How will reduced consumer spending and increased leverage cost stress manufacturing & industrial companies in the year ahead?

Manufacturing & industrial companies are precariously balanced right now. On the one hand, sales remain strong and these businesses have, at last, been able to hire more of the right talent, albeit at a higher cost than a couple of years ago. This, however, is occurring within an environment of significantly increased cost of debt, where OEM customers are applying pressure and leverage to secure increasingly painful cost reductions from their suppliers. With this landscape in mind, the below outlines what we view as the primary threats to manufacturing and industrial businesses as well as their lenders with exposure in these areas. The information provided also addresses important considerations and proactive steps for these companies to take that can help them minimize future downside risk. Lenders should look out for portfolio companies that are still struggling with legacy challenges from 2020; e.g. trouble getting parts on time, supply chain challenges, finding and hiring good people, and getting equipment serviced (on-site technicians & parts). 

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