The Great Recession caused a shift in the way middle market companies think about funding. In CIT’s “U.S. Capital Markets Outlook,” Neil Wessan, Managing Director and Group Head of CIT Capital Markets, explains why finding the cheapest cost of funds is no longer the focus for these businesses and why the opportunities in the market right now may be greater than they will be for many years to come.
The interview is part of the latest installment of the award-winning CIT 5 Minute Capital Podcast Series, featuring senior CIT executive commentary on current market conditions and industry trends.
Lowest Price No Longer the Focus
According to Wessan, businesses had historically looked for funding that offered the lowest price — the source was irrelevant. “Now there is much more of an interest in seeing the leads and major participants in transactions taking big pieces of these deals and holding them through the life of the transaction,” says Wessan. “That’s a big change.”
Choosing Funds that Provide Security
Companies are now looking to strike the balance between finding working capital at a low price and finding a partner that also provides them with the security that they’ll need over the life of the transaction. “There is always a need for revolvers, term loans and depending on the structure of the transaction, either mezzanine debt or second lien debt,” explains Wessan. “There used to be a stigma associated with ABL finance, which is also gone. Now many people are looking for it because it is a much cheaper source of working capital.”
Unprecedented Opportunities
The current rate environment is at a very attractive level for business owners. “If there is a business reason to make an acquisition, open a new factory or a new plant, the availability of working capital is there at costs that probably won’t be repeated in our lifetime,” comments Wessan.
Worries about Washington
One of the major worries middle market companies have is the potential impact of decisions made in Washington, D.C. in terms of rules, regulations and employment requirements. “If all of a sudden we have $500 billion dollars cut from one budget it is going to make a difference in business and people do worry about that,” explains Wessan.