Economic problems hit home for Lynchburg businesses

- The interest rate on Centra Health’s $171 million in outstanding debt more than tripled.

Chief Financial Officer Lewis Addison said that it jumped from 1.67 percent to 6 percent three weeks ago.

That was when investment bank Lehman Brothers filed for bankruptcy, insurance giant AIG got a federal bailout, Merrill Lynch was sold to Bank of America, and money markets slowed.

The next week, Centra’s interest rate went to 8 percent.

Addison said the increased interest cost does not affect day-to-day operations, such as making payroll or paying bills.

“We have adequate cash reserves to handle this,” he said.

But the higher cost “takes an extra large bite out of any anticipated earnings … that we would put back into property, equipment and programs,” he said. “We don’t want this to go on for an extended period of time.”

The interest rate dropped back to about 6 percent this week. Addison said there are signs that it will continue to lower. “I think that it will over time,” he said. “We’ve got to have investor confidence.”

The $171 million includes money borrowed to build the East Tower, purchase information technology, borrowing for other capital projects and refinancing of previous debt.

Tight credit has put the brakes
on automobile sales for much of the year.

“It’s very hard to get a loan approved now,” said C.J. Franzelas, vice president of Lynchburg-based Mabry Automotive Group.

“You’ve got to have immaculate credit and a lot of money down.”

Some lenders are getting out of the game. Just this week Franzelas got a notice from one bank that was no longer offering car loans. “Quite a few” banks have sent such letters this summer, he said.

“That’s what we’re hoping with this bill, that it’s going to relieve some of these financing companies so we can start selling cars again,” he said.

The Bank of the James didn’t have any problems getting overnight loans from other banks, said vice president Todd Scruggs.
“I think even this is regionalized as to where the perceived risk is,” he said.

Scruggs said he’s glad to see that the bailout bill increases FDIC insurance to cover deposits of up to $250,000 through the end of 2009.

“I think it’s probably overdue,” he said. “It needed to be adjusted for inflation anyway.”

He said the increased insurance should bolster confidence in the banking system, helping to keep deposits in the bank so loans can be made.

The ability to loan mortgage money in the Lynchburg area seems to have remained steady.
“The availability of funds, from where we’re sitting, has not changed dramatically,” said Billy Woolridge, manager of the Mason Dixon Funding branch in Lynchburg.

He said interest rates on Federal Housing Administration mortgages ticked upward from about 5.5 percent to about 6.5 percent after the stock market dive of nearly 800 points Monday.

That interest rate had gone down to about 6.25 percent Friday afternoon.

Though there is plenty of money to loan, there aren’t enough takers. Peggy Moore, president of Mortgage Atlantic, said people are probably holding back more than they should.

Now that the bailout bill has passed, “the experts predict that this will restore some confidence to the market,” Woolridge said. “With the additional confidence that the consumers have, we may see some more home buying activity.”

At a gas station and convenience store on Campbell Avenue, owner Bhubinder Singh said the credit markets haven’t kept him from getting inventory into the store. He buys items with cash.

The problem he faces is getting customers into the store. Sales have dropped 40 percent in recent months at his store and other nearby ones, he said.

His is a problem relating more to rising prices than to tight credit

markets.

“Day by day we’re opening the store, (and) just pray to God that God will send some customers,” he said.