Stress and Distress in the Hospitality Industry Due to the Coronavirus

23 March 2020 Coronavirus Resource Center:Back to Business Blog
Authors: Richard J. Bernard Daniel Bachrach Ethan D. Lenz Clifford J. Risman

The coronavirus outbreak has impacted the hospitality industry disproportionally more than other industries.  For many companies, revenues have fallen off the cliff.  Further, the uncertainty and likely overhang of coronavirus for the hospitality industry will continue for the foreseeable future. 

To weather the coronavirus storm, you should consider the following:

Conserve Cash

With seriously reduced or no revenues, hospitality industry companies need to look for ways to conserve cash, which includes analyzing essential spends, idling operations, working with vendors, landlords and suppliers regarding credit terms, and applying other methods.  

Communicate with Lenders

Open a dialogue with lender regarding draw down of available lines of credit and support through these uncertain times. In many cases, going concern value of the business exceeds any liquidation value, especially under current circumstances. Discussions may include forbearance, amendments, extensions, restructuring, standstills, and increases of availability. The growing levels of stress and distress may make lenders more receptive to alternative options to preserve value. 

Review and Update Cash Flow Forecasts

Forecasts need to reflect the current economic environment, projected out to account for reasonable upside, as well as downside, scenarios regarding the impact of the coronavirus on revenues. These forecasts may be shared with lenders and other stakeholders, depending on circumstances.

Dialogue with Stakeholders

Companies should open communications with vendors, landlords, bondholders, equity holders, and other interested parties to assure them that they recognize the challenges presented by the coronavirus and have a plan to address them.

Labor Issues

Companies need to focus on the issue on whether to furlough or terminate employees, recognizing the costs of each.

Reporting Requirements

Public companies should review and make accurate required disclosures, in the event that business operations are impacted such that a reporting requirement is triggered.

Government Assistance

Depending on the business, companies should keep apprised of the potential for government assistance. Although the government may provide some bailout or support for the hospitality industry, the timing and scope remains unclear.

Insurance

Companies should review insurance policies to determine possible coverage in the event of a business disruption, and comply with all applicable notice requirements. Again, companies may not be able to rely on insurance proceeds for business interruption to save them. To review the top five considerations, regarding insurance coverage, click here

In sum, the hospitality industry must take steps now to mitigate and address the impact of the coronavirus. For more information about recommended steps, please contact your Foley relationship partner. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization

Foley will continue to keep you apprised of relevant developments. Click here for Foley’s Coronavirus Resource Center for insights and resources to support your business during this challenging time. To receive this content directly in your inbox, click here and submit the form. 

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