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Special Feature: Finance
Credit, factoring experts look for signs of economic hope
By Lauren Kramer
July 01, 2010
Seafood companies historically run on high-risk, low-margin business models. So when the credit market plummeted prior to the recession proclamation, followed by restaurants folding and sticking lots of seafood companies for oodles of money, the industry has seen a fair amount of dire news. In January the Wapo Group in Monterey Park, Calif., filed for bankruptcy. That same month, Berry & Sons Seafood in Monroe, N.C., ceased operations.
"We tracked a total of 75 significant closings or bankruptcies last year, including some sizable seafood-impacting losses, most of them distributors and wholesalers, but there were a few supermarket chains as well," says George Babeu, president of One Source Risk Management. A subsidiary of Seafax, in Portland, Maine, One Source tracks restaurant and supermarket chains as well.
One seafood chain to undergo recent restructuring is the Minneapolis-based Oceanaire Seafood Room, which was purchased by Landry's Restaurants in April. Oceanaire had filed for bankruptcy last year and closed four of its 16 locations. The remaining 12 sold for $6.6 million and Landry's assumed $17 million in debt.
Alvaro Otoya, president of Summar Financial LLC in Miami, has seen business from seafood companies increase in recent months, though seafood represents just one of the many industries looking for factoring solutions, which is what Summar specializes in.
"Right now credit-insurance companies are making a big effort to give credit limits to different buyers out there - but the banks have not reacted positively toward credit yet," Otoya says. "That's presented big opportunities for factoring companies to do more business, and to take clients away from the banks."
Factoring companies buy invoices from their clients at a discounted rate, assuming the debt incurred by those invoices until they mature.
"Before we purchase a client's invoices we have to do a credit analysis of the buyer to ensure they can pay," Otoya says. "What we're seeing is that debtors are getting credit limits now, whereas two years ago new credit limits were not being approved and existing lines of credit were being cancelled."
LSQ Funding, an Orlando, Fla.-based company that focuses primarily on factoring and does a limited amount of asset-based lending, has also witnessed an increase in revenues with its existing companies. The company has seen at least a 10 percent uptick in sales for the first quarter of 2010 as compared to 2009. Seafood companies represent 20 percent of LSQ's clients, says Senior VP T.J. Gill, who adds that there's definitely been a "positive turn" in
"Already this year we've seen revenues increase and credit lines increase - though we're probably still doing more factoring than asset-based lending," Gill says. The majority of LSQ's asset-based lending clients are factoring clients with a positive track record that have graduated into an asset-based lending facility.
"Many companies that are applying are still not qualifying for asset-based lending, but we've just recently seen an upturn and an increase in revenues and credit quality," he says. "We're going to have to see that sustained for a little while before we're ready to offer asset-based lending to many of these companies. A few months of profitability and increased revenues is not enough to turn them into an asset-based line."
Gill anticipates that by the end of 2010, provided sustained growth and profitability continues, LSQ will be offering more asset-based lines than it is offering now.
The economy has not affected everyone's business practices the same over the last two-to-three years. Tim Antilla, VP for Wells Fargo's Commercial Banking division, has not seen a reduction in appetite for new credit, and the lending standards for his division are no tighter than they were previously.
"We take a long-term view of relationships, and the companies we deal with are largely well established, well capitalized and profitable, with sales of $20 million to $50 million and up," he says.
Wells Fargo's Commercial Banking Division offers a range of banking products, from secured lending arrangements in commercial banking to strict asset-based deals and factoring financing.
"It depends on what a particular customer's profile and needs might be," he says.
"On the commercial side, we continue to look at new deals and do new deals, and there really hasn't been much of a change in the way we've approached the business during the recession."
But for those companies closely tracking the recession, things are looking up, according to Babeu. One Source has tracked eight major business failures in the first quarter of 2010, as compared with 17 in the first quarter
"We're starting to see credit-insuring
companies approving more in coverage than they've done for the past 12 to 18 months, and it's making it easier now for seafood companies to purchase and sell with credit insurance coverage in place," he says.
Contributing Editor Lauren Kramer lives in British Columbia