Not unlike last year’s ABL Marketplace Survey, lenders are saying the current ABL landscape is more borrower friendly than ever with ABL pricing at the “bottom of the range.” As one respondent put it, “We have entered into another ‘credit stupid’ cycle.” Another said there is “tremendous pressure on having looser structures.” Lenders also noted that borrowers with good credit are getting more proposals.
With regard to an ABL’s relationship with its current customers, an overwhelming majority echoed sentiments expressed since the return of liquidity to the market, i.e., borrowers continue to be sensitive to pricing and loan covenants with a larger percentage than last year saying they would be inclined to seek refinancing alternatives. And, on a more somber note, a large majority of lenders indicated their customers are less inclined to value the borrower/lender relationship with more than 60% saying “less” versus 47% one year ago.
When asked about the syndicated loan marketplace, a majority, or 59%, said lenders have increased their hold limits, followed by the emergence of unitranche structures, as being limiting factors in today’s syndicated loan environment. Respondents overwhelmingly (85%) said re-financings continue to dominate transaction types followed loosely by restructurings.
With regard to pricing and structuring trends, lenders said spreads are narrowing within a market that continues to soften. One respondent said, “pricing is way too low,” while another noted, “lenders are foolish to lock in these low spreads.” As regarding the impact of excessive bank liquidity, lenders cited “pricing pressure” and “covenant light structures” as manifestations of the current imbalance of supply and demand.
Respondents overwhelmingly said “yes” to the question: Have ABLs benefited from their performance during the past recession? What we learned was that the large majority, or 71%, said their senior management has been more supportive as a result, and they enjoy a higher internal priority for resources. One respondent said, “lenders still around have a lot of capital to deploy.” Another indicative comment was, “operating under tighter conditions is a good lesson.”
Regarding their greatest concern going forward, survey participants noted, “competitive environment,” “over-regulations” and “growing supply & demand imbalance” as their greatest concerns.