SVB's shadow over consumer and retail
The Silicon Valley Bank fallout may not hurt consumer-facing companies immediately, but is likely to have longer-term consequences, industry sources tell Axios.
Why it matters: While the U.S. government has assured SVB depositors of access to their funds, the accessibility of credit lines is less clear — and consumer-facing companies rely more on revolving credit facilities to finance operations than other industries.
What they're saying: On the sidelines of UBS Global's consumer and retail conference yesterday, Rhône Group principal Patrick Wilson said his firm is looking at portfolio companies' availability on credit lines.
- SVB also highlights the problem of rising interest rates, says James Gellert, CEO of financial analytic firm RapidRatings.
- "What SVB did was focus people’s attention on the fact there is dislocation in the credit and capital markets that come from interest rates and inflation," he says.
Context: The fallout's impact on small- to midsized companies and banks could yield distressed situations, says Gellert.
- CEO of Hilco Corporate Finance Geoffrey Frankel agrees, adding that some purely digital commerce or retail tech companies may have some exposure
- Note that Fetch was one such company that had money deposited with SVB.
The intrigue: The question is whether SVB is the "canary in the coal mine" for other industries, including consumer and retail, Frankel says.
- There are relatively few financial institutions concentrated in the retail and CPG industries, he says.
- "If this is just the first of wave, however, because of unhedged interest rate exposure, it's a different story," Frankel says.
Meanwhile, "General economic conditions could create availability problems," Frankel says.
- Other forms of financing may gain in popularity to fill the void for companies in need of credit, he says.
- Hilco, for example, is increasingly advising on and providing credit backed by the value of brand names, a valuable asset often underutilized when it comes to financing, Frankel says.
What we're watching: SVB's impact on alternative credit providers offering credit lines secured by non-traditional or more exotic kinds of assets outside of inventory and receivables.
The big picture: There's nothing like an old-fashioned banking crisis — or the fear of one — to convince consumers to snap their wallets shut.