Private Capital Markets Overview - Second Quarter 2010

Online, August 17, 2010 (Newswire.com) - River Capital Partners LLC ("RCP") today released an overview of the United States Private Capital Markets as of the second quarter of 2010. This overview analyzes funds flows and the availability of capital from a variety of sources that are often utilized by small and medium size businesses. These sources range from conventional capital providers such as banks and venture capital, to non-traditional groups such as private investment funds, strategic and operating companies, and asset based lenders.

Banks continue to curtail loan activities. Lending began to contract in late 2008 and continues to do so presently - about 2/3 of small and medium size business loans are rejected by banks. Adding to these problems is the fact that the number of FDIC classified "troubled" banks has risen dramatically from 90 at the beginning of 2008 to 775 at March 31, 2010, or almost ninefold. In private conversations with RCP personnel, many bank executives concede that regulators are significantly more involved in their operations as compared to 3 years ago, and this involvement has caused them to restrain their lending activities.

Other capital providers are active and have cash to invest. Private investment funds, who manage cash for "money pools" such as pension funds, banks, insurance companies and college endowments, have about $400 billion in cash for private investment purposes (data as of 12/31/09). These funds actively invest in a variety of situations including small and medium size businesses and projects. Much of this money must be invested in the next 2-3 years in order to comply with agreements these funds have with their investors.

Asset based lenders, who provide loans based on a percentage of the value of accounts receivable, inventory and other assets, have accelerated their loan activity in 2010. Among other things, bank borrowers are refinancing their loans with asset based lenders as they seek more stable capital sources.

Venture capital and IPO markets are showing signs of strength, and strategic investors (operating and industrial companies) will likely accelerate their investment activity since there is ample cash on the balance sheets of large corporations. This cash can fill a void left by banks.

Over the next 1-2 years, it seems apparent that small and medium size businesses should be wary in their dealings with banks. We believe that negative bank lending trends are unlikely to reverse meaningfully before the end of 2011, and may extend into 2012. Therefore, private funds, asset based lenders and other alternative finance providers are probably the most flexible and stable sources of capital for many businesses.

Sam McNeil, Managing Director of River Capital Partners, said "This data clearly indicates that many small and mid size companies are experiencing significant stress in their dealings with banks. Our data shows that 2/3 of business loan requests to banks are turned down, and this has caused company management teams to question how they will fund expansion and new projects. Unfortunately, many good new projects are put on the shelf not because they are unattractive, but rather as a result of issues internal to the banks. Consequently, many company CEOs, CFOs and owners don't know where to go for capital."

"Due mainly to job uncertainty and increased regulation, bank executives are often slow to respond to reasonable loan requests. Not to be overly critical of the banks, but we are aware of numerous situations where it takes banks 3 months, 6 months or longer to respond to legitimate loan requests."

McNeil continued, "We expect many companies to now pursue financing with non-traditional capital sources such as private investment funds, asset based lenders and other operating companies (such as vendors) who are anxious to consider reasonable funding requests. Private investment funds and asset based lenders have both increased their activity thus far in 2010 - private equity funds alone did 305 deals in the first quarter. We expect the investment funds to continue, and probably increase, their financing activity since they have significant cash resources. We also think more companies will turn to non-traditional sources to replace or refinance their incumbent banks, and these non-traditional sources are actively seeking opportunities in a wide variety of industries."

For this overview River Capital drew on government information sources including the Federal Reserve, the US Treasury and the FDIC, as well as private sources such as Pitchbook and LPC.