Direct Lenders face flood of cash-strapped borrowers
David Sharpe has spent much of the past 72 hours answering calls from businesses looking for bridging loans.
Prior to last week, Sharpe’s Bridging Finance Inc. was receiving about four calls per day from higher quality borrowers. Now, with the coronavirus pandemic shutting down much of the Canadian economy, it is getting over 30.
“The process of getting money from the big banks has slowed down considerably,” the founder of the Toronto-based company said over the phone. “The bigger you are, the longer it takes to adjust to the chaos,” he said.
Smaller players in the global $ 812 billion direct lending market are seeing increased demand as virus-induced business collapse shakes global credit markets and overloads traditional financing.
In the United States, pure direct lending companies receive many calls, but stay on the sidelines to assess the damage to existing borrowers. Opportunistic firms with flexible capital to lend to distressed firms at larger discounts are more active.
Bridging Finance has C $ 1.6 billion ($ 1.1 billion) in assets under management, with the bulk of its direct loan funds invested in bridging loans, inventory and receivables based on guarantees.
Sharpe’s team is speeding up work to respond to some of the urgent loan requests ranging from C $ 10 million to C $ 50 million, he said.
In Arif Bhalwani’s shop, calls for credit have tripled. But instead of making new loans, he sees better opportunities in the secondary market as banks try to clean up their balance sheets and offload some of their credits.
“Borrowers fear that banks will not close on time due to market stress and risk aversion and in some sectors such as resources and construction banks are closed to lend and possibly offload loans at a discount to lenders like high quality direct lender loans, ”said the founder of Third. Eye Capital Management Inc., which manages C $ 2.5 billion in private credit and is working to raise new C $ 1 billion fund.
The surge in credit demands is mainly coming from the energy sector and the retail and consumer sectors, but the company is also receiving funding requests to meet interim financing needs through restructuring and for relief funding on acquisitions that are threatened with stalling, Bhalwani said.
“We have cash to invest and the struggling investment experience required to take advantage of an opportunity that only presents itself once in a decade,” he said.
The latest volatility could be a test for the burgeoning asset class.
“It’s not a man-made crisis like the one in 2008, so we don’t know how long it will last,” he said. “The legitimacy of the private debt asset class is going to be tested in this environment – will they close the funding gap or increase credit risks? Several zombie borrowers are hiding in private debt portfolios. ”