Lenders get tougher with businesses
Many companies took out big loans before the economic downturn and are running into trouble on their payments. Now, as they're crawling back to their lenders asking for help, the lenders are playing tough. Jill Barshay reports.
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KAI RYSSDAL: Lots of companies are already feeling that pinch of a slowing economy. Orders and revenues are down. Problem is many of those companies took out big loans before the credit squeeze hit. Now they're having trouble making payments. But the banks are playing tough. Our New York Bureau Chief Jill Barshay explains.
JILL BARSHAY: Herbst Gaming is one of the largest operators of slot machines in Nevada. But after the state passed a smoking ban, its business went south. Herbst was in danger of defaulting on its $875 million loan.
Steve Miller is managing director of Standard & Poor's LCD. He says the lenders restructured the loan. But it cost Herbst a whole percentage point.
Steve Miller:: It's no different than a credit card company saying that, "OK, we're going to lend you some money." And then suddenly you start to make some late payments, you're not getting back to them the way you should. And then they charge you late fees, they hike up your spread. It's the same exercise.
Miller says many high-risk companies with big debts are in the same position.
Greg Stoeckle is one of the lenders jacking up rates. He runs a portfolio of loans at Invesco, a big institutional investor.
GREG STOECKLE:: We are asking for more at this point. Corporate earnings look like they're softening. So, we've reacted by saying we just demand more of a risk premium to put money to work.
That might mean a lot less money is put to work, according to Steve Miller of S & P.
Miller: It makes it more difficult for people to borrow money, clearly. It makes it more expensive for people to borrow money. And the terms under which you're borrowing have become much more rigid than they were in the past.
Miller says one reason American companies grew so fast is because they had cheap and easy access to money. But lenders are a lot more tight-fisted these days. And Miller says that could be another drag on economic growth.
In New York, I'm Jill Barshay for Marketplace.
