COVID-19 has produced an instant global economic shock. It is unclear whether the economic effects will be short-term – like the post-9/11 recession – or long-term – like the 2008 global financial crisis. We examine the industries that are worst-affected and suggest responses that companies, their lenders, and other counterparties can take to confront the challenge of COVID-19.

The following industries have been particularly hard hit by COVID-19. A key question for companies and lenders in these industries is whether the business is merely facing short-term distress or is in long-term decline:

• Airlines, cruise ships, and other tourist-dependent industries: COVID-19 has caused some airlines to cut the numbers of flights by up to 70%, as the United States and other countries have enacted draconian travel restrictions. The world’s three largest cruise ship companies have suspended their voyages and have seen their stock prices drop 60% to 70%. Hotel occupancy and room rates have likewise fallen off a cliff, with U.S. occupancy rates declining by 7.3% in the first week of March alone.
• Energy/E&P Companies: Many of these companies are only just recovering from the drop in oil prices over the last decade. Oil prices had already dropped 30% in 2020 when Saudi Arabia’s March 8 announcement of US$6 to US$8 per barrel oil discounts caused U.S. benchmark prices to plunge to $30 a barrel. As global oil demand drops with a reduction in airline, commuter transport and general economic activity caused by coronavirus, oil prices may remain depressed for a long period of time. Many companies, particularly stressed U.S. shale drillers, many not survive.
• Retailers: The last few years have been a bloodbath for the retail sector, as household names have filed for bankruptcy, decimated by debt and the "Amazon effect," as ever more customers shop online. While retailers with a strong online footprint and ability to serve customers safely will weather the coronavirus storm, already weak retailers and those that cannot pivot to online will particularly suffer.
• Restaurants/Cinemas/Gyms: As governments urge "social distancing," the numbers of customers going to restaurants, cinemas, and gyms has rapidly declined. U.S. domestic movie ticket sales declined by 45% from the weekend of March 7-8 to March 14-15. Moreover, workers in these businesses cannot work from home, so any government restrictions limiting people from attending work or requiring restaurants or other crowded places to close will severely harm these businesses.

While many of the events surrounding the spread of COVID-19 and its impact on the global economy are outside the control of individual actors, there are steps that parties can take to protect their interests and minimize the pandemic's economic fallout.

• In particular with this global crisis, governments and regulatory agencies are likely to play a role in industry recovery, particularly in industries that are the most harmed such as the hospitality and travel industries. Companies in need can maintain a proactive dialogue with their regulators and focus on opportunities available for financial and other assistance as developments play out.
• Companies can take steps to maximize their short-term cash position, drawing on credit lines as applicable and reaching out to financial advisors and other professionals for advice as necessary. Lenders and investors should monitor company draws on credit facilities and can review and exercise information rights in their credit and investment agreements to inform themselves proactively in order to be best prepared for developments. This can best position parties to protect themselves and to enhance the likelihood of well-planned and value-maximizing courses of action.
• Significantly, parties can emphasize open and constructive communication regarding counter-parties' financial and other circumstances so that both short-term and long-term considerations can be intelligently evaluated in planning the path to bridging the current crisis. For example, for lenders and investors, this means understanding companies' short term issues regarding liquidity and operations but also appreciating the opportunities and future beyond immediate difficulties, with attention to longer term viability once the crisis subsides. Is COVID-19 accelerating inevitable decline or is it a short term problem that calls for covenant relief/bridge financing and investing in a long term relationship?

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