The Fallout From COVID-19 Pandemic and the Anticipated Recession Will Be Different Than Both Crises:
We can, however, still draw numerous correlations and apply learnings from these two events to the environment we are now facing:
- Predictable multipliers and recoveries have facilitated ABL’s evolution, which now includes FILOs.
- Retailers have significantly more debt than they did previously. A typical capital structure can include an ABL, a FILO, and tranches of term debt. This presents unique challenges for lenders:
- Retailer’s access to capital may be challenged.
- Workouts are more complex due to multiple creditors and new distressed debt holders.
- Life as we knew it has now changed abruptly and drastically for an unknown period, as was the case after 9/11.
- As was the case after 9/11, consumer behavior has and will continue to change. E-commerce continues to capture more retail business, and customers will undoubtedly turn to online shopping more in the coming weeks and months. This shift in consumer behavior will build new online shopping habits, putting further pressure on brick and mortar retail once circumstances begin to normalize.
- As was the case during the 2008 financial crisis, the Federal government is working to encourage consumer spending, avoid mass layoffs and stabilize markets.
- Nearly every retail sector will be impacted. Exceptions include e-tail, grocery, pharmacy and some other essential sectors.
- If recoveries and multipliers typically achieved will increase, they cannot also fail to return to pre COVID-19 levels due to online shopping.
- The extent to which online shopping habits formed during social distancing and shelter-in-place persist in the long-term will be a function of how long the current disruption persists. The downstream traffic effects on brick and mortar retail are unknown at this time. However, these factors may accelerate existing trends in consumer behavior and the use of technology.
In the interim, we want to help by providing real and practical guidance for you to apply to your daily challenges.