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May 27, 2009

Lenders Forecast Economic Recovery in 2010

Results of Phoenix’s Lending Survey Points to Stabilization in Economic


CONTACT: Michael E. Jacoby

PHILADELPHIA (May 27, 2009) —- Lenders across the nation weighed in on the economy ” and things are beginning to look up. While lenders are divided on the impact of the Financial Stability plan, they see signs of bottoming out and stabilization in some major economic indicators according to the results of last quarter’s Phoenix Management “Lending Climate in America” Survey.

Lenders are divided on the perceived impact of the Financial Stability Plan on U.S. lending. Nearly half ” 45 percent ” of respondents believe that the Treasury Department’s Financial Stability Plan will have a “modest” impact on lending. A similar percentage – forty-four percent – opined that the Plan would have “minimal” impact of U.S lending. Eight percent responded that the Plan would have a “meaningful” impact, while the remaining three percent believe the Financial Stability Plan will have no impact on lending in the U.S.

Respondents opine that the economic recovery will be a 2010 event. When asked about the perceived timing of the economy recovery, an identical 31 percent gave the following responses: within the next 12 months and within the next 18 months. Twenty-five percent of lenders forecast a faster recovery ” anticipating the recovery to begin within the next nine months. Eight percent of respondents believe it will be more than eighteen months before the economic recovery will begin. Finally, five percent of lenders believe the economic recovery will begin within the next six months.

"It’s great to see Lenders reversing trend on these key economic drivers. Even their outlook for the economy improved for the second half of 2009." said Michael Jacoby, Managing Director and Shareholder of Phoenix Management Services.

The loan demand diffusion index (the percentage of respondents forecasting a higher percentage less those anticipating a lower percentage), while still negative, reversed its recent negative trending, as respondents were less pessimistic across all domestic lending segments in this survey. The overall diffusion index for all lending segments improved to negative 25 percentage points (from negative 52 percentage points in the previous survey). Respondents indicated that, on average for all domestic lending categories, 20 percent have expectations for increased loan demand (versus 9 percent in the prior quarter).

Sixty-nine percent of respondents anticipate inflation will be equal to current levels over the next six months as compared to thirty-nine percent in the previous survey. Twenty-four percent anticipate overall levels of inflation will trend higher than recent levels (previous survey: seventeen percent). Finally, seven percent of lenders predict inflation will trend lower than current levels over the next six months (previous survey: forty-four percent).

In line with the previous survey, eighty-nine percent designated the reduction in consumer purchasing power as the economic issue borrowers/customers are most concerned with in the near term. Five percent indicated higher labor rates as the most concerning economic issue. Four percent of lenders view increasing commodity prices as the most concerning economic issue. One percent of respondents designated the impact of importing lower-cost goods as the most concerning economic issue.

Lenders expectations for the economy marginally improved from the previous quarter, but still remain well below recent historical levels. Lenders expect the economy to perform at a “mid-D” level during the next six months. The “out six months” outlook improved to a “C” expectation level as well ” a significant improvement from the previous “D” outlook in the previous quarterly survey.

About the Survey

The Phoenix Management Services “Lending Climate in America” survey is conducted quarterly to gauge shifts in lenders” attitudes toward the economy. The Phoenix survey includes lenders from commercial banks, commercial finance companies and factors across the nation. Phoenix has been conducting this survey for over 13 years.

About Phoenix Management Services

Phoenix Management Services is a recognized leader in operationally focused turnaround, crisis and interim management and strategic advisory services to middle market companies in transition. Since 1985, Phoenix has aggressively advocated on behalf of its clients in more than 900 assignments nationwide across a variety of situations and industries. With offices in Philadelphia, New York, Boston, Washington DC, Dallas, Ft. Lauderdale, Cleveland and Atlanta, Phoenix preserves and enhances the value of its clients’ companies by solving the operational and financial challenges they encounter.

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