Debt Default Rates On The Rise

The June 26th issue of ABF Journal contained an interesting article in which Turnaround Industry Professionals noted that they expect debt default rates to climb substantially. They predicted that debt default rates will rise above 10% in 2009 as the credit crunch continues to disrupt working capital for many healthcare companies.

In a recent Turnaround Management Association poll, about 70% of the respondents expected a surge of defaults in the next three years, with 2009 being especially large. Further, about 94% of the TMA poll respondents said credit is tighter this year and 80% stated that traditional lenders have become less active and are putting more restrictive covenants and conditions on the loans they do make.

Of course, this tightening on traditional loans is creating a working capital shortage for many healthcare businesses and is causing them to seek alternative sources of working capital. Many have discovered that Medical Accounts Receivable (MAR) Funding can be an excellent source of working capital without restrictive covenants/conditions and without putting incremental debt on the balance sheet.