Toro
Diamond Member
- Sep 29, 2005
- 108,955
- 48,333
That's my little term for it. Earlier this year I wrote a book that touched (a little bit, just one chapter) on how businesses can get funding. As part of my research I stumbled onto a shitload of these online lenders, and their tactics and offers were a REAL flashback to the insane mortgage offers of 2004-2007. Talk about deja vu. It just didn't feel good."sub-prime business"
I'm trying to find some decent data sources on it. I may be overestimating this, but I'd sure like to know more about it.
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I don't think that small businesses are over-leveraged. In fact, I think the restrictions that were put on small banks after the GFC restricted credit into the local economies. Trump has helped alleviate that.
We are seeing deterioration starting in the lower-middle market. These are businesses with $15-$30 million in EBITDA. It's here that lending standards are weakening. It's bleeding in from the larger markets. In the middle and upper-middle market, there are virtually no covenants anymore, and deals are getting done with ridiculous pro-forma adjustments to EBITDA. Leveraged loans are now a $1 trillion market, triple what it was a decade ago, and equaling the high yield market. Most of those are sitting in CLOs where credit analysis is often spotty.
Bonds have deteriorated to the point that the BBBs are now half the IG market at $3 trillion. Companies have levered up to buy back stock. In fact - and this is pretty stunning - almost all the net buying of stocks over the past decade has been by corporations buying their own stock. If we are going to see a slowdown or recession over the next 18-24 months, you are going to see some real fireworks in the corporate credit markets.