15 restructuring lawyers explain how sectors like retail and energy are dealing with a 'sudden collapse' of revenue - and why they're gearing up for coronavirus fallout that could last years

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15 restructuring lawyers explain how sectors like retail and energy are dealing with a 'sudden collapse' of revenue - and why they're gearing up for coronavirus fallout that could last years
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Transportation and hospitality businesses are facing challenges because the coronavirus is keeping people indoors and disrupting global travel, but attorneys said that they expected these discussions with lenders and landlords to be resolved out of court.

  • Restructuring attorneys at the nation's elite law firms are as busy as ever advising businesses on how to get through a coronavirus-induced downturn.
  • In some cases where companies were already weakened before the coronavirus tanked the economy - particularly in the energy and retail industries - attorneys are seeing restructuring work accelerate.
  • In cases where businesses were solely impacted by the coronavirus - like airlines, cruise ships, and restaurants - attorneys said lenders and landlords had become more lenient in light of the crisis and they didn't expect large bankruptcy filings in the immediate future.
  • Those insights were among a handful provided to Business Insider from interviews with 15 restructuring attorneys at law firms including Jones Day, Paul Weiss, Willkie Farr, and Davis Polk.
  • Visit BI Prime for more stories.

Restructuring attorneys are scrambling to the aid of businesses large and small as the global spread of the novel coronavirus forces employers to consider what actions they'll take to sustain a months-long slowdown in revenue.

Dennis Dunne, a Milbank lawyer who represented creditors in the Lehman Brothers bankruptcy, said that the "complete and sudden collapse of revenues and earnings for many companies" was unlike anything he had seen in his career.

"We will be working through the fallout from this economic meltdown for years to come," he said.

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Companies in the energy and retail industries were already weakened before the coronavirus hit as a result of declining oil prices and big-tech encroachment, respectively, attorneys told Business Insider.

Meanwhile, transportation and hospitality businesses are facing challenges because the coronavirus is keeping people indoors and disrupting global travel, but attorneys said that they expected these discussions with lenders and landlords to be resolved out of court.

"The number of new distressed matters rivals 2008," said Rachel Strickland, a restructuring lawyer at Willkie Farr. "The onset of new matters due to COVID-19 has been much, much faster ... businesses are shutting down and it's creating a butterfly effect."

Business Insider spoke with 15 restructuring attorneys at some of the nation's top law firms to get a sense for how businesses were faring and what to expect in the coming weeks and months.

Layoffs, financing renegs

Already, the past two weeks have seen companies taking big steps in light of the coronavirus.

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United Airlines raised $2 billion in a term loan. Apollo Global Management and other PE firms meanwhile backed out of a commitment to finance shale driller EP Energy Corp's exit from Chapter 11 bankruptcy.

Some companies like Royal Caribbean Cruises and Norwegian cruise operator Hurtigruten have announced layoffs. Restaurant businesses have let go of general managers and bar staff. And seasonal employees at ski resorts have been told to go home.

The extent of the damage to the global economy will hinge on how long it takes for the coronavirus to subside. One banker commented that the US economy isn't well-equipped for people to work from home and not go outside for months on end.

Congress, meanwhile, is putting together a federal response to the business interruption coronavirus has caused, and bailout money may provide a much-needed cushion to airlines, cruise companies, and others.

Overall, attorneys said they saw the most pressure on businesses that were already weakened as a result of factors like the rise of ecommerce as well as other industry-specific pressures like declining oil prices.

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"There are restructurings that are being pulled forward," said Brian Hermann, a partner with Paul Weiss.

But attorneys hedged their forecasting about how many large Chapter 11 bankruptcy filings we may see from the turmoil. Much is still unknown, they said, like exactly what the federal bailout package will include and what actions companies will take to scale down operations.

"Liquidity is going to drive how long companies can withstand the shock, so companies that have sizable revolvers and lots of cash can weather this longer," said Hermann.

Attorneys work the phones

Numerous attorneys contacted by Business Insider reported that they were super-busy, with one attorney saying they worked from 4:30 am last Tuesday until 1 a.m. the following day - without a break - and another law firm reporting that it was turning away work because there were already too many large restructuring matters on its plate.

"All hands on deck would be an understatement," said Marshall Huebner, a Davis Polk lawyer who was lead debtor's counsel in the Delta Air Lines' 2005 bankruptcy and represented the New York Fed and U.S. Department of Treasury in their 2008 bailout of AIG.

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Other attorneys reported more moderate workloads, with one saying he hadn't had time to review his law firm's billable hour reports yet.

The law firms likely to see some of the biggest restructuring matters from clients include Jones Day, Kirkland & Ellis, Paul Weiss, Weil Gotshal, Willkie Farr, Akin Gump, Quinn Emanuel, and Milbank.

These law firms have represented parties in some of the biggest bankruptcies, including Caesers Entertainment Corp, Toys R Us, the Pacific Gas & Electric Company, and Puerto Rico's municipal bankruptcy.

All attorneys reached by Business Insider expected their restructuring practices to heat up as a result of the downturn, but it wasn't good news for law firms across the board, with mergers and acquisitions work slowing down.

'The real action is beginning now'

One person we spoke with was Bruce Bennett, an attorney with Jones Day who has represented equity holders in utility company PG&E through its bankruptcy and was the lead lawyer in the 2011 Los Angeles Dodgers bankruptcy.

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He told Business Insider that early-stage restructuring cases that hadn't yet found their way into court had sped up as a result of the coronavirus.

"Many of those cases got hotter," said Bennett, who did not provide specific names. "There is just no question that that happened."

At the same time, cases that he thought would be filed six months or a year from now, he said, "the real action is beginning now."

Bennett said that these were cases that had already begun to organize before coronavirus hit. With respect to businesses that only got slammed by the coronavirus and its consequences, he didn't think that bankruptcy cases would be filed as quickly.

"Practitioners will be interested in finding out-of-court solutions on the hope or expectation that this might be a short-term problem," he said.

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But when bankruptcy filings do start to occur, he said, the expectation is that oil and gas companies will be on the list of companies to file.

"Beyond that, it's hard to predict," he said. "Transportation and hospitality companies will face big challenges, but the government is talking about the largest response there."

Echoes of 2008

Numerous attorneys referenced the 2008 global financial crisis as a way to explain the wave of restructuring work that would hit US businesses.

An attorney, Susheel Kirpalani, who advised the largest group of bondholders in the Puerto Rico bankruptcy, said the coronavirus downturn is different from 2008, in that it is affecting all sectors at the same time.

Therefore, the implications of the coronavirus go beyond the obvious industries like restaurants and retail, where whole businesses are built on the idea that people will show up in-person to spend money.

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Kirpalani said that it's also affecting the municipal markets, an area that is seeing an outflow of cash from mutual funds.

"If people aren't working, they are not paying taxes. If they aren't paying taxes, they aren't paying state and local taxes any more than federal taxes," said Kirpalani.

"They aren't taking transit or generating income at all in municipalities across the country. Yet all these municipalities have fixed debt, too. So you will see some distress in muni land more than we saw previously."

The 'ricochet effect'

Kirpalani wasn't the only one who noted the broad-reaching implications.

Rachel Strickland, the Willkie Farr lawyer, said that even for industries where there is a bailout, to the extent that there are suppliers to those industries that are not part of the bailout package, "you could see a ricochet effect there as well."

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Strickland pointed to healthcare as an area where there is potential for disruption, even with the growing number of people in need of medical attention.

"We have seen hospitals shutter because they don't have the necessary equipment they need because it's not safe for their staff," she said.

She also noted that real estate investment trusts (REITs) are facing strong headwinds.

Even large landlords aren't safe, other attorneys said. Should landlords evict tenants, they could struggle to find a renter fill the spot.

Because of this, creditors - not just landlords but lenders, too - are being lenient during the crisis, attorneys said, with the hope that it will be a short-term disruption.

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"I think you'll see lenders and landlords being more patient and more constructive with their borrowers and their tenants," said Hermann, the Paul Weiss attorney.

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