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Banks Are Easing Terms for Middle-Market Lending
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CNBC Reporter
Critics who argue banks are not lending might want to check with middle-market companies. Demand for new loans may be recovering slowly, if at all, but banks are trying to win these companies' business with more attractive terms.
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Analysts said despite a loosening up of restrictions on loans, banks are not so desperate to lend they are taking on lower quality credits in this market. |
"We have seen a return to maybe 2006 pricing and lending terms, structural terms," said Laura Whitley, head of middle-market banking for Bank of America [BAC
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]. "Where you may have seen two covenants in the past, if one will do, it's what clears the market."
There are thousands of middle-market firms in this country. With revenue ranging from five million dollars to half a billion dollars, banks of all shapes and sizes compete for their business.
It's a fight that pits local credit unions against the largest national banks. And it's not just the higher-yielding loans banks are looking to capture from these clients, but additional fee-generating business like cash management and asset management services. So middle-market companies looking to take out loans now will find plenty of banks willing to lend at very reasonable terms.
"The (banking) industry has recapitalized itself over the past two years, so the industry is awash in liquidity, but there is no place for that liquidity to go," said Sandler O'Neill analyst Scott Siefers. "For whatever demand there is, pricing competition is extraordinarily intense. That puts pressure on even the strongest companies out there."
Having sharply fallen off from 2008 through most of 2010, middle-market borrowing showed signs of life in the fourth quarter of last year. But it fell back in the first quarter of 2011. What did not decline was the money banks have to lend. Data from ThomsonReuters shows all in costs for middle-market borrowers dropped to historic lows in the first quarter as banks tried to entice companies into borrowing.
"Definitely more aggressive than we were a year ago but perhaps not to the extremes we saw in the heady days of froth, so to speak, prior to the financial crisis," said Siefers.
Along with better pricing, terms are easing up. Last fall, when Miami-based World Fuel Services [INT
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] went to Bank of America to put together a syndicate for a loan, the company's CFO Ira Birns said restrictions were looser than they were just a year or two before.
"Up front fees are substantially higher than we paid in 2007," Birns said about pricing right ahead of the financial crisis. What the marketer and deliverer of fuel to marine, aviation and land-based businesses found was that the terms of the loan were more lenient. Birns said the publicly-traded company, which posted net revenue of $440 million last year, has never issued public debt. It's not rated, but Birns speculated the firm's credit rating would be somewhere on the border of investment grade, or just below.
"The banks certainly have treated us like an investment-grade company based on the covenant package we received on the bank deal," he said, referring to the fact that rules linked to the loans about future acquisitions by World Fuel were much less restrictive.
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Data is a real-time snapshot *Data is delayed at least 15 minutes
