Elliott Forrest: Welcome to 5 Minute Capital, CIT’s executive insight series, which takes on financial issues in about five minutes. Today we’re discussing the Middle Market outlook for 2009. Our guests are Jim Hudak, co-head of corporate finance at CIT and Stuart Feil, editorial director of Forbes Insights Practice. Thank you both for joining me.

Jim Hudak: Thank you.

Stuart Feil: Thank you.

Elliott Forrest: Jim let’s start with you. Forbes, in partnership with CIT just completed a survey on the middle market outlook for 2009, how did this survey come about?

Jim Hudak: The middle market is something that CIT has almost exclusively focused on over the years. I think this survey is more timely than ever. There are 30 million jobs in the area of what we define as the middle market. The middle market drives the economy, period. And I think in this time when we’re trying to figure out the stimulus package, we want to get much more timely information on the companies behind this, who are going to be executing that stimulus package.

Elliott Forrest: Any other thoughts, Stuart, about why the middle market is so important and why you focused on that with the survey?

Stuart Feil: We’re looking at it as a growth engine and I think that it’s really a key area of economic growth and that is really its most important role.

Elliott Forrest: Stuart, let’s talk about the survey - the overall findings, who you talked to and what you found out.

Stuart Feil: The survey itself was 150 top-level executives at middle market companies - those are companies with annual revenues of between 25 million and a billion dollars. We also did a number of one-on-one interviews with similar top-level executives. General findings, these are companies that are affected by the downturn as much as anybody else. This is the worst economy in generations - there's really no question about that from these results. Probably about 60 percent-plus saw either significant or moderate impact. That doesn't mean that growth is not in the picture. Some 40 percent said that they do anticipate growth over the next 12 months. That level of growth may not be as strong as it previously had been, but that doesn't mean that there’s contraction across there.

Elliott Forrest: And what were the thoughts about when the financial crisis would bottom out?

Stuart Feil: Probably within the next 12 months. The vast majority - four out of five - 80 percent or so - said they expect to see that occurring in 2009. Probably about a third of that number saw it in the next six months, the remainder six to 12 months down the road.

Elliott Forrest: Jim, you're in the trenches day-to-day. What are you hearing from your clients about all this?

Jim Hudak: Well, I think most of our clients are focusing really on cutting costs, right- sizing their balance sheets. This is going to be something that – companies are going to be forced some discipline upon them – to recapitalize, the right-size and then I think it’s going to be a springboard for growth in 2010. I think we’re going to have much more efficient companies.

Elliott Forrest: Any do you have any advice for middle market companies?

Jim Hudak: I could tell you from our perspective at CIT, the thing that has made the most difference - and I know this is an overused term – but, the relationship aspect of it really counts. I think that whether it's an older relationship or a newer relationship, I think people get the best treatment and the best advice, and I guess the best ideas, if it's truly a partnership between the lending side the equation, the advisory side of the equation and the companies themselves. And my advice would be, don't underestimate the power of the relationship.

Elliott Forrest: Based on this survey, any other advice from you, Stuart, on how to weather this?

Stuart Feil: Well you know what we're seeing is the companies are battening down on the hatches, holding money tight to the vest, focusing on cash flow. I think the other thing that we are definitely seeing is also: stick with what you know. Stick with what you do well. You know, we did ask them what were their most valuable company assets and it's really the top three - things like having strong customer relationships, having employees who understand your business and your industry. Offering quality products and services. Those are the really the top three assets and those are the things to stick with.

Jim Hudak: I think it’s very consistent to what we see when you say down in the trenches and you talk about focusing on your core products and doing what you do best. You know, with a company, I think they look at their key accounts and key clients and have really cut off some of the other, you know, auxiliary businesses and just focus on the core client and get the most profitability out of it.

Elliott Forrest: And the government bailout how does that affect specifically the middle market?

Jim Hudak: Well, I mean, the government bailout takes a lot of different forms. We talk about the stimulus package and we talk about the different support that the government has given to financial institutions. The thing that's going to work here in terms of getting the market going again - the middle market going - is the freeing up of credit. We could have a lot of different stimulus package, a lot of it spending, but if the credit markets aren't there, if they're not unfrozen, this is not going to work. So I think the parts of the bailout package that concentrate on freeing up credit for financial institutions to put that back to work in the middle market, I think those are going to be the most successful programs.

Elliott Forrest: Jim Hudak, co-head of corporate finance at CIT and Stuart Feil, editorial director of Forbes Insights Practice, thank you both for being here.

Jim Hudak: 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.