Bankruptcy and Restructuring in the Age of COVID
28 August, 2020
Business leaders have never faced a more complex and challenging crisis than the one caused by the COVID-19 pandemic’s catastrophic global impacts. In a matter of weeks, many individuals and organizations across the globe have been impacted by COVID-19. The impact is further accentuated by the uncertainty on how long it will last. Some industries are impacted more than others, but those most impacted are faced with difficult choices. Some have the resources to hold on until mandates are lifted and economies slowly get back on their feet. Others are being forced to consider restructuring options including asset sales, business combinations, or bankruptcy proceeding.
Alvarez and Marsal, a global professional services firm, explore the current trends in turnarounds and restructuring and what it means for distressed companies in today’s environment.
We sat down with our presenters to get a foretaste of what viewers can expect in the on-demand version of the webinar.
ShareVault: The New York Times recently reported that there is “A Tidal Wave of Bankruptcies Coming” and asserted that, "Experts foresee so many filings in the coming months that the courts could struggle to salvage the businesses that are worth saving." Can you give your perspective?
Alvarez and Marsal: Many lenders and sponsors came together to fund business and provide covenant flexibility through the third and fourth quarter so as to provide an opportunity to see what the long-term impact might be. As those amendments expire, we may find that many businesses have sustained long-term damage that can only be fixed by a financial restructuring and new money. Many of these transactions will have to be consummated in Chapter 11 and may take the form of sales.
SV: Aside from the economic impact on companies, what are some of the other ramifications the pandemic is having on companies, such as the uncertainty of how long it will last?
A&M: The pandemic is forcing many companies to transform their business models, adopt digitalization and technology, revisit their global supply chains and innovate. Best in class management teams are using this as the opportunity to re-imagine how they deliver value to their customers and are proactively developing plans to reduce costs and add attributes to their products and services to meet the changing needs of their customers in the current environment.
SV: In light of this uncertainty, what can/should companies be doing to protect themselves?
A&M: There are many sources of capital available. Businesses should look for liquidity within their organizations, or outside, to allow them to carry on or consider transformative changes. They should be looking to restructure or offload underperforming assets and focus on transforming their organizations. Note that while there may be a lot of capital on the sidelines, it’s still unclear how easy it will be to access, especially for companies with deteriorating results or leveraged capital structures.
As companies continue to re-imagine their business from the inside out, they should also look to partner with other parties in interest—customers, suppliers, landlords—in ways that could be advantageous for both parties, such as short term rent deferrals in exchange for a longer lease, price concessions in exchange for a supply contract, or consignment arrangements in order to ease the liquidity burden, etc.
SV: For many companies the outlook is bleak. Are there any positives or opportunities?
A&M: For companies with access to capital, there will most certainly be acquisition opportunities at attractive prices and low financing costs. The successful transactions will depend upon the right combination of operational and financial diligence and determination of the best forum to complete the transaction.
As always, there will be winners and losers. Some industries, such as Real Estate, Energy, etc. are going to struggle for a while. Other companies that can adapt quickly, follow their customers and consumers behavior, innovate and adopt technology, can discover plenty of opportunities. We at A&M are uniquely positioned to help on both sides.
Other topics discussed during the webinar are:
- Restructuring opportunities in/out of court to mitigate business disruptions
- A&M’s “Restructuring 101 Playbook”
- Business combination alternatives, including M&A
- M&A considerations in Q4
- Identifying, planning and prioritizing liquidity levers
Download the recording to explore the timely topic of “Pivot to Cash™: Bankruptcy & Restructuring in a Distressed Environment” and what it means for the health and survival of companies today and in the future.