In the past 15 months, there have been unprecedented changes in the asset-based credit and credit markets due to the COVID-19 pandemic. As a result, lenders, credit institutions, the government and investors have been put on the defensive and had to bridge the gap, buy time or simply adjust and extend it until 2021. If businesses continue to bounce back in 2021, there is an opportunity for asset-based lending to be the way they evaluate, rate, monitor and make lending decisions for new opportunities and existing portfolio companies. Given the rapidly changing and evolving landscape, lenders should consider using the services of professionals in the industry for real-time, market, and transactional data-driven advice, especially when making decisions to either extend a troubled loan and to support or protect and monetize their collateral.

To illustrate the landscape described above, let’s take, for example, the transportation industry and many of its sub-sectors. Similar to many other industries in 2021, the prolonged delay in new shipments from OEMs coupled with the increasing demand for services in the industry has continued to drive used prices and replacement values ​​in some areas to unprecedented levels. When dealing with and talking to customers, customers and dealers, many cannot remember a time in their careers when used prices were so high. Of course, this can be welcome news for lenders looking to monetize collateral in the short term, be it through a private sale or auction. The market is sure to change in the quarters ahead, however, as new shipments get closer and dealers and buyers shift their focus away from used ones. Monitoring this shift will be critical for lenders and investors over the next six to twelve months, along with considering inflated pricing when evaluating new credit opportunities.

When we look at three different sectors within the transportation industry – truck tractors, trailers (refrigerated or dry trucks), and coaches – we see some similarities and some differences in analyzing industry demand and pricing. While the first two saw tremendous spikes in demand and prices, the coach industry suffered so badly during the pandemic that Congress passed the CERTS bill giving bus, coach and passenger shipping companies across the country a 2% relief Billions of dollars. Lenders in these three industry segments can take steps to improve their underwriting methods and collateral monitoring practices.

The market for used tractor units – Over the Road, Day Cabs, Sleeper, Heavy Haul, Oilfield Specific – may never have been as strong as it is today. On average, we see value increases of 30 to 40 percent for similar units compared to the previous year. Operators and end users, especially smaller businesses, have (and will not for some time be) a direct line to OEMs as some large fleet owners do, and are forced to be creative and / or for used goods above normal market prices pay trucks. It is so difficult for many buyers to find trucks that they fall into truck categories or specifications that traditionally don’t make sense. For example, we observed that heavier oilfield trucks were bought and slightly modified for road use, which is of course not ideal from an MPG point of view. All of these activities have meant that only a limited stock of used items is available and prices have risen continuously. Lenders should monetize the collateral in their possession now before the availability of new / used products changes. In addition, we advise our customers to carefully consider estimated values ​​when evaluating new credit opportunities today, as residual values ​​may be misaligned in several years’ time due to a normalized price environment.

The market for used trailers, especially dry truck trailers, is incredibly strong today. It is common for lenders or investors in possession of end-of-lease trailers to sell units for more than the amount originally funded. Auction and private sales prices remain very high on almost all OEM models, including older trailers from 2011. The ongoing boom in the US economy and corresponding consumer demand, coupled with behavior-changing consumer behavior towards increased online shopping, have fueled an unprecedented demand for logistics and delivery services. As in the truck market, the new delivery times for trailers for fleet owners of all sizes will be postponed until well into 2022. As large fleet operators bring in end-of-cycle trailers, they have customers willing to take as many as possible at continuously higher prices. Again, lenders or investors must carefully consider deploying medium to long-term capital in what is likely to be a shorter-term pricing environment. The demand for services will likely only continue to grow, but fleet availability and pricing will have a significant impact on the value of the collateral over time.

As highlighted above, the coach and general tourism industries were decimated in 2020 and early 2021 due to the pandemic. Demand and prices for used inventory have plummeted and remain weak, even as federal and state guidelines have been relaxed in recent months. For lenders with exposure to this segment, the value-maximizing movement has been to cramp, protect, and service the collateral that their customers can no longer pay on due to the suffered deals, rather than providing collateral through distress sales to opportunistic buyers or through auctions Selling. Patience and a carefully crafted long-term service and remarketing plan will result in vastly improved recovery values ​​as the industry recovers. For lenders who continue to monitor the collateral remaining with their customer base, regularly scheduled inspections and maintenance are critical to maintaining the health of the asset base. Customers benefiting from the CERTS law will enjoy a well-deserved relief, and as the tourism industry continues to recover over the coming months, they can once again provide vital transportation services to our schools, businesses and citizens across the country.

In summary, asset-based lenders and investors with current or future portfolio exposure to the transport sector, depending on the subsector, should carefully monitor their collateral if there are now or future opportunities for monetization or funding, or if clients refinance over periods of time beyond the expected normalization of the Demand and prices for used inventory go beyond.

Photos of Nations Capital, Inc's Jim Lightburn and Kyle Asher interviewed with ABL Advisor