Restructuring experts say pandemic will continue to cause financial distress

The vast majority (96%) of restructuring experts say the Covid-19 pandemic will continue to cause their clients distress in 2021, according to a recent survey from AlixPartners. The consulting firm polled 500 restructuring professionals across the US and Europe in April 2021.

More than half (56%) of restructuring experts told AlixPartners that their clients performed better in the pandemic than during the 2008 financial crisis. Most (80%) highlighted the fact that companies had much greater access to liquidity in 2020 and 2021 than during the previous economic downturn. Furthermore, 78% in Europe and 47% of restructuring professionals in the US expect interest rates to remain low in the coming months.

Despite the easier and cheaper access to money, nearly all experts said the pandemic will continue to distress their clients. Twenty-nine percent of respondents said that over half of their clients that secured financing will be in financial distress again in 2021.

“Many businesses have been able to weather the storm over the past year, thanks to the ample availability of liquidity and to public funding in certain markets,” said Lisa Donahue, co-head of AlixPartners’ turnaround & restructuring services (TRS) practice. “But with the pandemic continuing to cause significant strain and with inflation on the rise, many businesses have taken on unprecedented levels of debt, while operating within a bubble that risks bursting.”

Donahue noted that overextended businesses will have to examine whether their operating model is still likely to survive in the long term.

Joff Mitchell, the AlixPartner’s other TRS practice co-head, highlighted that companies will also have to anticipate the withdrawal of pandemic-related public funding in addition to increases in the cost of debt. “To avoid being caught out, business leaders need to take the necessary steps now to manage their debt and associated capital structure, and to return their business to leverage levels and investment grade ratings that reassert a competitive stance,” he said.