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Review and Forecast with Joseph Nemia, Executive Vice President - Head of Asset Based Lending at TD Bank
By Eileen Wubbe
A look back at 2019 and a discussion on what the secured finance industry can expect to see in 2020.
TSL: How would you summarize the secured finance industry in 2019?
NEMIA: It was extremely competitive right across the board. We saw fewer, but larger, transactions, especially in the syndicated market. Overall, I think in the middle market there was a limited number of new deals in the market for traditional bank-type ABL opportunities this year.
We also continued to see more upsizing of existing ABL customers to support their growth, to add on acquisitions or dividend recaps. In the retail sector, we saw ABL borrowers that were heavily reliant on brick and mortar continued to struggle with the high cost of rent, less foot traffic in stores and heavy long-term debt requirements.
TSL: What can the secured finance industry expect to see in 2020?
NEMIA: There’s a weakening global economy and that should provide more opportunities for the secured finance industry next year. Large corporate customers turn into fallen angels and many become ABL borrowers. Historically, the industry’s been a beneficiary of this transitionary opportunity as companies restructure their balance sheets and adjust their business models to compete in the challenged economy.
I think it will be as competitive as ever with banks and nonbanks looking to grow their respective business lines. TD ABL will continue to support our customers through the various economic cycles. We’re uniquely positioned to provide growth capital as well as restructuring facilities for mid-market and corporate borrowers. We’ve got an experienced team of lenders that have successfully worked through all business cycles, so we’re prepared for it.
TSL: What effect do you see tariffs having on ABL in 2020?
NEMIA: During 2019 we saw the tariffs create uncertainty around the potential impact, and many borrowers made purchases in advance of the probable rising costs of their products. As the year went on, we saw prices increase in many of the sectors that the ABL market serves, food, textiles, clothing and consumer goods such as electronics. I think metals and automotive will continue to see the biggest impact on tariffs, especially as the economy slows down.
TSL: What is the biggest challenge you see for ABL in the next year?
NEMIA: Many of the same as we’ve seen in the past. I think the industry needs to focus on their talent within the industry. As new entrants look to build their capabilities, they are going to be looking for experienced, talented lenders to help build out their platforms. So, I think that is a challenge for the industry next year.
I had a conversation at SFNet’s 75th Annual Convention in New York in November about the problem of not having enough field examiners across the industry because the banks have gone away from having their own field exam staff. We have a field exam staff, so it hasn’t been an issue for us at this point. But I see a gap within the industry, as more field examiners retire and banks haven’t been building that function, I’d say over the last 10, 15 years.
From a lending perspective, we’ve talked about some of the demographics shifting with Baby Boomers retiring, which I think will provide an opportunity within the industry for the next generation to step into the larger roles within their organizations. From a consumer perspective, millennials’ spending, at least in the short-term, will offset any of the fixed-income budgets that Boomers need to adjust to.
TSL: What are some ways that TD recruits and retains talent?
NEMIA: Most banks discontinued formal credit training, and it did create a shortage of formally credit-trained bankers. TD is one of the banks that continues to invest in our analysts that we recruit. We have formal credit training, but the industry has really benefitted through the experienced staff that exists across the industry. At TD we have a lot of experience and offer hands-on opportunities for the younger talent. That goes a long way in making a job more robust.
TSL: What technology advancements are needed in this industry?
NEMIA: A continued investment in technology is important within the industry. There’s been increased pressure to be more productive, and there’s also been a shortage of talent, as we talked about. So, we do need to figure out how to do things in a different way and technology has helped us to do that.
I think we’ll see technological advancements with our borrowers, and it will raise the bar for the companies that we lend to, making it harder for them to compete with the traditional business model. Disruption is continuing to occur in the industries that we serve, and borrowers with strong balance sheets will be the net winners. They’ll be able to invest in data analytics to better position themselves in the competitive marketplace.