Last week I posted an article about the difficulty for restructuring professionals to predict the environment into which they are trying to "right size" the companies they are working with. What will the industry look like in 2, 3 and 4 months? How much overhead do you need to cut; how much does debt need to be reduced, to be viable in an uncertain future?
What however is abundantly clear, is that the stresses of the current COVID-19 environment have unmasked the instability of years past. We see a rush to the bankruptcy courts by companies who were already over-leveraged, were in declining industries, or were otherwise the subject of some instability, with or without COVID-19.
J.Crew and Neiman Marcus are the most recent prime examples. Both of these companies were already highly leveraged as a result of private equity buyout in years past.
WWD published an article on May 8 about the bankruptcy filing of Neiman Marcus. They asked my opinion. As I stated to them, in my view the struggles of the retail industry precede the COVID-19 pandemic. As to whether Neiman Marcus can successfully restructure, I said to them:
“I think that the real question for Neiman Marcus that so many highly leveraged companies are facing in the retail world, is that even though they’re going into bankruptcy with the intention of reorganizing and reopening, whether that turns out to be viable. We’ve seen even prior to the COVID-19 outbreak, where retailers undertook that effort and ended up liquidating. So even if Neiman can restructure its balance sheet, and reduce its store count, are they going to have enough cash flow to service their remaining debt and overhead?”
The full WWD article can be viewed here for subscribers.