that the Board has multiple layers of protection through other sources, including the Small Business Investment Act and the NM Tort Claims Act. Additionally, there are statutory provisions that protect nonprofit boards against liability.
Chairman Badal asked Mr. McDonald to investigate the cost of including coverage for the Executive Director.
b. Discussion and Possible Vote on NM Mezzanine Proposal
Mr. Goblet reported that NM Mezzanine Fund has agreed to the changes proposed by the NMSBIC Board and as outlined in the document prepared by Mr. McDonald, but has requested that the investment period be extended to February 28, 2013, rather than December 31, 2012.
Mr. Fowler moved to approve the First Amendment to the agreement, as presented. Mr. Smith seconded the motion, which passed unanimously by voice vote.
c. Discussion on NM Growth Fund II
Mr. Goblet reported that NMGF II held an Advisory Committee conference call to outline and review their proposal on winding up Fund II in November, and also reviewed strategy for the remaining two ongoing businesses. Their proposal is to: 1) liquidate fund assets, where possible, prior to Fund closure; 2) distribute equity interest to the LPs; and 3) structure to minimize costs, balanced with maintaining representation and minimizing cross-exposure with liability.
Mr. Goblet reviewed valuations of the two companies in the NMSBIC’s balance sheet.
Mr. Goblet said the Advisory Committee agreed to request an extension of the Fund for a one-year period, with minimal costs, and eliminating management fees during any extension period. He said they have the option of requesting an additional one-year extension.
Mr. Goblet said a formal proposal will be coming to the NMSBIC and all LPs in the near term.
Advisor’s Report (cont’d)
Mr. Goblet discussed his role as representative of the NMSBIC on the advisory committees of the active equity funds, and said the incoming Advisor or Board should consider the role the NMSBIC wants to play going forward given its role as lead investor.
Mr. Goblet stated that first quarter reports from all of the fund partners will be out shortly.
Mr. Goblet reported on developments with Flywheel Ventures and New Mexico Community Capital.
HOBBS BOARD MEETING AND PUBLIC PRESENTATION DISCUSSION: Monday, June 18
Mr. Goblet and Board members discussed details of the upcoming Hobbs visit, which would include the regular Board meeting from 9:00 to 12:00, a meeting with local bankers, and the public presentation at 5:30.
FOLLOW-UP DISCUSSION ON HD3
Mr. Goblet distributed an executive summary discussing the launch of the HD3 pilot program on May 24, when HD3 would hear 30-minute presentations from 20 companies, out of which they would identify 2-4 companies that would participate in their boot camp.
Chairman Badal recommended that that discussion be postponed to another meeting given today’s busy agenda.
CANDIDATE ASSESSMENT – POSSIBLE VOTE ON SELECTION OF EXECUTIVE DIRECTOR/INVESTMENT ADVISOR
Chairman Badal advised the Board on the status of the Invitation to Bid for the Position of Executive Director /Investment Advisor released by the SBIC on April 2, 2012. The ITB called for submission of responses by candidates by May 4th followed by an evaluation of the responses by a subcommittee of the Board, and finalist interviews and selection at the May 21st Board meeting.
Mr. McDonald noted that six persons had submitted questions regarding the position, but that only two persons actually submitted formal responses; namely RDC Investment Advisors, LLC (Russell Cummins, Managing Member) and Rudy Sporing.
The two responses were provided to the entire Board upon receipt for review and a subcommittee consisting of Chairman Badal, Alan Fowler, and Launa Waller met by telephone conference on May 11th to review the submissions. Because both candidates appeared to meet the qualifications needed, the subcommittee decided that it would be appropriate to invite both candidates to this meeting to make presentations before the full Board. Ms. Waller and Mr. Fowler volunteered to contact the references provided by each candidate and to report on their findings to the full Board at this meeting.
Chairman Badal disclosed to the Board that he knows both Messrs. Cummins and Sporing personally and has also worked with them in a professional capacity and that he believed both to be well-qualified candidates. He said he felt that because of his personal relationship with each candidate, it would be appropriate for him to abstain on any final vote.
The Board first heard from Russell Cummins of RDC Advisors, LLC. Mr. Cummins provided the Board with a handout describing his qualifications and work experience, which most recently had included serving in various roles at Charter Bank, including Acting President, Acting Chief Operating Officer, and Special Assistant to the President. Mr. Cummins provided a presentation to the Board on his work experience, qualifications, and other background.
Mr. Cummins disclosed to the Board that RDC Advisors, LLC, currently is also providing consulting services on a short-term basis to another entity.
Following his presentation, the Board members made inquiries of Mr. Cummins regarding his work history, his self-perceived strengths and weaknesses, and his thoughts on the operations and future of the SBIC.
The Board thanked Mr. Cummins for his interest, and Mr. Cummins then left the meeting.
The Board then heard from Mr. Sporing who joined the meeting after Mr. Cummins had left. Prior to the meeting, Mr. Sporing had provided to the Board a handout describing how he would accomplish the work specified in the ITB. Mr. Sporing provided a presentation to the Board describing his intended approach to the position should he be selected, and describing his qualifications and work experience, which most recently had been as Senior Vice President/Commercial Loan Officer/Relationship Manager at First Community Bank.
Following his presentation, the Board members made inquiries of Mr. Sporing regarding his work history, his self-perceived strengths and weaknesses, and his thoughts on the operations and future of the SBIC.
The Board thanked Mr. Sporing for his interest, and Mr. Sporing then left the meeting.
The Board then discussed both candidates in depth. Chairman Badal first asked Ms. Waller and Mr. Fowler to report to the Board with respect to their conversations with the references for each candidate. The references contacted provided strong support for the experience, skills, and integrity of the individual candidates.
Although the Board members found both individuals to be well qualified and experienced, from the discussion it became apparent that Mr. Cummins was the first choice among Board members. Board members cited the strength of his presentation to the Board, and his work experience that, because it included high-level executive and CFO experience, provided skill sets that would be beneficial to the operation of the SBIC.
The Board discussed the fact that Mr. Cummins’ proposal included a fee request that was significantly higher than that being paid to the current Investment Advisor and that Mr. Cummins, because he may not have been aware of the fee currently being paid for the services, may be willing to agree to accept an amount more in line with current practice. In addition, it was noted that RDC Advisors, LLC currently has at least one other client, and that nothing would prevent RDC Advisors, LLC from performing services for others in the future.
Upon motion made and seconded, the following resolutions were unanimously approved (with the exception of Chairman Badal who abstained):
RESOLVED, that the position of Executive Director/Investment Advisor be offered to RDC Advisors, LLC (Russell Cummins, Managing Member) at a salary to be negotiated by Chairman Badal; and it was further
RESOLVED, that upon completion of successful negotiations with RDC Advisors, LLC, that Chairman Badal be and hereby is authorized to enter into a Professional Services Contract with RDC Advisors, LLC on behalf of the SBIC for Executive Director/Investment Advisor services, with an initial term to expire June 30, 2013.
The Board then discussed the continuation of the current Professional Services Contract for Investment Advisor Services with Asset Advisors, LLC (Paul Goblet) during a transition period to be determined, and thereafter continuing possibly at an hourly rate for so long as such services may be needed to implement an orderly transition to the new Executive Director/Investment Advisor.
CHAIRMAN’S COMMENTS
Chairman Badal reported that he met with Holly and Tom Eakes of the Holly Company and explained the Board’s position to them. He said the conversation was very productive, and they have agreed to appear before the Board to explain how there is a direct benefit to the NMSBIC and its constituency as a result of their efforts. Additionally, he asked them to work on expanding their roster of investment partners, in which case the NMSBIC would consider continuing to fund them, albeit at a lower number.
Mr. Goblet noted that, based on Board discussion over the past few months, in the proposed SBIC budget he has reduced Finance New Mexico’s support from the SBIC by half to $18,000.
ADJOURNMENT
Its business completed, the NMSBIC Board adjourned the meeting at approximately 11:15 a.m.