Lenders Panel Shares Insight at the TMA Southeast Regional Conference

Turnaround industry professionals from across the southeast assembled in Palm Coast, Florida, June 2-3, for the TMA Southeast Regional Conference, where they heard an eye-opening report on the asset-based lending market from a panel comprised of senior lenders and credit professionals from across the industry.

The conference is one of nine regional conferences held by TMA and its chapters this year, including seven in North American and two overseas, the TMA Europe Conference (Helsinki, Finland) and the TMA Asia-Pacific Conference (Taipei, Taiwan).

My colleague Kristina L. Anderson, managing director, Carl Marks Advisory Group LLC, attended the TMA Southeast Regional Conference. She has passed on some great insight from the session “Lenders Outlook: It Only Hurts When I Laugh.” The distinguished panelists offered the following observations on today’s asset based lending market:
  • Less underwriting and more arrangements - lender groups are more frequently pre-arranged by sponsors as opposed to one lead lender underwriting the deal and selling it down
  • Lead arranger hold levels are rising
  • Springing covenants tied to availability are more prevalent than traditional covenant structures
  • Pricing has reportedly fallen to the L+200-275 range
  • Total senior debt has routinely exceeded 5x EBTIDA, with revolvers in the 2-2.5x EBITDA range
  • Initial equity contribution are falling, in some cases down to 25-30 percent
  • Loan balances - usage under revolvers - have been rising this year
  • Increasing prevalence of FILO (first in last out) tranches, which have a higher advance rate and extra pricing, and are in some cases being used to negate the potential impact of springing covenant thresholds
  • Voting rights continue to be under pressure; traditional-100 percent issues are moving to a supermajority vote
  • Reporting frequency is loosening, and triggers must be tripped to get a BBC more frequently
  • There is a hangover of bifurcated loan structures from the last restructuring cycle (where part of the lender group extended and part retained their earlier maturities)
  • Equity cures are being built in at close and in some cases can be used to satisfy EBITDA tests
  • EBITDA definitions are loosening and inconsistent across the marketplace, raising questions  as to whether, because the EBITDA definitions are becoming vague and inconsistent, the covenants that remain in today’s new deals will never actually trip