It is well-settled that in the years following devastating economic events or even less dramatic cyclical declines, illiquidity reigns, debt becomes expensive and hard to obtain, and lenders dictate the terms of the few loans that get made.

The uncertainty and apprehension that naturally and predictably followed the sub-prime mortgage crisis and Lehman’s implosion in 2008 seemed the perfect landscape for a lengthy, hard-money, assetbased lending (ABL) environment. The downturn was precipitous, arguably the most severe since the Great Depression, and in many quarters, it was perceived as potentially cataclysmic. The most recent earlier time of severe economic distress— the early nineties, when an overheated commercial real estate market finally came to its senses and purged its excesses—resulted in typical fallout: few loans and only on lender-friendly terms.

“If the past was any indication of what should have happened, we would have gone from a period of crisis to a period of contraction, with the banks purging bad assets,” says James J. Holman, a partner with Duane Morris. “Under normal circumstances, we would have had two or three years of pain—with a marked increase in bankruptcies and borrowers personally paying on loan guarantees—and an enforcement regime, with banks cracking down and demanding strict compliance on loan agreements.”

Yet now, only several short years removed from a painful recession that many feared would become an economic Armageddon, banks and nontraditional lenders have piles of cash and a desire to lend it, keeping the ABL market alive. Further, commercial borrowers, rather than lenders, are largely calling the shots on loan terms.

“Generally speaking, conditions are either favorable for lenders, favorable for borrowers or balanced,” says Darryl Kuriger, managing director at Wells Fargo Capital Finance, where he oversees large, multi-lender loans. “Over the last few years, the conditions have been more favorable for borrowers than for lenders. There’s plenty of capital to be loaned. Most of the banks are flush with cash because of regulatory requirements for them to have capital on hand. Because of DoddFrank, the banks have exited some of their more exotic businesses—trading and origination of highly structured, synthetic products—and have gotten back to making traditional commercial loans. Most American companies are flat or growing modestly because the macro economy isn’t particularly strong, so companies don’t need to borrow that much. It’s all supply and demand.”

“Anatomy of the Loan Cycle” focused on this curious landscape and examined where the credit markets are, how they got here and where they might be headed. The panel discussed the causes of the most recent crisis and offered learned opinions about what future events might cause the pendulum to swing back the other way, using the life cycle of an asset-based loan as a microcosm. Joining Holman were fellow Duane Morris partners Lauren Lonergan Taylor and Wendy M. Simkulak, all of the firm’s Business Reorganization and Financial Restructuring Practice Group. Rounding out the panel were John P. Brady, Senior Vice President at Wells Fargo Capital Finance, Kuriger and Matthew Berk, formerly a Managing Director at Carl Marks.