This past week, despite a lot of people being on vacation, had important news that may affect us for the years to come:
1. According to the bond market yield curve and a Deutsche Bank model, there is 60% chance of recession. The interesting part is that the equity market, who erased the post BREXIT losses, doesn’t agree.
2. If we do enter a recession the Debt-to-EBITDA multiples for private equity deals with U.S. targets in 2016 has hit a whopping 6.8x. This is probably correlated with the general corporate and SME debt markets. We all know what happens in an overleveraged environment when the music stops.
3. And on the unsecured personal side Morningstar published a report showing that the Non-housing debt is at around $3.5 trillion from $2 trillion in 2004. The report is titled “Please Sir, can you lend me some more ?”. Bad of you if you lend, bad of you if you don’t. On the bright side, default rates are not inching up yet except in sub-prime auto.
This week we also saw Avant planning to lay off 40% of their workforce. One may think this is a negative signal for the company. On the contrary, in my eyes this allows Avant to be profitable and to be ready for whatever the next 12 months throws at the overall market. In Chess, it pays to build a flexible position with many options of attack and defense vs throwing all your pieces on a single make or break attack. Avant is prepared for the worst and if the market turns around it can react fast in the same way we saw the company build $2bil in origination in only 3 years.
On the fundraising side EarnUp, a new fintech type of loan servicing which was bootstrapped so far and already has traction, raised $3mil in a seed round.
And last but not least I have put together a Press Kit for Lending Times. If you are interested in supporting Lending Times through advertising with us please ask for our press kit.