Credit is available if you look hard enough.
I read something recently that speaks volumes about what has happened during this financial meltdown.
AutoNation, the country’s largest chain of auto dealerships, originated nine auto loans through GMAC in December, compared with 1527 loans during the same month in 2007. The number of Chrysler Financial loans to AutoNation customers dropped from 823 to 22. Ford was the only U.S. automaker that continued to offer a significant number of loans, as Ford Motor Credit wrote 1235 loans for AutoNation’s buyers in December compared with 1624 a year earlier.
This illustrates how the lack of credit flowing in the system is a big part of what has knocked the construction materials industry backward, compounding the problem of housing foreclosures and a lack of demand. Our clients are complaining every day about their inability to find the credit they need to run their businesses at a time when it is sorely needed.
Their loudest complaint is not the lack of credit, which has come to a nearhalt to buy new equipment. The problem is finding support just to do business. In many cases, producers are finding it difficult to simply renew existing credit facilities as banks cower during global economic uncertainty.
What is particularly maddening is that the Troubled Asset Relief Program (TARP) Congress rushed through in October was supposed to have addressed this. But six months later, conventional credit markets remain frozen. What does a producer do?
U.S. Treasury Secretary Timothy Geithnerin February announced a new
Financial Stability Plan so borrowers have greater access to credit.
There are options. I traveled to a private equity conference early this year and expected to find the turnout light, given the current economy.
Wrong. The packed, standing-roomonly conference was well-represented by investment bankers, CPAs, lawyers, and others looking for financing alternatives to address their clients’ needs.
But they were clearly outnumbered by private equity, hedge fund, and mezzanine lender representatives anxious to pitch their stories. I learned there is clearly a free flow of credit in these alternative classes, even if it takes some work to find it.
Here are the areas that remain active:
- Community Banks: Generally falling in the $500 million to $5 billion range, most community banks avoided the toxic subprime debacle and have not had to access TARP to solve bad loans. They are still in the markets, addressing the borrowing needs of their customers, and in many cases, attracting new customers larger banks have chased away.
- Asset-based Lenders: This class of lenders has picked up steam, as they replaced many cash-flow lenders of a couple of years ago who are out of the market. Financing is available through this traditional tranche of lenders.
- Mezzanine/Sub-Debt Lenders: As the recession unfolded, the capital structure for financing transactions shifted. Senior secured lenders are reducing their exposure, and the sub-debt lenders are filling the gap between senior bank borrowings and equity. They’re all looking for deals. Terms are pricey, but in a rough market they are a solution to capital needs.
- Private Equity: Many think this is where we turn for buyouts, but they offer many other options short of selling the business: recapitalizations, buying minority interests, and other creative deals that allow a producer to solve his capital needs, reduce his personal exposure on bank loans, and still keep control of his business. Thousands of these firms are well-funded and looking for investing opportunities.
Accessing these alternative financing sources takes time and effort, but your accountants and lawyers can help. While the infrastructure stimulus package is helpful, and the economy is Washington, D.C.’s top priority, recoveries take time, and credit needs don’t wait. These alternatives can offer the answer.
Pierre Villere is President and Managing Partner of Allen-Villere Partners. Contact Pierre Villere at firstname.lastname@example.org or telephone 985-727-4310.
© 2009 Hanley Wood, LLC. All Rights Reserved. Republication or dissemination of “Where to find credit relief” (The Concrete Producer, March 2009) is expressly prohibited without the written permission of Hanley Wood, LLC. Unauthorized use is prohibited. Allen-Villere is publishing “Where to find credit relief” under license from Hanley Wood, LLC.