Turnaround Pros Say Alternative Financing Sources Are Putting Debt Defaults on Hold |
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By: Turnaround Management Association Posted: 2007-06-12 09:37:13 |
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An upcoming U.S. presidential election, the prevalence of highly leveraged deals, and a sagging housing market give no clear signals about whether a commercial lending slump is on the way. But corporate renewal professionals expect hedge funds and private equity to remain a potent force shaping credit availability to distressed companies now and in the future.
Seventy-nine percent of respondents to the Turnaround Management Association's annual Trend Watch Credit Poll see hedge funds and other nontraditional lending sources as emblematic of a fundamental change in how business is financed and likely to become a fixture in the economy. "The growth in influence of hedge funds and private equity firms on both the debt and equity markets has accelerated over the past two years," said Colin Cross, managing director of Crystal Capital and chairman of TMA International. Poll respondents say the nontraditional lenders are changing the paradigm for what deals are done and how. "There is no such thing as risk-based pricing any more. Even marginal credits are able to locate lenders who provide thinly priced credit with far less restrictions than circumstances would normally appear to warrant," said Stephen B. Mischo, vice president at State Bank of Long Island. Hedge funds and private equity firms are also snagging deals in industries once deemed untouchable, as evidenced by recent deals in the gaming industry. "No part of the capital structure is off-limits," said Robert D. Katz, CTP, managing director of Executive Sounding Board Associates Inc. and a TMA Executive Committee member. If credit begins to dry up, hedge funds may seek more fertile pasture. "They take risks, but move on to where the most money can be made," said Thomas E. Pabst, chief administrative officer of the Great American Group in Chicago. "Whether it happens a year from now or five years from now, all these un-bankable companies are going to have issues and become a source of business for turnaround professionals." In fact, TMA respondents were not reluctant to speculate on when the tide might turn. Twenty-one percent predict a rise in debt default rates during the last half of 2007, while another 65 percent predict a blowup by the end of 2008. Fourteen percent take a "wait and see" approach, saying default rates will stay low at least until 2009 or later. Charts and more detailed results are available at http://www.turnaround.org/news/trendWatch.asp?objectID=7605 The Turnaround Management Association (http://www.turnaround.org) is the only international non-profit association dedicated to corporate renewal and turnaround management with 7,700 members in 40 regional chapters. |
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