Sotheby’s, the auction house under pressure from activist investors to boost profit, doubled the amount it can borrow to make art loans in a bid to win clients and top consignments.
Sotheby’s secured a credit line of more than $1 billion to make such loans from a consortium including General Electric Capital Corp., according to a filing last week. The New York-based auction house previously could borrow $550 million under that line.
More wealthy collectors and investors are taking advantage of rising art prices by borrowing against their trophy works. Banks including Goldman Sachs Group Inc. and Citigroup Inc., hedge funds and specialist lenders offer such services but Sotheby’s has an edge because it can also auction the works for clients, reports bloomberg.com
“Sotheby’s financial services is another area where we can expand and grow profitably through improved focus and attention,” Tad Smith, Sotheby’s chief executive officer, said last month.
Smith, a media and entertainment executive who replaced William Ruprecht as CEO this year amid pressure from billionaire activist investor Daniel Loeb, is looking for ways to increase earnings amid record prices for art.
Revenue for the finance segment, a small but fast-growing business for Sotheby’s, increased 79% to $15.9 million in the first quarter from the same period a year earlier. Profit surged 41% to $4.3 million.
Higher Revenue
Sotheby’s revenue from its agency segment, which includes auction commissions, rose 4% to $127.9 million. In May, Sotheby’s sold $890 million of art during two weeks of big auctions in New York. Christie’s tally from the equivalent sales was $1.7 billion.
A syndicate of lenders led by GE Capital is backing the credit. Sotheby’s credit line to finance art-backed loans to clients rose from $550 million in August, the company said in a June 15 filing, an increase of 88%. Sotheby’s paid $2.7 million in fees to amend the agreement.
The auction house has been a GE Capital customer since 2009, when its credit facility was $200 million.
Until 2014, Sotheby’s used its cash flow to primarily finance loans on art. Since then it has set up a separate capital structure using borrowed funds.
“The increased borrowings under our credit facility are driven by the record level of loan portfolio balances,’ Jan Prasens, managing director of Sotheby’s Financial Services, said.”Art lending is a growing business for Sotheby’s.”
According to 2014 report by Deloitte/ArtTactic, 48% of 90 major art collectors surveyed said they would be interested in using their art collection as collateral for a loan, up from 41% in 2012.
