This content is from: Portfolio

Load Your Revolvers

Capital Beat blog: How companies are surviving in one corner of the credit market.

Capital Beat - Xiang Ji

Dan Susik knows all too well the importance of credit. As treasurer for Ryder System, Inc., a Miami-based transportation company that helps manage supply chains for retailers like CVS Pharmacy, Susik compares the access to capital for his company as a raw material - like iron ore to steel makers or potatoes to Lay’s.

That’s why he started preparing in the fall of 2007 – weeks before Lehman Brother’s collapse - to replace a $870 million revolving credit facility that would mature in May 2010. Together with two associates, Susik launched an aggressive campaign to sell his company to a targeted group of 15 banks. The trio wanted to convince the banks, almost all of them battling their own problems, that Ryder is generating more cash flow, is on solid financing footing and will be a great customer for the banks’ other products and services. “Replacing a revolver was not this challenging in the past,” Susik says. “We have been really proactive and hands on (this time).”

It all paid off when the company successfully executed an $875 million, three-year revolving credit facility in April, with support from a global lineup that included Bank of America, the Royal Bank of Scotland, the Bank of Tokyo-Mitsubishi, Royal Bank of Canada and seven other banks. The terms were favorable as well. Portion of the credit facility carried a margin of 2.125 percent over the London interbank offered rate (LIBOR), relatively low based on the company’s A- credit rating. It also did not have a material adverse change provision, a restriction increasingly included in credit facility agreements.

To be sure, bank lending remains tight despite a powerful rally in the corporate bond market. Syndicated loan issuance was $269 billion during the first six months, a 65 percent drop from last year, according to Thomson Reuters. The Treasury last issued a document in April detailing lending at 21 banks that received TARP funding. But as the overall credit market thaws, companies like Ryders are pulling together all their weapons to ensure access to credit.

Take another company, New York-based interClick, Inc, a small online advertising firm that went public via a reverse merger in 2007 and had a $6.6 million loss in 2008. With no pre-existing banking relationships, the company’s odds of getting a credit line were slim. But CFO David Garrity managed to secure a $3.5 million revolving credit facility by going off the beaten path to Crestmark Commercial Capital Lending, LLC, a small Detriot, MI-based privately held business lender. As an added benefit, Crestmark increased the credit facility to $4.5 million in February and $5.5 million in April.

A head of loan syndication at a big bank says banks are intensifying their analysis of companies’ credit fundamentals based on conservative economic scenarios. With their own capital constrained, banks are only willing to extend 364-day credit facilities to mitigate risks. But for those companies that have maturing credit facilities, they have no choice to to venture into the brutal lending environment. Tips from the successfully borrowers? Develop relationships with multiple officers at your banks. Who knows? Perhap your long-standing contact will leave that bank tomorrow. And we all know how likely a possibility that is these days -- at least for the banks.

Xiang Ji (Nina) is the capital markets reporter at Institutional Investor, covering mergers and acquisitions, debt and capital markets from an institutional investor’s perspective. Xiang Ji was formerly with BusinessWeek in China covering the wider business world. Send email to capitalbeat@iimagazine.com.

Related Content