Mar 31, 2023
Retailers Are Reaching For Liquidity Amid Bank Turmoil: Q&A
(Bloomberg) -- Retailers are boosting liquidity in reaction to bank turmoil, including the collapse of Silicon Valley Bank and Credit Suisse Group AG, according to Andy Graiser, co-president of A&G Real Estate Partners.
A&G is an advisory firm that works with major retailers. Graiser spoke with Bloomberg’s Lauren Coleman-Lochner in a series of interviews ended March 30. Comments have been edited and condensed:
How has the fall of Credit Suisse influenced retailers?
We’re seeing a lot more caution. There’s no question that this has definitely rocked CFOs. We’re hearing about more preservation of cash.
Read more in this week’s Credit Brief: Quiet Credit Crunch
What are you seeing in terms of access to financing?
These companies are finding additional liquidity. And I think it’s an indication that the markets are there. They’re not cheap, but the markets are certainly feeling comfortable enough to provide these FILOs, which are credit facilities that are first to be drawn and last to be repaid.
During a period of uncertainty, when you have the opportunity to get the liquidity, you have to grab it, even if it’s a little expensive. With what’s going on in the capital markets, I’m not sure waiting makes sense.
What’s the impact of recent bank failures?
I think you’ll see a little bit more of a conservative approach relative to inventory values. There’s a lot of things going on in banks, more than just lending to retailers. You have to look at everything that’s going on with lenders: whether they’re exposed to crypto, the office market and mortgage refinancing.
There’s no difference than when you’re a consumer and there’s certain things that are out there that are making you feel uncomfortable. I’m not saying we’re going from zero to 60 back to zero, but certainly going from zero to 60, then back to 40.
How much more are retailers paying for this financing?
I’m hearing numbers at 10%. But again, if you look at the interest rates even on the asset-based lending facilities, those have bumped up during the course of this year just because the interest rates are going up. The Tranche B guys, who are just below senior debt, are the ones filling the hole that they have in their liquidity and the tranche B money comes with a premium.
But there’s a market for it. You are seeing transactions getting done, and by the way, this isn’t straight across the board for everybody because it all has to do with credit worthiness and asset values.
So are retailers slowing their growth as a result of all the upheaval?
There are still plenty of companies out there that are growing. But there’s no question that the turmoil slows some of the growth up. I’m not saying it stops it, but it could be delaying it. Some retailers were actually looking to expand in certain markets like California and just aren’t, because the labor cost is so crazy.
There’s retailers right now in certain parts of the country, they’re just cutting hours because they can’t staff. Labor is just such a major topic and we’re nowhere near this even coming close to being resolved.
Is there any upside in all this?
When you’re in a market where there’s not a lot of new development going on, for companies that are looking to grow, this is a good opportunity for them to get into centers that they normally couldn’t have gotten into.
What categories are going in?
You can say definitely discounters. You can say supermarkets also. You’ve got health care. And you’re seeing still a lot of growth in restaurants.
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