Lending Outlook 2010

At the NACS Sumitt in Chicago this week, a panel of experts spoke to the c-store industry on today’s lending environment.

“It is clear to me this would be a hot topic for many people in this room,” said Joseph Sheetz, executive vice president of finance for Sheetz Inc., who moderated the session.

Panel participants included Ray Cleeman of The PrinceRidge Group LLC, Paul Meiring of Prudential Capital Group, Keith Roberts of SunTrust Robinson Humphrey and Dennis Ruben of NRC Realty & Capital Advisors.

The panel agreed the lending environment today has changed significantly from just a few years ago, in many ways resembling the years of 2007-2008 when money was readily available for those able to grab it fast enough. 

Cleeman said The PrinceRidge Group is taking a “back to basics approach.” He said his group was able to finance three operators between October 2008 and July 2009, the lowest point in the market.  “We were able to get financing for all of those transactions,” he said. “We went back to basics. We went to underwriting.”

Cleeman assisted these retailers by concentrating on more of the basic issues associated with store financing, including quality of management, experience of the team, location and a thorough analysis of all line items and inside sales.  “A lot of those esoteric parts were lost two to three years ago,” he said. “People just want to know: is their capital safe?”

He noted that what has happened in the credit market is actually a positive thing, although it might not seem that way right now. “In the long run it’s going to be helpful to everyone sitting in this room,” he said. “During the euphoria of lending that happened 2 -3 years ago, the access to capital was so easy and the cost of capital so cheap that it drove pricing to levels that were unsustainable.” 

Roberts noted its important to look at how quickly things can change in the banking industry—the environment has changed considerably from just from two years ago. The good news is today he sees the banks his firms work with anxious to lend to stable businesses such as those in the convenience store sector. But, he warned, “The deals need to make sense. They need to be conservative.”

“This is a different industry [than most] in that you have a stable cash flow,” NRC’s Ruben agreed, discussing why lenders are interested in lending to the c-store channel. 

 

What Matters To Lenders Today:

-Relationship with management team
-Who banks feel most comfortable with
-A strong belief in the character of the management team
-Consistency of reporting practices
-Format of stores, size and age

 

When making financial business decisions in today’s enviornment, c-store operators should focus less on predictions and do what they think is best given the current economy, Cleeman noted. “We can’t predict what the market is going to do, if we could we’d be on a beach someplace drinking Mai Tias,” he joked. “But if it makes sense in today’s market, build those sites, borrow the money and build your business. Because we don’t know if we’re going to have a double dip recession, we don’t know if things are going to be rosey with a tremednous bull market.”  

All panelists agreed convenience stores are a good investment, noting it is a resilient industry that is recession resistant. 

“We love this business,” Meiring said. “There are great operators in this business…when we find them, we like to go along with them.”

 

 

 

 

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