Nearly a third of global restructuring experts said more than half of their clients who needed financing during the pandemic in 2020 would find themselves in financial difficulty again, according to an industry-wide survey by the AlixPartners consulting firm.
Joff Mitchell, Global Co-Head of Corporate Restructuring and Restructuring Services Practice, said that “one of the biggest threats companies face today is the inevitable rise in the cost of debt and the withdrawal of public funding linked to the pandemic ”.
In the UK, the ban on commercial rent evictions as well as Covid-related insolvencies ends this month, with many companies also set to start repaying ‘rebound’ Covid loans and wages given the decline in leave plan. About £ 6 billion in rental debt is owed to business owners.
AlixPartners said it “looks like businesses are defying gravity in the UK” due to an unprecedented level of financial support from the government which has kept many businesses afloat. Business bankruptcies in the UK are at their lowest for 32 years.
Alix said insisting on repayments before revenues are collected would lead to massive corporate bankruptcy, however, and the government was unlikely to want that deadline seen as the reason for the collapses.
“Measures to extend the trail for business seem likely, which in turn should push activity into the formal restructuring space until 2022,” he said.
Business leaders have also warned that a delay in plans to reopen next week could hit businesses harder and have asked for more government help in this case.
Alastair Beveridge, chief executive of AlixPartners, said many companies had survived Covid but now carried a much higher level of debt, which could be “significantly problematic”.
More than half of restructuring experts in the United States and Europe said their clients performed better during the pandemic than during the financial crisis.
Most attributed this to better access to liquidity and debt over the past year – a situation likely to continue, with more than two-thirds of restructuring experts in Europe and almost half in the United States s ‘Also expecting interest rates to stay low over the next few months.
Yet despite available liquidity and low interest rates, almost all restructuring experts believed the pandemic would bring further distress this year, and especially among sectors that were only seeing a slow recovery in areas such as aviation.
The results are based on a survey conducted by AlixPartners of more than 500 restructuring experts from global financial advisory firms, banks, law firms and corporate professionals.