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June 10, 2004

81 Percent of Lenders Believe Outsourcing a Natural Byproduct of Global Marketplace; 75 Percent Say Outsourcing Lowers Prices, According to Phoenix Lending Survey

PHILADELPHIA (June 10, 2004)—Three-quarters or more of lenders believe that outsourcing is a natural byproduct of a global marketplace and that it ultimately results in more competitively priced products and services, according to the results of this quarter’s Phoenix Management “Lending Climate in America” Survey.

Fifty-nine percent of the lenders who participated in the quarterly survey said that outsourcing would make the U.S. more competitive and productive. Thirty-seven percent said the issue has been over-hyped by the media. Only three percent believe outsourcing should be regulated by the government.

“Lenders responding to our survey acknowledged that outsourcing does eliminate American jobs, but they also believe it creates a more competitive pricing environment and that it ultimately may make the U.S. leaner and more productive,” said E. Talbot (Tal) Briddell, Managing Director of Phoenix Management Services.

Respondents were split on whether or not the U.S. is headed toward a real estate bubble in the next six to twelve months. Forty-two percent said a bubble was unlikely, but 22 percent said it was possible. An additional 30 percent thought it was equally likely that a bubble might or might not occur.

“The responses on this issue were all over the board, suggesting a fair amount of uncertainty on the part of lenders,” Briddell said. “They aren”t panicked about the possibility of a real estate bubble, but there is certainly a modest level of concern that the market could turn.”

The term “real estate bubble” refers to a situation where real estate has become so over-valued that the market essentially collapses on itself, or bursts, resulting in a rapid drop in real estate prices.

Lenders remained optimistic that the economic recovery will continue to gain strength. They upgraded their expectations for the U.S. economy’s performance during the second half of 2004 to a B-. Sixty-eight percent of respondents said corporate lending would increase, 80 percent said lending to middle market customers would rise, and 78 percent expect small business lending to increase.

Lenders’ expectations for customer growth increased for the sixth quarter in a row. Twenty-seven percent said their customers have strong growth expectations, up from 20 percent who said the same last quarter.

When asked which industries were the most attractive to their lending institution, lenders named the same three that have topped the list for nearly two years—Light Manufacturing (80 percent), Industrial Distribution (74 percent) and Service Companies (68 percent).

Start-ups/New Ventures were deemed the least attractive industry to lend to, with 56 percent naming it unattractive.

Most lenders reported plans to maintain their existing loan structures, although 16 percent indicated they planned to loosen them.

Ninety-two percent of lenders expect the Fed to raise rates in the coming six months, with most predicting a half-point hike.

About the Survey

The Phoenix Management Lending Climate in America Survey is conducted quarterly to gauge shifts in lenders’ attitudes toward the economy. Ninety-one lenders from commercial banks, commercial finance companies and factors across the country were surveyed this quarter. Respondents completed a written questionnaire during April and May of 2004.

About Phoenix Management Services

Phoenix Management Services is an operationally-focused advisory firm, providing turnaround, crisis and interim management and investment banking services to middle market companies in transition. Since 1985, Phoenix has aggressively advocated on behalf of its clients in over 700 assignments nationwide across a variety of situations and industries. With offices in Philadelphia, New York, Boston and Ft. Lauderdale, Phoenix preserves and enhances the value of its clients’ companies by focusing on the operational and financial challenges they encounter.

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