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The longer the survival mode, the bigger the debt: Report reveals
A BigLaw firm has warned companies to start planning beyond the current global crisis and leave survival mode or risk facing repayments that they cannot meet.
Naomi Neilson
As economic impacts of the coronavirus pandemic delay inevitable restructurings and insolvencies, MinterEllison has reported concern that many businesses are continuing to operate in survival mode rather than looking ahead to chart their way out of all debts.
He said this involves exploring all sources of finance – including hybrids – as they look to restructure their balance sheet, convert debt to equity and, where possible, sell their assets. According to MinterEllison’s report, businesses may want to consider exploring raising equity among shareholders or converting shareholder loans to equity.
“If companies do not plan beyond the immediate crisis, they may face repayments that they won’t be able to meet,” Mr Forster said. “This will inevitably lead to default and all options to restructure will fall away. Distressed companies need to move – and sooner the better – to anticipate breaches of covenants and repayment challenges.”
Debtwire’s intelligence and research found numerous early-stage discussions between companies and funds for potential private-debt deals have commenced but the report warned that deals may be stalled until travel restrictions are lifted and fund managers and their teams can complete ground-level due diligence.
MinterEllison found that as cash flows are hit, there are opportunities ahead for private-debt spaces in refinancing deals for mid-market companies as the banks become too conservative or slow to provide rescue capital compared to its credits. Recapitalisation needs among the firms and businesses are also expected in the coming months “when there is a clearer picture on the scale of the pandemic and its impacts”.
For some companies, Mr Forster said it may require a small amount of capital to bring new life into the balance sheet while others will need full restructuring.
“In order to receive, funding companies will need to demonstrate that they have viable business plans for the future and that growth is both realistic and promising. Business owners may also need to recalibrate their business to attract funding,” he said.
Naomi Neilson
Naomi Neilson is a senior journalist with a focus on court reporting for Lawyers Weekly.
You can email Naomi at:
