Assessing the Bankruptcy Environment: The Experts Weigh In
The Federal Paycheck Protection Program loan funds did buy many struggling businesses time to weather the proverbial economic storm. Plus, secured lenders, not surprisingly, found it much more advantageous to work with borrowers and extend liquidity than deal with a bankrupt business. The idea was simply that the pandemic couldn’t last forever and that the economy, as it is now, does appear to be on the mend.
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Monitoring the Situation
With the concern about restructurings ever present, the smart lenders continue to have more people on the ground than ever. “The main question for asset-based lenders will be whether their particular portfolios will recover post-Covid and whether they should continue to wait, amend, and extend their credit facilities, and ride out the turmoil until the particular industry gets back to normal, with the hope that with the return to normalcy, recoveries will be maximized,” says Regina Stango Kelbon, partner and head of Blank Rome’s bankruptcy practice. Certainly, the hardest hit industries were predictable, including retail, energy, hospitality, theaters, restaurants, and airlines. Commercial real estate will also continue to be impacted, Kelbon notes, given the ripple effect of the many shuttered retail locations across the country. For the hardest hit sectors, the stress of having to shutter operations due to the pandemic could just mean more liquidations down the road for some.
While the pandemic plays out through the economy, the realization of the cost of a bankruptcy filing may be the one thing to make restructuring a much better option for borrowers. “There have been a number of restructurings underway, such as Bed, Bath and Beyond selling off non-core units like the Christmas Tree Shops and trying to focus on their e-commerce platform or Macy’s obtaining additional liquidity through its credit facilities while planning to close more than a hundred stores.” Kelbon agrees with Karas’s assessment that, for the lender, it will continue to be a question of how much patience to have for some of their borrowers who were the hardest hit by the pandemic. “There’s no magic,” she adds. “There are many different solutions.” The impact and effective rollout of the U.S. vaccination program against COVID-19 will hopefully mean that Americans will quickly get back to the stores, theaters, and restaurants and serve to boost the economy and borrowers in turn.
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“Assessing the Bankruptcy Environment: The Experts Weigh In,” by Myra Thomas was published in The Secured Lender on March 5, 2021.