2013 ABL Marketplace Survey: Good News/Bad News
Good News/Bad News:
ABLs Say Senior Management “Like the Way They Look”
ABLs Voice Concerns Over Pricing, Structuring & Loyalty
May 21, 2013
lenders
Shannon Browne
Good News/Bad News:
ABLs Say Senior Management “Like the Way They Look”
ABLs Voice Concerns Over Pricing, Structuring & Loyalty
Although today’s economic environment leaves many middle- and lower middle-market companies struggling to secure capital, it allows asset-based lenders to develop creative strategies and identify overlooked areas of opportunity to realize considerable returns, while enabling access to liquidity for these businesses.
According to Mark Sunshine, many successful small business owners are wondering why they aren’t invited to the Fed’s “low interest rate party.” He provides five major reasons why good borrowers with plenty of cash-flow, net worth and collateral have a tough time finding bank loans.
In analyzing the asset-based lending market at the dawn of a new year, David Gaito, SVP and regional sales manager of PNC Business Credit, notes three significant factors: 2012 was not as bad as advertised, a supply/demand imbalance remains and ABL potential in 2013 is mixed. Prudence, he notes, will be key to short- and long-term success.
RMP Capital’s James DiCamillo notes that 2012 was characterized by historically low interest rates that made earning a profit somewhat challenging. Looking ahead, DiCamillo says banks have continued their retreat in the small business sector, even though many enterprises that would be candidates for financing pose only a fair level of risk. As a result, more business owners in this category appear to be discovering commercial finance as a serious option.
As only one of many factors that will impact decisions about the allocations of bank capital, higher Basel III regulatory capital minimums are unlikely to move the needle up by more than 30 basis points on borrowing costs charged by the well-run lending operations of larger financial institutions to creditworthy customers.
Asset-based lenders have found deal opportunities rather slim so far this year, with Q1/12-Q3/12 ABL volume dropping 45% over year-ago levels. Where dealflow will come from for the rest of the year and into 2013 is questionable, as the refinancing cliff has been pushed out to 2017, leading most lenders to dismiss hopes for a meaningful pipeline in 2013 absent a pickup in M&A.
With an imbalance between supply and demand, conditions this year were supposed to favor lenders. Instead, the first half of 2012 has been lackluster, with loan volumes below last year’s pace. In order to win financings, flexible participation has become increasingly important. And, those lenders with multiple sources of funding are finding themselves at a growing advantage.
Is there presently a trend of soft pricing and loose structure in the ABL marketplace? Or is post-recession competition a reflection of normal supply and demand in the current the economic cycle? Howard Brod Brownstein asks 14 leaders of institutions ranging from ABL giants to smaller, non-regulated players to share their candid observations about ABL pricing and structure for the balance of 2012 and 2013.
In July 2012, the Federal Reserve Board conducted a Senior Loan Officer Survey on bank lending practices over the previous three months. The majority of lenders from 64 banks — 36 large banks and 28 smaller banks — reported loan demand from large and middle-market firms strengthened “somewhat further” with some noting business had increased due to decreased competition from European banks.