NEW YORK – Fewer planned investments and rising interest rates kept a damper on new bank loans by fast-growth companies in the first quarter. Those that did complete new loans appeared to be doing so of necessity, to fuel relatively faster growth.
Limited New Borrowing
Only 15 percent of fast-growth companies reported new loans in the first quarter?unchanged from the prior quarter, and down from 19 percent a year ago. Product sector companies led service businesses, 17 percent versus 14 percent, respectively?both also unchanged from the preceding quarter.
This low, flat level of activity coincides with a drop in surveyed companies? plans for major new investments, and with sharply rising bank interest rates:
- Only 41 percent of ?Trendsetter? CEOs are planning major new investments of capital over the next 12 months, down from 48 percent in the prior quarter.
- 6.16 percent was the mean bank interest rate reported by new borrowers?up 43 basis points from the prior quarter, and 142 basis points from a year ago.
?The decline in planned new investments may be attributed to several sources,? said Tracy Lefteroff, PricewaterhouseCoopers? global managing partner for private equity and venture capital. ?An important tax incentive for new investments, the Accelerated Depreciation Allowance, expired in December, making certain new investments suddenly less attractive. Also, some funding once earmarked for investments may have been diverted to cover increased energy costs. Finally, a provision of the American Jobs Creation Act, signed into law last fall, creates new incentives for domestic investment of repatriated foreign earnings?and may be causing some CEOs to pause, re-think, and fine-tune their deployment of investments before proceeding.?
New Borrowers: Faster Growers
Over the next 12 months, new borrowers are expecting stronger revenue growth than non-borrowers?an increase of 33.7 percent, versus 20.2 percent, respectively, or 67 percent higher. New borrowers are also well ahead of the curve in prior five-year revenue growth?386 percent versus 288 percent for non-borrowers, or 34 percent higher.
In addition, more borrowers are expecting to make major new investments of capital over the next 12 months, 62 percent, versus 37 percent for non-borrowers. ?New borrowers seem to need to borrow to sustain their outsized growth,? said Lefteroff. ?Urgency trumps cost considerations.?
PricewaterhouseCoopers? ?Trendsetter Barometer? is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
