Pub. 1 2021 Issue 2

April 2021 | 7 The travel industry also suffered significant - ly from the restrictions and health concerns arising from the pandemic. While the airlines were beneficiaries of a $25 billion govern - ment bailout, other travel-related businesses such as hotels, rental cars, and ride hailing services were not as fortunate. Other Businesses Dependent upon Physical Presence Some otherwise strong businesses sudden- ly found themselves in crisis as a result of a sudden shift in consumer behavior, most notably those businesses that depend on the consumer’s physical presence. Several such companies sought bankruptcy protec- tion in the fitness center space (Yoga Works, Cyc Holdings, owner of Cyc Fitness, Gold’s Gym International, 24 Hour Fitness World- wide, Inc., among others), the restaurant in- dustry (California Pizza Kitchen, FoodFirst Global Restaurants, owner of Brio, Garden Fresh Restaurants, owner of Souplantation and Sweet Tomatoes, and CEC Entertain- ment, parent company of Chuck E. Cheese, among others), and movie theater chains (Studio Movie Grill Holdings, Cinemex 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 trav- el-related businesses such as hotels, 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 downstream vendors such as VRBO and AirBNB owners also saw significantly reduced revenues on account of declines in travel overall, and customer weariness associated with book- ing 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 multi-year 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 ac- celerated 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 retail such as Walmart and Target. These businesses boomed in large mea- sure due to changes in consumer behavior resulting from pandemic-related restric- tions and concerns. 2. What are some top concerns for business owners and em- ployers in the realm of bank- ruptcy and restructuring? While 2020 was an active year for com- mercial 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 reason for optimism in 2021, but significant uncertainty remains, and we anticipate still 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 re-evaluate their office space needs. That could lead to reduced demand and ultimately reduced rent and property value for owners of office real estate. With respect to commercial loans, many lenders adopted a “wait and see” ap- proach during 2020, with most being willing to grant deferral and forbear- ance agreements to their borrowers. The patience of lenders may wane, however, as non-performing loans create a drag on portfolio performance. In view of that, we anticipate a moderate uptick in loan enforcement in 2021. For business owners who are considering reorganization as a means to maintain their business operations but who have granted personal guaranties with respect to 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. 3. What changes may be com- ing up (or what recent changes have taken place) due to regu- lations or public perceptions? Most people believe, based on guidance frommedical 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. While uncertainty remains about how quickly the restrictions can be eased and how soon thereafter the economy will recover, we have at least some clarity about what to expect with regard to that timeline. This greater clarity should help businesses plan and provide banks greater comfort in extending bridge financing, maturi- ty 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 stimu- lus 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 a concern about whether there will be sufficient judicial bankruptcy resources and debtor-in-possession financing for small businesses. 1 In the event a bankrupt- cy surge of significant magnitude begins to Continued on page 8