Social distancing. Elbow bumps. Flatten the curve. These are the new phrases and behaviors we have learned to avoid exposure to the novel coronavirus (COVID-19). This epic struggle forces us to reexamine and reevaluate our daily habits, lifestyles and customs as we work collectively to minimize the harm to our families, friends and neighbors throughout the United States. While some of the lifestyle changes and limitations will be temporary, the human and economic effects of COVID-19 will be profound and, as always, the disruption undoubtedly will lead to increased innovation and societal change.
In the restructuring arena, many effects are direct and foreseeable. Workers and businesses in the travel, restaurant, retail, hospitality and gaming industries will be immediately and severely challenged as their customers choose or are forced to stay home. The Centre for Aviation reports that without a significant government bailout, several major airlines will be bankrupt by mid-May. Government mandated shopping center and restaurant closures will exacerbate the already severe challenges facing the retail industry, and disruptions in the global supply chain create inventory pressures for retailers and manufacturers alike. And, as employees suffer reductions in the work-force, reduced income, medical debt and stock market losses, discretionary spending will decrease. Regardless of whether you were bullish or bearish on 2020 last week, the financial impact of COVID-19 will be real and undeniable.
Dealing with the fallout will require quick, creative thinking and novel solutions from all participants of the restructuring industry. Unfortunately, most restructuring problems will not wait for the return of life-as-we-knew-it. Rent and debt obligations will be due soon, and shuttered and cash-strapped businesses will soon experience significant liquidity issues. Restructuring transactions currently underway will struggle to close, and debtors in current proceedings will face new hurdles as they attempt to reorganize. Bankruptcy courts are working to balance the need for access and public safety, but access to the courts is becoming limited to all but the most urgent matters, especially as the volume of cases increases. Like the virus itself, we must use technology creatively and adopt new strategies (restructuring elbow bumps, if you will) to solve problems in real time and work to stem the economic harm of this unprecedented event.
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