We Ask the Lenders—But Nobody Knows for Sure

broken-bankIt has long been our view that the economic recovery will begin when some liquidity returns to the lending markets. Businesses rely on the ability to borrow cost-effective capital to underwrite their daily operations, and debt is an essential cog in leveraged transactions; purchase price multiples rely on it.

With debt generally unavailable, the transaction and capital markets have dried up. On a micro-level, many companies we talk to are currently unable to pursue compelling opportunities because of a lack of credit that that would have been available a year ago. Other firms are facing tougher “survival mode” decisions in which cash is squeezed from any and every available source.

We don’t anticipate a rapid return to normalcy, but we are seeing signs that the market is making incremental gains.
High-yield issuance volume has remained robust; premium-quality second lien deals are starting to find interested buyers; the Federal Reserve’s intervention at the long end of the yield curve has diminished the opportunity for banks to buy loans on the secondary market at yields more attractive than those on new issuances; and The Toxic-Asset Relief Plan will also better position major lending institutions to recapitalize their balance sheets and begin new originations.

Unfortunately, these macro viewpoints are not much help to companies that need to make tactical decisions on how to fund their operations. In an effort to deliver better actionable information, Cascadia decided to go directly to the source and ask lenders what they’re up to, how the world has changed and, most importantly, when they think the market will improve.

As you might expect, some lenders were reluctant to make predictions or disclose information due to the fluctuating condition of the market and their business. Others were only willing to speak to us on an anonymous basis. Both of these factors are telling and, in our mind, do nothing to diminish the value of the content in the attached.

Read on for greater insight and—as always—let me know what you think.


When Will It End?