Corporate Finance

CapitalSource Chairman and chief executive John Delaney discussed his career and commercial lending, investment and asset management. Delaney was joined by Washington Post staff writer Tom Heath.

Heath profiles Delaney and examines the growth of the region as a financial hub in an article today.

CapitalSource is one of the companies listed in The Post 200. The Washington Post's annual report on the area's top businesses includes a ranking of the largest publicly traded companies, corporate profiles and more.

A transcript follows.

____________________

Tom Heath: Hello. I am Tom Heath and it's great to be here. I am a reporter in the financial section, where I cover local businesses, dealmakers and deals. I am happy to answer some of your questions.

_______________________

Arlington, VA: John, what are your thoughts on today's Chrysler announcement? What does it say about a private equity firm owning a Big Three automaker?

washingtonpost.com: Cerberus to Buy Chrysler Group for $7.4B

John Delaney: it is very interesting. even more so because cereberus owns 51% of gmac, GM's big diversified lending business.

_______________________

Arlington, VA: Do you invest in firms hq'ed outside of the DC metroplitan area?

John Delaney: yes, we are national, including targeting firms in europe from our london office

_______________________

Springfield, VA: Tom - what other characteristics did you see in John that might represent the financial industry in this area as a whole. Do the firms move that much faster than their counterparts in NYC?

Tom Heath: John seems very well connected in the business community, and especially in the financial community around Washington. One common refrain about his speed is that he can make decisions fast, even if it means scrapping one business plan and moving in another direction. John does not seem sentimental about business, which is a characteristic he shares with other successful businessmen. I expect the firms in New York move pretty fast as well. Which only means that John Delaney is in good company.

_______________________

West Chester, DC & Sterling, Virginia: We met briefly at Wintergreen where I own a property as well...My Question: How did you make the knowledge leap from a law school student/attorney into starting a finacial company? I'm an American University Law School grad and been in the real world a couple years and am contemplating starting a retail bank.

Thanks!

Jeff

John Delaney: hi jeff, i was looking for the right point on entry and for me that point of entry was very price sensitive since i had little (no) capital. i started in healthcare b/c i thought it was a grwoing area and a company was for sale that was the right price. after managing that business for a few years (and having on the job training financing that business), i started a business financing all typoe of healthcare service businesses. like most things, you learn what you need to leran to get the job done. good luck with the retail bank

_______________________

Tom Heath: John. Is the stock market fully valued, over valued or do you think it still has a ways to climb? And how long can these good times roll?

John Delaney: tom, i certainly no expert at relative valuations of the market other than to say the LBO boom will probably keep the market moving at a good pace. the good times are tied to global liquidity, which i expect to continue (with some speed bumps along the way)

_______________________

Washington, D.C.: Would your firm be interested in investing in a new community bank in D.C. targeted at small, minority owned businesses?

John Delaney: great question.

i am considering starting such a bank in maryland and am involved with one in california serving the oakland area. its an area i care a lot about and i think community banks that run with a "double bottom line" are the right answer

_______________________

Washington, D.C.: Could you talk a little about your start in commercial lending, after graduating from law school and leaving the law firm. What risks/advice do you have for new entrants in the 2007 market?

John Delaney: i ended in commercial lending in an indirect way - law, to healthcare, to healthcare lending, to general commercial lending.

my advice would be take a chance while you are young, the downside is limited

_______________________

New York, NY: Why did you become a REIT?

John Delaney:1/2 of our business was real estate lending and as a reit we pay no tax on real estate lending or investing. put another way, it cut our tax bill in half and allowed us to still provide comrporate lending

_______________________

Bowie, MD: Why are so many P.E. firms buying companies? What's it mean for CapitalSource?

John Delaney: it is simply capital allocation. more investors are allocating capital to private equity (and therefore indirectly away from mutual funds, etc). this dynamic creates good opportunities for us as almost half of what we do is finance private equity backed transactions.

_______________________

Spring Lake, NJ: How do interest rate fluctuations impact your lending?

John Delaney: for most of our business we are a flaoting rate lender and a floating rate borrower, which means we are largly interest rate insensitive

_______________________

Washington, DC: How and why is DC becoming home to so many powerful financial service companies?

John Delaney: DC has many advantages - very good place to live, highly educated work force, and in a world that is increasingly global, dc presents many structural advanatges in terms of access to policy and information. these fit well with the needs and desires of people in finance

_______________________

Arlington, VA: John, how are you able to carve out time to focus on big-picture issues? Seems like that's a challenge with such easy access to e-mail and other distractions.

Thanks...

John Delaney: very very good question. having time to think is important. as a rule i try to take a long time deciding upon big decisions so that the tempo or pace of technology enhanced life does not compel you to deal with a big decision in the same way as so many of the little decisions that you make each day

_______________________

Washington, D.C.: One of the quotes in today's story says you win because you are fast. But have you also lost because you were too fast? Looking back, were there times when you should've spent more time examining a deal?

washingtonpost.com: Today's Article: John Delaney and the Speed of Success

John Delaney: speed can be a big advatage and a big disadvantage. there are many examples of where i have acted too fast - too quick to jment on an issue. thats why i do try to take my time on big decisions

_______________________

Virginia: How are businesses looking for an investor and potential investors matched up? What routes does a good business idea have to get investors?

John Delaney: investment bankers play a valuable role in this regard. they provide investors with a screen on deals and they generally have very good access

_______________________

Washington, D.C.: Tom - wanted to pick your brain on the latest post 200. There was a line about this area's free-agent mentality. Is the concept of loyalty to an employer a long-gone memory?

washingtonpost.com: Post 200 Overview: Dealmakers Juggle the Corporate Lineup

Tom Heath: Great question. And timely. Sadly, yes, I think employees have to be pretty unsentimental, a word I have already used in this conversation, about employment. An employee can certainly be loyal, but they must look for new opportunities. That's not disloyal. It's not inconsistent, either. But given today's rapidly changing marketplace, where a company and even an industry can become obsolete pretty quickly, employees have to stay ahead of the curve and look what the "next big thing" is and jump in. Saddlemakers went through this 100 years ago.

_______________________

Very good place to live, highly educated work force: So are you a proponent of J. Florida's Creative Class theory that quality of life is the most important factor communities have to attract new business (as opposed to the old tax rates, utility rates, etc. that were more related to manufacturing)?

John Delaney: never read the book, but i just did a google and it seems to make sense

_______________________

Arlington, VA: Looking at your numbers, CapitalSource has grown a lot, what's next?

washingtonpost.com: Post 200 Profile: CapitalSource

John Delaney: we see good growth in all of our core business units and are always looking at new markets that leverage our key strengths. we jsut started an infrastructure investment business that will focos on acquiring infrastructure asets from local governments

_______________________

Wash DC: John,

What process did you use to find the healthcare business that served as your transition from the law into commercial lending? How much time did you spend? What resources did you use to find what you thought was a good company?

John Delaney: as i mentioned in a earlier post, our main objective was to find an area that was (1) grwoing and (2) the price on entry was low

_______________________

Rochester, NY: I've heard that short sellers target business development companies because they feel the accounting is not clear. How would you respond to that?

John Delaney: i have not heard that short sellers target BDCs any more than other companies. BDC's generally own many companies and from time to time short sellers will try to do research on the portfolio companies with a hope that bad news in a portfolio company will translate into bad news for the BDC

_______________________

Richmond, VA: what sort of appriasials do you require to ensure your investments have sufficient collateral?

John Delaney: it depends on the deal. for a real estate loan we do both third party appraisals and our own valuation work. for other asset based loans we will review the collateral using third parties. for cash flow, or enterpriae value loans, we value the business using our own models

_______________________

Tom Heath: Thanks for all the interesting questions, especially for John. It was good to hear from everyone. As you can see, John is indeed fast.

_______________________

Editor's Note: washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.