risk ratings, he says.
Regional and community banks are
under pressure not to leverage up too
quickly, says Wells Fargo’s Petro. Asset-based lenders are able to remain more
flexible in their transactions than senior
bank lines of credit, she says.
Bank consolidation is likely to
continue into 2011, Petro reckons,
as these institutions build capital to
meet with increased ratios. “I don’t
have many expectations for them to
have dramatically improved balance
sheets in 2011,” she says.
One consequence of the consolidation
in banking is that many borrowers become
“disenfranchised” and are ripe targets for
an asset-based lender, Petro notes.
Even though optimistic, asset-based lenders hedge their forecasts
with caveats and see some clouds on
For instance, there is a lot of volatility in raw materials prices. “Cotton
prices have gone up significantly,”
notes Michael Stanley, managing
director at Rosenthal & Rosenthal,
causing disruption in the supply chain.
Prices for the holiday season have
been already locked in, he said, but
it remained to be seen what kind of
impact the sharp rise in cotton – due
largely to poor crops in Pakistan and
China – would have on retailers and
vendors for next year.
“We remain in a fragile state,”
agrees Rosenthal & Rosenthal’s Stan-
ley. “I don’t believe the sky is falling,
but you need to anticipate all aspects
of our business.”
The cotton situation is an example
of the types of price swings borrow-
ers have to deal with. Often, they are
limited in how much of an increase
they can try to pass on to their cus-
tomers. “There is recognition through
the supply chain that people will have
to share the pain,” says Tananbaum of
Capital Business Credit.
For that reason, Tananbaum be-
lieves one of the big challenges for
2011 will be to safeguard the profit-
ability that borrowers have worked so
hard to restore. “This year, the issue is
to protect your margins,” he says.
and see some
body through the supply chain seems
to be strong today.”
For that reason, Tananbaum says, “We
see that there are significant opportuni-
ties for non-bank finance.” As more bor-
rowers approach the ABL marketplace,
there’s a chance for lenders to get larger
outstandings. “We’re expecting the mar-
ket to grow,” he says.
It may be, lenders say, that a stronger recovery may set in some time toward the end of 2011, paving the way
for a more broad-based growth – and
renewed competition from a full range
of financial institutions – in 2012.
Drogos at BFI Business Finance thinks
it will be 18 to 24 months from the beginning of the recovery in early 2010 before
banks are ready to start lending again
beyond their existing lines.
“It will be 2012 before the nation
hits the gas again,” he says. Until
then, ABL lenders can expect above-average growth, he says, adding: “I’m
real excited.” TSL
Darrell Delamaide is a veteran financial
journalist based in Washington, D.C. He
has worked for Dow Jones, Bloomberg
and Institutional Investor, covering banking
and credit markets.