Banking & Capital Markets

Credit Climate

Thanks a lot, Enron!
Alix StuartDecember 1, 2002

It’s the best of times and the worst of times for growth-oriented companies in troubled sectors. One dramatic example: energy trading and management company TBC Consolidated Fuels Marketing & Management Corp.

Thanks to the problems of big players like Enron, El Paso, and Dynegy, the $21 million company now has scads of new clients to chase. “There has never been a [better] opportunity to grow our market share,” says TBC ConFuels president and CEO Peter Bryant, who has seen his annual revenues increase steadily from $300,000 since entering the sector in 1997. Based on his pipeline of potential clients, he says he could easily buy 10 times the $1.5 million worth of energy he’s now purchasing monthly for Fortune 500 clients like Miller Brewing and Texas Instruments.

On the other hand, the loss of competition has also spooked the bankers, leaving TBC ConFuels without the credit financing it needs to expand business. Even armed with signed contracts from customers, bank statements, and details about the company’s hedging strategy to keep cash flow strong, TBC ConFuels was refused credit by 37 banks. Thanks to Enron, “we have found that domestic lenders are still a little gun-shy about commodity lending,” says Jacqueline Arthur, TBC ConFuels’s part-time CFO. “It’s a bit of a herd mentality.”

Indeed, “the banks are just fleeing the sector,” says Peter Rigby, an energy analyst for Standard & Poor’s. “They’re looking at an enormous number of nonperforming loans, so it’s a brave banker that brings a new loan to a credit in this sector.” Moreover, small companies are at a disadvantage, he notes, since they are more vulnerable to liquidity crunches when systemic breakdowns like energy shortages or delivery delays occur.

Patrick Von Bargen, executive director for the National Commission on Entrepreneurship, argues that it’s not Enron’s fault, and that TBC ConFuels’s problems with banks are typical for asset-light start-ups. Credit conditions “have always been bad,” he says. “When you think about entrepreneurial ventures, where the assets are often people or a brand, how does a bank foreclose on those things?”

The good news for TBC ConFuels: Bryant and Arthur discovered that international banks, including Amalgamated Bank of South Africa, French BNP Paribas, Bank of Ireland, and several smaller Canadian banks, were more willing to consider taking a chance than their U.S. counterparts. At press time, TBC ConFuels was expecting to close a deal “imminently” with one international bank, which it declined to name.