Pub. 11 2021 Issue 1

8 www.azbankers.org How are Businesses Addressing COVID-19 Bankruptcy Concerns? By Peter Riggs and Kris Dekker A S WE LOOK BACK ON WHAT WAS a truly historic year, it bears noting at the outset that the disruption and suffering that so many people experienced in 2020 can hardly be overstated. The loss of life, human connection, jobs and economic opportunities was unlike anything we have seen in modern times. We should never lose sight of the human impact of this pandemic and, as we look forward to hopefully better days in 2021, we must remain mindful of the devastating effects of COVID-19 on so many people’s lives. From an exclusively economic perspec- tive, the most significant story of 2020 was the degree to which federal stimulus was able to significantly mitigate the im - pact that the pandemic had on the econo- my. Once it became clear that COVID-19 was spreading rapidly in the United States and restrictions on person-to-person contact would be required, analysts pre- dicted waves of commercial bankruptcies across numerous industries. Ultimately, however, while it was an active year for commercial bankruptcies, the volume of filings was substantially less than predict - ed, predominantly because of government stimulus, in the form of PPP and other loans, stimulus payments, and expanded unemployment benefits that helped main - tain consumer spending and prevent even greater job losses. The impact of the pandemic across different sectors of the economy was by no means uniform. Certain sectors faced devastating impacts, while others thrived. Not surprisingly, many companies were able to adapt to the pandemic using new delivery models for their products and services, some of which may continue after the pandemic. Physical Retail Since the emergence of online retail, physical retail (retail operating in physical locations rather than online) has declined, and the pandemic has accelerated that decline. In 2020, the pandemic-related restrictions caused physical retail to ex- perience a significant drop in foot traffic. Compounding the problem for physical retail is that the restrictions, in many cases, pushed consumers to find online al - ternatives, which could very well impact consumer behavior beyond the pandemic. Notable retailers that sought bankruptcy protection in 2020 include JCPenny Co. Inc., Neiman Marcus Group Inc., Lord & Taylor, Guitar Center, Tailored Brands (including retail brands Men’s Wear- house and Jos. A. Bank), Ascena Retail (including retail brands Ann Taylor and Loft), GNC, J. Crew, Brooks Brothers, Stein Mart, Pier 1 Imports, Century 21 Department Stores LLC, True Religion and Sur La Table. The decline in physical retail has also impacted commercial real estate. Strug- gling retailers became unable to pay rent, which impacted income and property values for commercial property owners. Two major mall owners filed for bank - ruptcy protection this past year: CBL Properties and PREIT. Other Businesses Dependent upon Physical Presence Some otherwise strong businesses sud- denly found themselves in crisis due to a sudden shift in consumer behavior, most notably those businesses that depend on the consumer’s physical presence. Several such companies sought bankruptcy pro- tection in the fitness center space (Yoga Works and Cyc Holdings, owner of Cyc Fitness, Gold’s Gym International and 24 Hour Fitness Worldwide, Inc., among others), the restaurant industry (Cali- fornia Pizza Kitchen; FoodFirst Global Restaurants, owner of Brio; Garden Fresh Restaurants, owner of Souplantation and Sweet Tomatoes; and CEC Entertainment, the parent company of Chuck E. Cheese, among others), and movie theater chains (Studio Movie Grill Holdings and Cine- mex USA Real Estate). The travel industry also suffered signifi - cantly from the restrictions and health concerns arising from the pandemic. While the airlines were beneficiaries of a $25 billion government bailout, other travel-related businesses such as hotels,