With Graham Randell, Senior Managing Director and Group Head of CIT Commercial Finance Europe

Elliott Forrest: Welcome to Five Minute Capital, CIT’s executive insight series which takes on financial issues in about five minutes. In this episode, we’ll take a look at the credit crunch from a slightly different perspective with Graham Randell, Senior Managing Director and Group Head of CIT Commercial Finance Europe. Good to see you.

Graham Randell: Thank you for bringing me along.

Elliott Forrest: The credit crunch is on everyone’s mind these days, Graham. What’s the outlook from a European perspective?

Graham Randell: Well, to date, we’ve actually watched outwardly looking at the U.S. and seeing what’s been happening here with the sub prime market and then the debt credit crunch. We’ve experienced the same in Europe, but not to the same degree. We haven’t had the same degree of problems with the housing market. But we’re still seeing some of the credit crunch issues and I think this is the whole point about globalization of this particular area of the market.

Elliott Forrest: Does this give you more confidence to do deals in Europe than here because of that?

Graham Randell: Well, Europe has largely been a bank market in terms of financing. What I mean by that is it’s only been the last few years that the large institutional funds have been financing deals. And so when the market has sort of tightened up as it has recently, the banks are still doing transactions. And so we see a lot of activity in that way still at this moment in time. Particularly within what I would call the middle market. And these are deals up to say $500 million equivalent. Elliott Forrest: How are these deals being done?

Graham Randell: Well, we’re not immune to the same experiences in the U.S. Now over in the U.S. it’s largely club deals. In other words the days of when one bank would underwrite the whole deal went away about nine months ago. And it’s a group of banks getting together. Now in Europe, there’s quite a lot of that, club deal activity, working with partners. But there is still a lot more buoyancy within the market and sole underwrites are still being done. Elliott Forrest: Can you share with us some of the deals you’ve done lately?

Graham Randell: One particular transaction we did which was a secondary buy-out was a company called Pulse. Now Pulse actually designs small domestic appliances. And these were all manufactured in China. Now you might ask, are people going to stop buying small domestic appliances? But they’re the sort of things like electric irons or toasters. And I don’t know many people when their electric iron breaks, their wife turns around and says… Elliott Forrest: “I’m not getting another one.”

Graham Randell: That’s exactly it. You’re always going to get another one. So I think there are some things that are discretionary. And other things which are not. So it’s looking for businesses where it’s not a discretionary spend.

Elliott Forrest: And there’s a couple of surprises you’ve done. Including really large yachts – which in a credit crunch you wouldn’t expect.

Graham Randell: Well, we financed a deal only a couple of months back called Oyster Marine. This is a fabulous business. This is business has been going for over 30 years. And the yachts are really, really impressive. And the key element on this is you might say these are for the super rich. I personally can’t afford to buy one. But we’re talking about yachts which would be sort of $10 - $12 million. And I guess we take the view that if you can afford one of those, you’re not impacted in the same way as the man on the street.

Elliott Forrest: So I guess the point is that there are some goods – and maybe even services – that are credit crunch-proof?

Graham Randell: I don’t think you can ever say “credit crunch-proof” because in any environment, people will take a hard look at are they getting value for their money. But I think what you can say is they’re more resistant to downturn.

Elliott Forrest: Are there sectors that are credit crunch-resistant then?

Graham Randell: Well, the one that springs to mind is the healthcare sector. And although everybody’s looking to have better terms of financing, one of the things that actually makes it work for us in Europe is that the healthcare market is largely government financed and governments themselves are looking to get cheaper ways of investment in that sector. So there’s a lot of private initiatives in terms of financing equipment purchases, in financing of staff, in outsourcing of services and I think that’s going to be a really strong growth sector going forward.

Elliott Forrest: So, let’s pretend the folks listening right now are clients. What’s the best course of action, what’s your best advice today?

Graham Randell: Well, it’s very easy when you look at the credit crunch to start panicking. And what I would say is that if your business is sound, if it’s well financed, perhaps not quite so much debt as it was a year ago – there’s no reason why you shouldn’t see out this particular credit crunch crisis and come through very strongly. Businesses which have a reason for being, which are very very strong in their fundamentals. They will survive this and they will work through the cycle. And those are the businesses we should all be financing.

Elliott Forrest: Graham Randell of CIT. Thanks for your time and your insights.

Graham Randell: Thank you very much.

Elliott Forrest: And thank you for listening to Five Minute Capital. Please log on to fiveminutecapital.com for more. I’m Elliott Forrest. This has been a production of CIT. Capital redefined.