Pub. 11 2021 Issue 1

9 PUB. 10 2020 ISSUE 4 rental cars and ride-hailing services were not as fortunate. Rental car company Hertz is the most prominent example that wound up in bankruptcy in 2020. Other down- stream vendors such as VRBO and Airbnb owners also saw significantly reduced revenues on account of declines in travel overall and customer weariness associated with booking non-standardized rental units during a pandemic. Energy The sharp decline in personal and business travel and daily office commutes, com - bined with price wars in global markets, has sent oil and gas prices to historic lows and accelerated a multiyear decline for oil and gas companies in 2020. According to a recent analysis by Haynes and Boone LLP, 45 oil and gas drillers filed for bankruptcy during the first 11 months of 2020, citing some $54 billion in debts. Similarly, in the oil field service industry, 57 companies filed for bankruptcy protection during the same period, citing $41B in debts. Bright Spots Of course, not all segments of the economy suffered. The effects of COVID-19 have accelerated the prospects of online retailers such as Amazon, connectivity services such as Zoom, home improvement stores such as Lowes and Home Depot, home fitness equipment manufacturers such as Peloton, entertainment services such as Netflix and video game platforms, and big- box retailers such as Walmart and Target. These businesses boomed in large measure due to changes in consumer behavior re- sulting from pandemic-related restrictions and concerns. What are some top concerns for business owners and employers in the realm of bankruptcy and restructuring? While 2020 was an active year for commer- cial bankruptcies, the volume of filings was not as substantial as predicted in the spring. As mentioned above, this is in large part because of government stimulus. Additional recently enacted stimulus and the rollout of vaccinations give a reason for optimism in 2021, but significant uncertainty remains, and we still anticipate a further decline in the economy before any improvement. Office real estate may become an increased area of concern in 2021. A shift to remote work in many industries may cause many businesses to reevaluate their office space needs. That could lead to reduced demand and ultimately reduced rent and property value for owners of office real estate. Many lenders adopted a “wait and see” approach for commercial loans during 2020, with most being willing to grant deferral and forbearance agreements to their bor- rowers. The patience of lenders may wane, however, as non-performing loans create a drag on portfolio performance. Given that, we anticipate a moderate uptick in loan enforcement in 2021. For business owners who are considering reor- ganization as a means to maintain their busi- ness operations but who have granted personal guarantees for their business’s debts, those owners will want to first confirm whether the business’s bankruptcy triggers additional liability under their personal guaranties before they undertake any action for reorganization. What changes may be coming up (or what recent changes have taken place) due to regulations or public perceptions? Most people believe, based on guidance from medical professionals and govern- ment officials, vaccination efforts should allow COVID-related restrictions to be eased sometime in 2021, hopefully putting many businesses that have been impacted by those restrictions back on the path to recovery, but uncertainty remains about how quickly the restrictions can be eased and how soon after that the economy will recover. We have at least some clarity about what to expect concerning that timeline. This greater clarity should help businesses plan and provide banks greater comfort in extending bridge financing, ma - turity extensions, and forbearances to their customers, enabling those customers to get through the remainder of the pandemic. Greater certainty should arrive as the vac- cination efforts continue over the coming months and the public health picture comes into clearer focus. Despite our anticipation that pandemic restrictions are likely to ease during 2021, some economists still believe there may be a surge in commercial bankruptcies at some point this year as government stimulus tapers off. While additional government stimulus is still planned, some think it may be ultimately insufficient to keep many businesses from filing for bankruptcy, raising concern about whether there will be sufficient judicial bankruptcy resources and debtor-in-possession financing for small businesses. 1 If a bankruptcy surge of significant magnitude begins to emerge, the government may address these concerns, but additional legislative reform is unlikely at present. Is the need for bankruptcy relief being exacerbated by COVID-19? While the pandemic has certainly put an economic strain on many businesses, most notably those relying on the physical presence of customers, such as hospitality, restaurants, retail, and theaters, the unprec- edented economic stimulus injected by the government in 2020 appears not only to have staved off any increase in commercial bankruptcies but perhaps actually decreased them, at least for the time being, relative to historical levels. Through November of last year, 30,310 commercial bankruptcies were filed in the U.S. Assuming a uniform monthly pace of filings, that would result in approximately 33,065 filings for 2020. By comparison, in 2017, 2018 and 2019, there were 39,050, 38,044 and 38,536 commercial bankruptcies filed, respectively. 2 2020 saw an increase in Chapter 11 filings, with the largest number of commercial cases filed (6,735 through November 2020) since 2012 (7,289 Chapter 11 cases). 3 Looking forward, both government parties seem intent on extending additional stimu- lus as we move through 2021 in a continued effort to save businesses and jobs, and the vaccination efforts provide a real reason continued on page 10