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Restructuring During and Post-COVID-19

  • Published on May 29, 2020
  • by David Weinhoffer

Wondering how you are going to see the light at the end of the tunnel with your business in COVID-19? David Weinhoffer, Managing Director - Transaction Advisory at WG Consulting LLC, shares recommendations and tools for restructuring during and post-COVID-19.

    1. Current Financial & Operational Status

      Accounts receivable, accounts payable, accounts aging, SG&A, backlog, forecasts, cash on hand, insurance policies, physical assets, are all critical not just today but every day.

    2. Liability Mitigation

      What are your company’s liabilities? Environmental, personnel, contracts, legal judgments, contingent? Understanding them and having a plan to place to address them is critical at all times. Do you know what your insurance policy covers? Have you talked with your company’s insurance representative?

    3. Is There a Market for your Services or Products and can it Diversify?

      Outline the company’s current focus and does it have a market? If not, can you quickly deploy your resources into another sector?

    1. Employees

      Employees need and want to be communicated with by company leadership. Updates on the company, ongoing plans, and soliciting them for ideas concerning the business during this challenging environment. Employees are critical assets to most companies.

    2. Lenders / Capital Providers

      Capital sources must be part of your communication plan. Today’s extraordinary event is known by everyone and having honest discussions with your capital provider is key to maintaining the relationship and getting feedback for your business and capital needs.

    3. Clients

      Your client base is key to your survival. How are they managing the crisis, have they shut down, canceled contracts, can they make payments, and what is there business continuation plan? You need to know!

    4. Vendors

      Vendors are your supply chain and as management, you need to know how they are managing the crisis as well as informing them on how you are managing the crisis. Can they deliver product, and what is there business continuation plan? Vendors can also supply additional market intelligence on competitors.

    5. Competitors

      Knowing your competition so you have an idea of what their status is as well as the business continuation plan.

    1. 13-wk Cash Flow Report

      Typically thought of as a tool for a company in distress, a thirteen-week cash flow report should be used by most all companies for active cash management. Accurate reporting will provide management with the key metric for managing a company in all economic environments.

    2. Contract Modifications

      All contracts should be reviewed for possible re-negotiation.

    3. Federal & State Assistance Programs

      Paycheck Protection Program (PPP), SBA Disaster Loans, state and local coronavirus programs

    4. Loan Modification

      A loan modification restructures or modifies the existing terms of a potentially defaulted loan to restore it to performing status going forward. Deferment of payments, interest-only periods, reduced interest rates, extension of maturity date are few of the options.

    5. Forbearance

      A forbearance agreement may be used in default situations where the lender lacks confidence in the borrower’s ability to turnaround the business justifying a loan modification. In this case, the lender temporarily does not exercise its legal rights and remedies against the borrower if the borrower complies with the terms of the agreement. Unlike a loan modification, a forbearance agreement preserves the existing defaults.

    6. Re-Financing

      Refinancing should be a continual exercise for most all companies taking advantage of lower interest rates, longer terms, and less restrictive covenants.

    7. Recapitalization

      Restructuring the company’s debt and equity ratios can be used to stabilize a company’s capital structure.

    8. Bankruptcy

      Chapter 7, 11 and most recently the Small Business Reorganization Act of 2019 makes it easier for small businesses to achieve a successful Chapter 11 reorganization via Subchapter V.

    1. Immediately implement applicable restructuring tools
    2. Build and Execute to a Robust Plan
    3. Be flexible and agile
    4. Be up-to-date on the economy, laws, rules, and regulations.
    5. Engage restructuring professionals and legal counsel for assistance and guidance.