Elliott Forrest: Welcome to 5 Minute Capital, CIT’s executive insight series, which takes on financial issues in about five minutes. Today is part two of our discussion about the Middle Market outlook for 2009. Our guests are Pete Connolly, Co-Head of Corporate Finance at CIT and Stuart Feil, Editorial Director of Forbes Insights Practice. Thank you for being here, Pete, and for returning, Stuart.

Pete Connolly: Thanks for having us.

Stuart Feil: Thank you.

Elliott Forrest: Pete, last time we talked with your colleague Jim Hudak about the middle market outlook survey that Forbes recently conducted in conjunction with CIT. What surprised you about the finding?

Pete Connolly: Well, I think there were a couple things. First, the overall size and impact that the middle market has on the economy. When you look at the fact that there’s over 100,000 companies and 32 million jobs in the middle market sector, it has a huge impact on what’s going to drive this economy and bring it back to health.

Elliott Forrest: And Stewart I wanted to give you another opportunity to talk about some things we didn't talk about last time in this survey. What comes to mind?

Stuart Feil: Well, I think one of the things we're looking at is where are middle market companies, right now, focusing their financing needs? And it really is on operating capital. So, longer-term investments, or those that might have a longer term return, things like plant and equipment or technology, those are being put on the back burner.

Elliott Forrest: Is this changing the way of structuring deals, Pete?

Pete Connolly: Well, we are seeing a lot more asset-based deals, which are essentially working capital advance loans. So we're trying to meet our customer needs by providing that financing to meet their number one need, which is the working capital.

Elliott Forrest: And Stewart in this survey what did you find out about the way they're looking for partners and financing?

Stuart Feil: It's the same things that they've looked at previously. They're looking for a financing partner that is there for them through good times and bad. They’re looking for someone who really understands their business. They want someone who really understands what they do day-to-day.

Elliott Forrest: One of the headlines of the survey was “cautious optimism.” Pete is there anything positive to be gained from the current situation in your opinion?

Pete Connolly: I think in general we're creating a more sustainable lending environment. So we’re getting back to the days of tighter covenants, lower leverage for transactions and more upfront cash equity from lenders. When you get back to that you get to a more sustainable environment. So that's going to help us come out of this better than before.

Elliott Forrest: And for you Stewart, as well, what did you find in the survey that said that?

Stuart Feil: I think it is that companies are looking at growth I mean they understand their value they understand where they're going. Any downturn offers a chance to retrench. It offers a chance to look at your strategy, to know what you do well, refocus on what you're doing well and move ahead.

Elliott Forrest: Pete, are there any sectors that seem to be faring better than others?

Pete Connolly: Sure. I would say right now for us healthcare has been the most positive sector especially in the non-discretionary. I do think though that there's some hiccups coming in the discretionary - things like laser eye surgeries, cosmetic surgeries. But to date, healthcare has been a very good performer. I think consumer non-discretionaries perform well. So food, staples have also performed well.

Elliott Forrest: So Stewart did you find any difference of opinion from people in different sectors?

Stuart Feil: At this point we didn’t really break out by different industries but we did have a lot of anecdotal interviews. So there were those companies for instance those in technology that seemed to focus on a lower-priced product. They appeared to say, “Well you know right now we’re growing, because this is the product that the market needs.” We did speak with some people in healthcare we did speak with some others in technology they seem to indicate right now that this is an okay time for them. The healthcare company we had interviewed actually dealt with lab testing - an increasing area where they were not seeing the drop off.

Elliott Forrest: Now Pete, we've seen a lot of the tumultuous times regarding energy. How is the economy affected by that?

Pete Connolly: You know that’s actually an interesting question because I would've originally said that energy affected the economy when oil is at a 150 a barrel. But now the economy has turned it around - even though oil's down - it’s the economy that’s affecting energy. Meaning people are cutting back on everything including heating, travel. Everything is getting cut back, so now it's turned itself on its ear - it’s affecting the demand side of the energy market.

Elliott Forrest: Any final lessons to be learned from the survey?

Stuart Feil: Stick with what you do well, that's what we're seeing the company's saying. Those that are succeeding are doing that. Understand that it's going to take longer. That your customers, right now, may be taking a little bit longer to make their decisions you know as one of the people we interviewed said that it's really a matter of working harder.

Elliott Forrest: Any final thoughts, Pete?

Pete Connolly: Well, we look forward to working with our customers to get through this and we can help them meet their revenue and growth targets in the future.

Elliott Forrest: Pete Connolly, co-head of corporate finance at CIT and Stuart Feil, editorial director of Forbes Insights Practice. Thanks again for joining me.

Pete Connolly: Thank you.

Stuart Feil: Thank you.

Elliott Forrest: And thank you for listening to 5 Minute Capital. Please log on to 5minutecapital.com for a link to the full report and more. I’m Elliott Forrest. This has been a production of CIT. Capital redefined.