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February 5, 2009

Lenders Negative on TARP Impact

Survey Sees Economic Outlook Reach All Time Low

PHILADELPHIA (February 6, 2009) —- Lenders across the nation weighed in on the most important factors that will assist in US Economic Recovery. They also do not believe the Troubled Asset Relief Program (“TARP”) will have a meaningful impact on lending, according to the results of last quarter’s Phoenix Management “Lending Climate in America” Survey.

Only three percent of lenders believe that TARP will have a “meaningful” impact on their lending practices. Fifty-five percent of respondents opined that the TARP would have a “modest impact” on lending. Thirty-six percent believe the TARP will have “minimal impact”, while the remaining six percent of respondents believe the TARP will have “no impact” on lending.

Lenders expectations for the economy significantly deteriorated from the previous quarter. Lenders expect the economy to perform at a low “D” level during the fourth quarter. The long-term outlook fell to a “D” expectation level as well ” the lowest level in the history of this quarterly survey.

An overwhelming majority ” ninety-one percent – designated the reduction in consumer purchasing power as the economic issue borrowers/customers are most concerned with in the near term. Six percent indicated increasing commodity prices as the most concerning economic issue. Three percent of lenders indicated volatile exchange rates as the most concerning economic issue. Respondents did not select higher labor rates or the impact of importing lower-cost goods as key concerns in the near term economic environment.

“While lenders are near unanimous in the near-term outlook,“ said Michael Jacoby, Managing Director and Shareholder of Phoenix Management Services “they also believe that the bottoming out of the housing market will signal a fundamental change in the macroeconomic outlook.”

Eighty-three percent of respondents believe the bottoming out of the residential housing market will be the most important factor that will assist the U.S. in recovering from this recession/depression. When asked to identify the two most important factors, thirty-one percent selected the flow of credit to long-term mortgages. Twenty-seven percent of lenders chose the Obama administration and other factors. Low gasoline prices was selected by fourteen percent of respondents, and nine percent of lenders believe lower interest rates will be an important factor in the potential recovery from this recession/depression.

Forty-four percent of lenders predict inflation will trend lower than current levels over the next six months as compared to eighteen percent in the previous survey. Thirty-nine percent of respondents anticipate inflation, over the next two fiscal quarters, will be equal to current levels (previous survey: fifty-one percent). Finally, seventeen percent anticipate overall levels of inflation will trend higher than recent levels (previous survey: thirty percent).
The percentage of respondents with customers having no growth expectations over the next 6 – 12 months continued to rise significantly from recent quarters to seventy-eight percent ” the highest level recorded in this survey in the last eight years. Twenty-two percent of lenders opined their customers had moderate growth expectations, down from 49 percent in the previous quarter.

The percentage of lenders anticipating interest rates will decrease over the next six months rose to 73 percent (versus twenty-three percent in the previous survey). Twenty-two percent of lenders believe rates will remain unchanged, while the remaining five percent of respondents believes that interest rates will increase over the next six months.

The percentage of lenders expecting to tighten their existing loan structures increased to sixty-five percent (versus forty-seven percent in the previous survey). As a result, the percentage of respondents planning to maintain their loan structure fell to 35 percent (versus fifty-three percent in the previous 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, 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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