Insider's View: The Evolving Senior-Lending Market
More opportunity opening up on local levels
However, in return, these institutions typically provide the most aggressive pricing, as the lenders focus on other ways to generate fees from the company/borrower. The regional banks have taken up the slack from the money-center banks and have experienced the largest portfolio growth in this sector.
Small capitalization and/or local banks are typically lending on loan-to-value (LTV) ratios based on the appraised value of the borrower’s fee-simple properties. All of the lenders have generally reverted back to a 1.25-fixed-charge coverage ratio (FCCR) or debt service coverage (DSC) ratio.
Some of PetroCapRE’s clients are moving away from the regional banks and back to local banks that have “covenant light” requirements, typically only an LTV and FCCR/DSC ratio. The client’s desire for “covenant light” loan terms is due to the increasing oversight of their business by the larger lenders. The increased desire for greater borrower oversight is being driven by new banking regulations resulting from the much-anticipated implementation of the federal Dodd-Frank statute.
These rules are not just potentially burdensome for your company but also for the banks that now have to pay new fees and compliance expenses each year to comply with the Dodd-Frank regulations.
Our next note will focus on the effects of Dodd-Frank at both the bank and at the borrower level.
John C. Flippen Jr., jflippen@PetroCapRE.com, and PetroCapRE (www.PetroCapRE.com) provide buy-side acquisition and capital restructuring services. PetroCapRE focuses on superior service, providing clients with a comprehensive array of strategic advisory and execution capabilities. The company’s in-depth strategic planning and proprietary modeling tools give its clients a thorough understanding of how to evaluate complex potential acquisitions and recapitalizations from multiple perspectives.