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December 4, 2006

Lenders Predict “Ho Hum” Shopping Season, According to Phoenix Lending Survey Results

PHILADELPHIA (December 4, 2006)—Lenders across the nation expect the holiday shopping season to be a “ho hum” one for retailers, with 79 percent predicting consumer spending will be “moderate,” according to the results of this quarter’s Phoenix Management “Lending Climate in America” Survey.

Fourteen percent predicted consumer spending would be “flat,” while four percent said it would be “very weak.” An optimistic three percent said it would be “very strong” and one percent said it would be “very weak.”

“Lenders aren”t overly hopeful about consumer spending this year, but they”re not predicting a Grinch-like mentality among shoppers either,” said Michael E. Jacoby, Managing Director and Shareholder of Phoenix Management Services. “If lenders” predictions hold true, retailers will have something to smile about this holiday season, but they probably won”t get everything on their wish list.”

Lenders believe the slowing housing market has the greatest potential to undermine the economy, with 33 percent naming it as the factor that could cause the most damage. Close behind were unstable energy prices (named by 26 percent of lenders) and consumer spending (named by 24 percent).

Lenders” outlook for the economy’s performance slipped even further from last quarter, when they downgraded their assessment after two quarters of relative optimism. This quarter, lenders predict the economy will perform at a high “C” level during the first six months of 2007, followed by a “mid-C” performance during the second half of the year.

Loan losses and bankruptcies are both expected to rise, according to lenders surveyed. More lenders this quarter than last predicted that small business and middle market lending would decline in the next six months.

Lenders also lowered their predictions of their customers” growth plans in the next six to 12 months. Only nine percent of lenders said their customers had “strong” growth expectations, and none predicted “very strong” growth expectations. Eighty-three percent said their customers had “moderate” growth expectations, and a noteworthy nine percent said their customers anticipated “no growth” in the coming year. Last quarter, that percentage was one percent.

In further evidence of lackluster expectations for customer performance, only one out of five lenders reported their customers planned to make new capital investments. Lenders were equally unenthusiastic about customer plans to: raise additional capital (19 percent); make an acquisition (19 percent); introduce new services or products (16 percent); enter new markets (15 percent); or hire new employees (12 percent).

Lenders remain poised for a possible downturn, with a slightly higher percentage this quarter than last reporting plans to continue tightening loan structures in all loan size segments. This quarter, an average of 19 percent of lenders said their financial institution planned to tighten its loan structures for loans ranging from under $1 million to loans in excess of $10 million. That percentage climbed from eight percent two quarters ago and is up from the 17 percent who reported the same last quarter.

The most dramatic tightening is predicted in the loan categories of under $1 million, where 21 percent of lenders said their financial institution planned to tighten its structures, and loans in the $1 million – $5 million range, where 20 percent of lenders said their financial institution planned to tighten its structures.

“Lenders are taking preparatory steps to protect themselves, anticipating that some of their customers may find themselves in difficult circumstances over the next year or two,” Jacoby said.

The highest percentage of lenders in five quarters ” 21 percent ” reported plans to increase their current interest rate spread and fee structures on similar credit quality loans in all loan size categories. Last quarter, 14 percent reported plans to increase their spread and fee structures.

The Fed is likely to keep interest rates steady, according to lenders, 46 percent of whom predict no change in interest rates by the Fed in the coming six months. But the percentage of lenders predicting an interest rate decrease climbed to 18 percent, versus two percent last quarter.

About the Survey

The Phoenix Management Services “Lending Climate in America” survey is conducted quarterly to gauge shifts in lenders” attitudes toward the economy. Eighty respondents completed the online questionnaire during October including lenders from commercial banks, commercial finance companies and factors across the country.

About Phoenix Management Services

Phoenix Management Services ( is an operationally-focused advisory firm, providing turnaround, crisis and interim management and capital advisory services to middle market companies in transition. Since 1985, Phoenix has aggressively advocated on behalf of its clients in over 775 assignments nationwide across a variety of situations and industries. With offices in Philadelphia, New York, Boston, Ft. Lauderdale, Cleveland and Atlanta, Phoenix preserves and enhances the value of its clients’ companies by focusing on the operational and financial challenges they encounter.


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