From the results of the third quarter Phoenix Management “Lending Climate in America” Survey, it appears that we are seeing two different lending markets – one for larger and healthier companies and one for smaller and less-healthy companies.
“It seems as the larger, healthier companies have lots of lending options and are getting very competitive terms, while smaller (EBITDA less than $10 million) and less healthy companies find themselves with fewer options and more expensive and restrictive terms,” said Michael Jacoby, Phoenix senior managing director and shareholder. “The results don’t surprise me. We continue to see this lending dichotomy demonstrated through our clients and their lenders every day.”
The survey found financial leverage ratios for cash-flow lending expand in the third quarter. Total responses in the 3.0-3.5x debt to EBITDA leverage category posted the largest percentage point gain of any leverage category this quarter. Lender responses in the 3.0-3.5x category increased 27 percentage points relative to last quarter’s survey (32% in the current survey versus 5% in Q2).
Results also showed declining growth expectations, while stagnation appears to be on the rise. This quarter’s diffusion index decreased 23 percentage points relative to last quarter. Looking at the same period six months ago shows a decrease in the diffusions index of 30 percentage points.
Interestingly, retracing historical survey results to the same period in 2011, lenders showed similar subdued expectations. Respondents indicated that on average for all domestic lending categories, 19% expect increased loan demand (compared to 34% in the prior quarter). Sixteen percent of lenders this quarter feel that an overall domestic lending slowdown is imminent (only 9% of lenders felt this way the previous quarter). Corporate, middle market, small business lending and international lending criteria were universally expected to decline, driving overall domestic negativity.
To see the full results of Phoenix’s “Lending Climate in America” Survey, click here.
Phoenix Management Services provides turnaround, crisis and interim management, specialized advisory and operational due diligence services for both distressed and growth oriented companies.