FTI Consulting Inc. has identified several key drivers that it expects will affect corporate borrowers and restructurings in 2008. Key drivers identified by FTI Corporate Finance are:
The credit markets will remain tight
Credit markets are likely to remain highly restrictive through at least the first half of the year. FTI Corporate Finance sees financing conditions worsening across most sectors as companies experiencing covenant and similar problems will be unable to easily refinance themselves out of existing facilities without incurring substantial costs and certainly more restrictive covenants. In addition, credit markets will force companies and lenders to the table more often as borrowers experience covenant or liquidity issues and lenders express greater concern over protecting their positions.
New and amended loans are calling for greater covenants and fees
Lenders are looking to shore up covenant-lite loans where possible with additional covenants that bring lenders and borrowers together sooner to discuss unanticipated under performance. New financings are adding greater covenants for lenders to monitor performance.
Housing woes will be unrelenting
The US housing slump is expected to continue to adversely affect the homebuilding, construction materials, home furnishings, and consumer finance sectors. As the New Year starts, the slump shows no sign of bottoming out. Even if homebuyers were to stage an unexpected rally in 2008, FTI believes the substantial overhang of homes for sale is a major impediment to a recovery in those industries dependent upon new home construction. For the foreseeable future, supply is expected to remain far above any level considered normal by historical standards.
Don't count on U.S. consumers in 2008
There is recent evidence that payment delinquencies have begun to grow on consumer non-mortgage debt, such as auto loans and student loans. The growth rate of credit card debt has accelerated into the high single-digit range, which is unsustainable since it substantially exceeds the rate of growth of household income. It appears that as consumers look to pay down debt, incremental spending on furniture, jewelry, and other home goods will slow in 2008. The stock market valuations of many retailers appear to already reflect expectations of a consumer-led recession.