GE Commercial Finance Corporate Lending is gearing up for the expected rise in defaults and resultant restructuring activity as the credit cycle starts to turn. Given the number of single-B and CCC deals completed, a certain percentage are going to default, said Bruce Buchanan, managing director at GE and head of its national restructuring group.
Buchanan, who was recently promoted from co-head of origination following the departure of Stuart Armstrong to distressed mavens Black Diamond Capital Management in May, has worked on financings for Mirant Corp., Fleming Companies and Delta Air Lines. He explained that the past few years has seen a series of aggressive financings by companies that are highly levered and have already secured most of their assets. "They won't have the ability to refinance because there is nothing left to grab," he said.
Buchanan cites the auto sector as the most obvious source of trouble, with the travails of the big three carmakers. But the airlines and other industries affected by the rise in oil prices will also be fertile ground.
GE has been the largest lender for debtor-in-possession financings in North America for the past several years by volume and number of deals, though JPMorgan has recently tied with the giant conglomerate in number of deals, Buchanan said. Year-to-date, GE has completed 11 transactions, including the financing for Delta that kept the airline out of bankruptcy. The lending group also beat out the competition last month to provide a $164 million loan to support The Penn Traffic Co.'s reorganization. "We have another $900 million in the pipeline," said Buchanan, who also held spots at Bank of America and ING Capital before joining GE in 2001.
Buchanan feels good about deals completed year-to-date, despite increased competition. "It's about as competitive as it's ever been," he noted. "There are many new entrants. There are the established players and the hedge funds," he acknowledged. This has driven pricing and fees down, especially as the new money has chased a smaller number of deals. But these dynamics should change as supply increases, he added.