Restructuring experts have warned that many companies that received Covid-related financial aid in 2020 will be in dire straits again this year as UK government measures to support businesses roll back next month.
Nearly a third of global restructuring experts said more than half of their clients who needed funding during the pandemic in 2020 will find themselves in cash again, according to an industry-wide survey by consultancy AlixPartners.
“One of the biggest threats facing businesses right now is the inevitable increase in the cost of debt and the withdrawal of public funding associated with the pandemic,” said Geoff Mitchell, global co-head of the firm’s transformation and restructuring services practice.
In the UK, a ban on commercial rent evictions as well as Covid-related insolvency cases expired this month, with many businesses also needing to start paying off Covid loans and ‘bounce back’ wages as the holiday scheme is scaled back. About £6 billion of rental debt is owed to a business owner.
AlixPartners said it “feels as if companies are defying gravity in the UK” due to an unprecedented level of financial support from the government that has kept many companies afloat. UK corporate bankruptcies are at their lowest level in 32 years.
Insisting on payment before revenue recovers would lead to a major business failure, Alex said, and the government was unlikely to want to characterize that deadline as the cause of the meltdowns.
“Moves to extend the corporate runway appear likely, which in turn should propel activity in the formal restructuring space into 2022,” she said.
Business leaders also warned that delaying plans to reopen next week could further damage businesses, and they called for more help from the government in this case.
Alistair Beveridge, managing director at AlixPartners, said many companies have survived Covid but now carry a much higher level of debt, which could be “significantly problematic”.
More than half of restructuring experts from across the United States and Europe said their clients have performed better during the pandemic than they did during the financial crisis.
Most of this is attributable to increased access to cash and debt over the past year – a situation that is likely to continue as more than two-thirds of restructuring experts across Europe and almost half in the US also expect interest rates to remain low over the coming months.
However, despite the available liquidity and low interest rates, almost all restructuring experts believe that the epidemic will cause more anxiety this year, especially among those sectors that have seen only a slow recovery in areas such as aviation.
The results are based on an AlixPartners survey of more than 500 restructuring experts from global financial advisory firms, banks, law firms and corporate professionals.