Recognizing impending financial stressors spawned by a pandemic
One by one, at devastating speed, communities across the globe are facing the effects of Covid-19. With more than 115,000 reported cases to date, we are no longer awaiting a new reality; we have met it head on. Likewise, businesses of all industries are confronting severe economic consequences: delayed or aborted corporate transactions; disrupted supply chains; sharp decreases in corporate earnings; concerns over commercial viability of contracts; cancellation of conferences, meetings, and events; and decreased consumer and tourism activity.
Against this backdrop, companies face increased risk of financial distress and inability to secure or maintain credit. They must be prepared to recognize the warning signs, the red flags that signal a need for increased attention. Only once the cracks in one’s armor are identified, can they be properly sealed.
During a health pandemic, in particular, companies should watch for the following distress warning signs:
Identifying the warning signs is the first step. Organizations must take swift action to assemble a response to ensure that they are in the best position to manage the crisis.
Internal business executives and attorneys must then be prepared to work with external lawyers to evaluate risks, prioritize next steps, and create a framework to manage financial distress.
Company leaders must be prepared to coordinate with external lawyers to loop in critical trade vendors and customers, financial lenders, regulators and other key parties in interest to update them on the situation and collaborate on a solution that maximizes the company’s ability to push forward. Such steps may include negotiating forbearance agreements with existing lenders, seeking regulatory relief, offering assurances to customers and vendors, and collaborating with outside financial advisors for capital raising efforts.
Such efforts require the speed and decisiveness that comes from experience navigating distressed situations. They also require a deep understanding of the legal and regulatory framework in which companies operate and the legal options available in the event that a company must renegotiate its debts to creditors.