JEREMY HARRISON, ABL GROUP HEAD,
LLOYDS TSB: Deal activity, certainly
for the first three months of the year,
is slower. A lot of funders such as
ourselves, who act more as participants
than lead arrangers in the U.S., have
been concentrating on our existing
portfolio. There’s been a lot of portfolio
management going on. And we saw an
unprecedented situation with many
clients reporting severe financial
As the months have gone on, those
things have improved, and the market
now is beginning to improve for ABL
players again with more coming back
into the market.
Certainly some of the small players
are not in the market anymore. So from
both GE’s and CIT’s perspective, trying
to find those people who just buy in is
more difficult. And the number of active
players has fallen probably to half what
it was last year.
COVE: So you are you seeing more
activity on the syndicated side?
SETTINERI: There are opportunities
presenting themselves in the ABL
market simply because companies are
trying to manage through the cycle, and
they still need credit and liquidity. The
opportunities that we’re finding are,
in many respects, cash flow deals or
deteriorating credit situations which,
from an ABL perspective, are still very
good, very strong collateral deals. While
many of these companies are doing
worse than they were, they are still
doing okay with respect to being able
to generate cash and being in a cash-positive position.
So I think what we’re seeing is, in
many respects, better quality credit than
we’ve seen before, migrating down into
the ABL world, and these are, generally
speaking, marquis names, and they do
present an opportunity.
The other thing that we’ve seen
is securitizations which no longer
qualify for a conduit structure, but can
still qualify under a more traditional
asset-based type structure. We’ve done
a number of them here at GE. I think
we’re going to see more opportunities
like that in the market. It may still be a
bit early to see whether or not you can
structure these and syndicate them on
a regular basis, but I think that there are
new opportunities that are presenting
themselves in our market right now.
The first quarter deal flow was
encouraging. I think the second
quarter can be even a little bit better
with respect to some of these new
HARRISON: I think the way that we’re
going to see the year pan out is the
absolute opposite to what it was last
year. The first half of ’08 was very, very
active, and then it really dropped away
in the second half. This year we’re
beginning to see a lot more activity.
Quarter 2 is definitely going to be better
than quarter 1, and I think half year 2 is
going to be far better than half year 1.
We’ve seen deals come from cash flow
into ABL. Kodak was one that we were
involved with as well. We’re seeing
better structures, and this is what
should be happening in the ABL market.
It’s the place that will be recovering first.
COVE: In terms of deal size, has the
current credit environment had an
impact on the size of syndicated deals
that you’ve seen?
HARRISON: I think in 2007 and beginning
of 2008 you could have gotten an ABL
deal of $2 billion done. That’s just not
possible now. However, in respect to
Tyson Foods, for example, that was
nearly a billion-dollar-deal. So I think
that you can do the deals probably of
the billion-dollar-level, but you might
not get it fully underwritten. Or what
you might see happening is partnership
or traditional ABL club arrangements
coming more to the fore as things were
before the large syndication market
really took off a few years ago.
So I think the $2 billion ABL deal isn’t
doable, but the $1 billion deal probably
is. I don’t know whether Bill and Sal
agree with that.
KOSLO: I do agree. I think most people
would have said ABL capacity a couple
of years ago was $2 billion. Today they’d
say it’s closer to a billion. And the giant
deals, like the big retail deals, Michael’s
Stores or Dollar General, those deals just
aren’t happening in the market anyway.
So the need for giant facilities, ABL or
otherwise, for giant buyouts just isn’t
There are some deals, like Sears in the
retail market now, where they’re going
to try to raise maybe $2.5 - $3 billion to
refinance their $4 billion revolver, but
that’ll be a lot of existing guys rolling
into a new deal that’ll be heavily over-collateralized.
I think the deals, just by the nature of
the market, are smaller.
SETTINERI: I think that to get that
billion-dollar-deal done, it will be a lot
more selective i.e., the right industry,
market structure, strong relationships
etcetera. Where I think in years past,
it almost didn’t matter. You could say
capacity for the ABL market is X, and at
one point it did reach $2 billion.
I think it’s very difficult in this market,
however, to really put a number out
there and to say, that, if you’ve got a
$750 million deal, that can’t get done
versus a $250-to-$500 million which
can get done. It’s a lot harder today to
actually say market capacity is X, and
that’s because I just think that investors
are so much more selective in terms of
what they will and won’t do.