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August 10, 2009

Lenders Project Economic Recovery within the Next Nine Months

Results of Phoenix’s Lending Survey Divided on Obama Administration’s Policies” Impact on Dollar


CONTACT: Michael E. Jacoby

PHILADELPHIA (August 11, 2009) —- The majority of lenders surveyed believe economic recovery will begin within the next nine months. Lenders also weighed in on how the Obama administration’s policies will effect inflation and the dollar’s value versus other currencies, according to the results of last quarter’s Phoenix Management “Lending Climate in America” Survey.

More than half of the survey respondents””51 percent””believe the economy will begin its upswing/recovery in the next nine months (increasing from 30 percent in the previous survey). When asked about the perceived timing of the economy recovery, thirty-four percent anticipate the recovery within the next nine months. Twenty-two believe the recovery will begin within the next twelve months. Twenty percent of respondents believe signs of improvement will appear within the next eighteen months. Fifteen percent anticipate a recovery beginning with the next six months. Five percent of lenders believe it will be more than eighteen months before the economic recovery will begin. Finally, two percent of lenders believe the economic recovery will begin within the next three months.

Forty-seven percent of lenders believe the Obama administration’s policies will result in current inflation concerns, further depressing the dollar’s value versus other currencies. When asked to gauge the impact of the current administration’s policies on the value of the U.S. dollar against foreign currencies, thirty-seven percent of respondents opined that proposed policies will have little impact, that the relative value of currencies are more impacted by global economic conditions. Twelve percent indicated the proposed policies are prudent for the U.S. economy’s long-term growth and, therefore, beneficial to the strength of the U.S. dollar. The remaining four percent gave “Other” responses.

"What really surprised me about this quarter’s survey is how divided Lenders are about the direction of the housing market," said Michael Jacoby, Managing Director and Shareholder of Phoenix Management Services.

Lenders are divided on the near-term direction of the U.S. housing market. Thirty percent of respondents opined foreclosures will continue to increase as distressed borrowers are unable to modify their current mortgage. Twenty-seven percent believe lower home prices will lead to stabilization in the housing market. Twenty-five percent of respondents anticipate average home prices will continue to decline. Finally, seventeen percent of lenders opined that mortgage rates will continue to rise amidst increasing inflation concerns.

Nearly half of all respondents””42 percent””believe, in relation to the General Motors bankruptcy filing, that additional funds will be required from the U.S. government. When polled regarding the eventual outcome of the GM bankruptcy filing, twenty percent of lenders gave the following two responses: GM will be required to sell additional assets/brands to provide critical liquidity, and it will be a successful process that results in a healthier GM emerging from bankruptcy within the next year. Fourteen percent of respondents believe contentious negotiations between GM’s creditors would result in the company being mired in the process for an indefinite timeframe. The final three percent of respondents believe “Other” outcomes will take place regarding the GM bankruptcy.

Improved expectations for domestic lending were evident for the third consecutive survey. The overall diffusion index for all lending segments improved to negative sixteen percentage points (from negative fifty-two percentage points in the survey two quarters prior). Respondents indicated that, on average for all domestic lending categories, twenty-four percent have expectations for increased loan demand (versus twenty percent in the prior quarter).

Twenty-five percent of lenders indicated their financial institution would consider a loan request with a Senior Debt to EBITDA multiple as high as 2.0-2.5x, five percentage points higher than the previous survey. Twenty-one percent of respondents indicated their institution would only consider a loan request with a multiple as high as 2.5-3.0x (previous survey: twenty-three percent). Fifteen percent of respondents indicated they would only consider a loan request with a Senior Debt to EBITDA multiple as high as 3.0-3.5x (previous survey: twenty percent). Twenty-seven percent of respondents indicated they are collateral lenders and do not utilize cash flow multiples as the primary factor in credit decisions.

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, Dallas, 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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