Faltering oil and gas prices have credit and collections pros hoping for the best F OR CLOSE TO A DECADE, America has sizzled with feeling for shale oil. We’ve had a soft spot for the natural gas coaxed from shale, too. But extracting the nation’s GDP from the depths of recession is hard work, and in the past several months, both of these prized energy engines have slowed down, taking their prices with them. It’s a trend Ken Katz is watching closely. aspect of credit and collections and the equipment finance industry as a whole, however, is the oil and gas situation. But…it’s complicated. Katz expects the drop in oil and gas prices to have an im-pact on credit and collections going forward. “Together, oil and gas were the one industry where business was hot, and the economy grew because of it,” he says. “When a business is doing well, more capital flows in, more players get involved and more expenditures are made for equipment that supports it. But when oil and gas prices decline in a short time, as they have, capital expenditures are reduced and firms don’t originate as much business from that sector. Protecting Portfolios We’ll probably have some delinquen-So far, portfolio performance continues cies and credit-default issues this year in golden as firms like Wells Fargo Equip-“It’s a bit of a oil and gas-related businesses.” ment Finance experience the second b orrower’s market Kevin Prykull has similar expectations. “Will consecutive year of record perfor-w ith a lot of dollars there be some losers because of oil and gas price de-mance. Looming over nearly every ber “Everything is going fine, but we’re not relaxing,” says Katz, Deputy Chief Credit Officer at Wells Fargo Equipment Finance in Minneapolis. “In the credit business, you never relax.” Currently, the market features an abundance of liquidity and lots of lenders trying to grow their equipment finance business. Meanwhile, more lenders have re-entered the mar-ket place, sharpening competition to an arrow point, affect-ing not only pricing but structure, the amount of informa-tion companies can obtain on potential customers, and credit quality itself. “It’s a bit of a borrower’s market with a lot of dollars chasing a limited number of deals,” says Katz. “Everyone’s just getting that much more aggressive.” c ha sing a limited num of deals.” 24 MARCH/APRIL 2015 EQUIPMENT LEASING & FINANCE MAGAZINE