"We deserve a better bank deal."
- CEO of a large privately held company
"Deserve's got nothin' to do with it." - William Munny, Unforgiven
If you haven't renewed your line of credit since September 2008, you're probably in for a surprise. Regardless of how well your company is navigating the downturn, your senior lender will likely seek higher pricing, additional collateral and (or) tighter covenants. Absent repeal of "supply and demand," this new reality makes sense - at least directionally.
The key word is "directionally" because the next questions all start with "how much"...How much will pricing increase? How much additional collateral? How much will covenants tighten? In the current environment, even lenders aren't sure. Most are genuinely searching for smarter tradeoffs between price, structure and risk, while some have consciously "over reached" to keep regulators at bay and others have simply (or grossly) exploited the credit crisis umbrella.
How Snap Vector Can Help
Snap Vector can help you read the market. If you haven't renewed yet, we can predict what terms your senior lender will likely seek. And if you have renewed, we can help you judge if those terms are reasonable, "off a little," or "off a lot" compared to current market.
Even if your senior lender is "off market," it may not make sense to search for a new one because changing lenders in a weak economy is risky business - how a new lender reacts to covenant breach is something you learn after it happens, not before. Snap Vector can help you weigh whether changing lenders makes sense. If the existing lending relationship has been a long one, we usually advise clients to maintain it, if only temporarily.
If it does make sense to maintain the current relationship, we can sometimes negotiate better terms with the current senior lender. But more often, we simply "facilitate." When lenders and borrowers sit down to discuss new loan terms, the conversation is usually tainted by borrower surprise, lender fear and uncertainty for both (the borrower is unsure if the deal is "fair," and the loan officer is unsure if she can "sell" any alternatives within her institution.) This isn't a climate for constructive problem solving. Yet in exactly such situations, Snap Vector has been able to identify different - yet acceptable - price / structure tradeoffs that lenders and borrowers didn't (or couldn't) explore on their own.
Still, there are situations which call for change. Searching for a new lender might make sense if the incumbent is both "off-market" and inflexible. And it's not always the lender that needs changing...sometimes it's the client's capital structure that is "off market" and in need of additional junior capital. When our clients need new financing providers of any stripe, we introduce them to The Malibu Group, professionals who are deeply experienced in finding and accessing alternate financing sources.
|
