As the dust settles from the turmoil on Wall Street, I am trying to judge the fallout for our business and our client’s. The danger seems so far removed but I sense that the “mushroom cloud” of financial fallout is spreading!
You would think that in Houston, Texas, Oil Capital of the World, that business would be great and money easy to come by. Not so! For the past two months liquidity has been drying up. In addition, this change in the liquidity has been going on way before Hurricane Ike made landfall.
Recently, several of our clients have been in negotiation with their lenders regarding debt covenants on loan renewals. The companies are in strong financial shape with great ratios. Still, the banks want to tighten up the debt covenants. It seems that they want a hair trigger “trip wire” in case the economy tanks.
I spoke today with a local investment banker who has had two transactions go away due to lack of the purchasers ability to find financing. He is working his remaining deals but doesn’t know where the pipeline is going to come from. He indicated that the private equity groups that can get money are having to put down on average 40% equity.
Finally, I am seeing the daily sales outstanding at several of our clients and our company get a little longer than six months ago. Not a problem yet, but indicative of a drying up of liquidity on Main Street! Liquidity is drying up on Main Street