Despite the number of bankruptcies that occurred in 2020, Q4 began with potentially good news for retailers when the pharmaceutical community announced that vaccine and antibody treatments would soon be submitted to the FDA for emergency approval; and Wal-Mart and Home Depot announced that e-commerce and curbside pickup & delivery were up, with customers spending more per trip. According to CNBC, Wal-Mart’s Q-3 profits for e-commerce sales were up 56%; their same-store sales in the U.S. grew by 6.4%, higher than the increase of 3.9% expected by a Street Account survey – all this coming as distressed retailers are facing excruciating decisions about whether or not to throw in the towel.
Since we are living through unprecedented times, you’ll need truly experienced, knowledgeable, and imaginative counsel who not only know the law, but who understand how business and investing work. So, our first piece of advice is to find that team and start the planning process early. In doing so, you will increase your leverage and be in a better position to take advantage of whatever possible opportunities might exist.
One way companies avoid a total shutdown is through restructuring, a complex process that can occur either out of court through a negotiated agreement or bankruptcy court (Chapter 11). The object of the exercise is to spread out debt payments over time and reorganize the business so you can return to a state of profitability and productivity, and adapt to new market conditions. There are pros and cons about which path to choose, and you’ll need to weigh how they relate to your specific set of circumstances. Keep in mind that the Bankruptcy Code won’t solve all your problems; you will have to implement new operational strategies and have a methodology in place by which you can repay your creditors.
Any restructuring usually involves negotiating on behalf of investors and owners who hold the equity, and lenders and creditors who control the debt. Chapter 11 can provide you with a number of important benefits, including access to new financing that can reduce your debt burden and generate liquidity; the ability to renegotiate unfavorable leases and supply contracts; reorganize your management and operations which may have contributed to your distressed position; and an expedited process for selling assets.
Distressed companies also have the option of selling off their assets in a competitive auction overseen by a court, in order to raise cash to pay off creditors. Most important, you’ll need to correct the issues that got you to where you are currently.