David Sharpe has spent much of the past 72 hours fielding calls from companies desperate for bridging loans.
Before last week, Sharpe’s Bridging Finance Inc. would get around four calls a day from higher-quality borrowers. Now, with the coronavirus pandemic shutting down large chunks of the Canadian economy, it’s getting more than 30.
“The process of getting money from the big banks has slowed significantly,” the founder of the Toronto-based company said by phone. “The bigger you are, the longer it takes to adapt amid chaos,” he said.
Smaller players in the $812 billion global private lending market are seeing a jump in demand as the meltdown in business from the virus roils global credit markets and overloads traditional financing.
In the U.S., pure direct lending firms are getting many calls, but sitting on the sidelines to assess the damage to existing borrowers. Opportunistic firms with flexible capital to lend to distressed companies at steeper discounts are being more active.
Bridging Finance has C$1.6 billion ($1.1 billion) in assets under management with the most of its direct lending funds invested in collateral-based bridging loans, inventory and accounts-receivables financing.
Sharpe’s team is speeding up work to accommodate some of the requests for urgent loans ranging from C$10 million to C$50 million, he said.
At Arif Bhalwani’s shop, calls for loans increased three fold. But instead of originating new loans, he is seeing better opportunities in the secondary market as banks try to clean their balance sheets and offload some of their credits.
“Borrowers are worried that banks will not close by deadlines due to market stress and risk aversion and in some sectors such as resources and construction, banks are closed for lending and likely offloading loans at discounts to lenders like us,” said the founder of Third Eye Capital Management Inc., which manages C$2.5 billion in private credit and is working to raise a new C$1 billion fund.
The spike in credit requests are coming mostly from the energy patch and retail and consumer sectors, but the firm is also receiving inquires to support interim financing needs through restructurings, and for backup financing on acquisitions that are threatened to get hung, Bhalwani said.
“We have cash to invest and the requisite distressed investing experience to benefit from a once-in-a-decade opportunity,” he said.
The latest volatility could be a trial for the burgeoning asset class.
“This is not a man-made crisis like 2008, and so we don’t know how long it will last,” he said. “The legitimacy of the private debt asset class is going to be tested in this environment – will they fill the funding gap or exacerbate credit risks? There are several zombie borrowers lurking inside private debt portfolios.”