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August 5, 2008

Lenders Predict Improved Economic Outlook

Survey Sees Shift in Interest Rate Forecast

PHILADELPHIA (August 6, 2008) —- Lenders across the nation expect the economy to improve over the next 6-12 months. They also anticipate interest rates will increase during this same time period, according to the results of last quarter’s Phoenix Management “Lending Climate in America” Survey.

Lenders continue to expect the economy to perform at a “D” level during the next six months. The respondents” expectations for longer-term improvement remained better than the near-term outlook with a “C” expectation level.

And, sixty percent of lenders anticipate interest rates will increase over the next six months (versus three percent in the previous survey). Thirty-five percent of lenders expect interest rates to increase 50 bps in the second half of 2008 while another 25% anticipate an increase of 25 bps within the next six months.

“Having lenders predict an improving economy is reassuring,” says Michael Jacoby, Managing Director and Shareholder of Phoenix Management Services. “They have been very consistent in correctly anticipating the major economic indicators.”

While the load demand diffusion index (the percentage of lenders forecasting a higher percentage less those anticipating a lower percentage) continued to be a negative across all lending segments, respondents were relatively more optimistic across all lending segments in this survey than the most recent surveys. The overall diffusion index for all lending segments improved to negative 28 percentage points (from negative forty-six percentage points in the previous survey). Lenders indicated that on average for all domestic lending categories, 13% have expectations for increased loan demand (versus 6% in the prior quarter).

The gross majority of lenders with expectations of deteriorating credit quality were consistent with recent surveys. The loan loss diffusion index was at 92 percent, slightly down from the previous quarter, while ninety-seven percent of lenders anticipate higher bankruptcies. The percentage of respondents anticipating higher unemployment grew to 89 percent ” up from 78 percent in the previous quarter.

Eighty-five percent of lenders designated unstable energy prices as a factor with a strong potential to impact the near”term economy. The current constrained liquidity in the capital markets was chosen by 56 percent of respondents as having significant potential to have near-term economic impact. Thirty-nine percent of lenders chose the sluggish housing market, while fifteen percent designated the outcome of the upcoming presidential election.

An overwhelming majority of lenders (82%) indicated their financial institution has tightened its lending standards during 2008. Of those that have tightened standards, sixty-six percent sited a less favorable economic outlook as the primary impetus for doing so. Fifty-two percent designated their institution’s reduced risk tolerance while twenty-seven percent indicated less aggressive competition resulted from tightened lending standards.

The percentage of respondents with their customer having no growth expectations over the next 6 – 12 months was consistent with the previous quarter at thirty-two percent. Sixty-six percent of lenders opined their customers had moderate growth expectations, also in line with the previous quarter.

Respondents anticipate the Construction industry will experience the most volatility in the next six months. When asked to identify three industries that will experience the most volatility in the next six months, 69% of lenders designated the construction industry, with fifty percent each chose retail trade and real estate and rental/leasing industries as the most likely to experience volatility. Forty-two percent believe the finance and insurance industries will experience the most volatility while 35% designated the transportation/housing industry.

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 10 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 825 assignments nationwide across a variety of situations and industries. With offices in Philadelphia, New York, Boston, Ft. Lauderdale 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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