Posted: 19 Jan, 2021
On 13th January TMA UK was delighted to kick off our 2021 event calendar with the Annual Review/Preview. With over 300 people registering to join the webinar, it remains one of our most popular events. Our panel of experts in restructuring legal, banking, hotels and retail each reflected on 2020 and a took a look ahead at 2021.
Paul Davies, TMA UK President and Partner at James Cowper Kreston opened the webinar by welcoming our listeners and thanking the speakers for their time. First to speak was Joanne Rumley.
Joanne Rumley – Restructuring and Insolvency Legal Landscape
Joanne leads Foot Anstey's Restructuring and Insolvency offering and began her review of 2020 by saying that while it will be remembered for its health and financial crisis, it was also a year that saw the biggest reform of insolvency law for 17 years. Alongside the permanent and temporary measures in the Corporate Governance and Insolvency Act 2020, we also saw the reintroduction of HMRC’s preferential creditor status in the Finance Act 2020, the Pensions Bill and the pre-pack regulations.
For Joanne, 2020 also felt like the year of the CVA which has continued to be used as a creative tool to restructure landlord portfolios and alter leases to include turnover based rent, rent free periods and exit provisions. The CVA will remain a useful tool for 2021 but has perhaps been pushed to its limits and we wait the outcome of some of the CVA challenge cases due to be heard shortly.
Touching on the impact of Brexit, Joanne will be interested to see how the UK’s exit from the EU will affect the UK’s restructuring landscape. She wonders whether the UK will remain the choice jurisdiction given the launch of new competitive restructuring tools such as the German and Dutch schemes.
As for her 2021 predictions, Joanne expects big businesses to utilise the cross-class cram down provision in the restructuring plan to adjust capital structures and hopes that SMEs might find a way to use the restructuring plan too, albeit this will only be possible if it can be made less costly.
Finally, Joanne ended on a positive note saying that she doesn’t think 2021 will necessarily see a ‘tsunami’ of insolvencies, as many have predicted but could see the need for close collaboration with stakeholders. Overall, she is optimistic about 2021, believing the UK to have a sound legal framework, all the necessary tools to help businesses restructure and an entrepreneurial turnaround community ready and able to help businesses withstand the recession dip and emerge stronger on the other side.
Steven Chait – Banking and Finance Sector
Steven leads Wells Fargo Capital Finance's team in the UK and started his review of 2020 by saying that the year started with a great pipeline and asset-based lending was well placed to assist many UK Corporates. When the lockdown happened, customers drew down heavily on their availability, electing to hold cash on their own balance sheets. Consequently, in May, outstandings hit an all-time high before decreasing when the Government support schemes took over. Throughout the summer Steven said there was very little appetite for new business and facilities were renegotiated as they worked alongside all stakeholders within businesses. As an asset-based lender, one of our main challenges was the lack of ability to conduct onsite appraisals and due diligence audits during the lockdowns.
Looking to 2021 Steven said that so far, he has seen an uptick in activity, having already closed a few deals. He also thinks there is opportunity in 2021 for banks to partner with debt funds as is increasingly happening in the US. Reflecting on key challenges banks are likely to face, he thinks they are going to have to work with all stakeholders, including shareholders and creditors, and will have to be brave and positive to support businesses through the pandemic.
Shaun Roy – Hotel Sector
Shaun is an Equity Partner at Knight Frank, leading the Hotels Team. In his review of 2020, he said that before the pandemic struck the sector was in great shape. Hotels, however, are dependent on physical presence so from March when the lockdown happened occupancy levels dropped right down with the average occupancy for 2020 at less than 20%. Transactional volumes dropped from circa £6-6.5 billion in 2019 to £1.8 billion for the whole of 2020, with 70% of transactions closing before the March lockdown.
There were, however, regional variations. Staycation hotels, costal locations and aparthotels ended up having a great year while London, airport hotels and luxury city hotels that cater to overseas visitors did not. The hit to the sector as a whole meant that debt markets for hospitality were virtually frozen with the majority of lenders taking a very cautious approach, waiting to see how the market pans out.
But while hotels have struggled, Shaun is not worried about the sector’s future, believing it to remain viable. And while he thinks many hotels will endure, he also thinks that we will see more change of use applications in 2021, as due diligence assessments find that some hotel properties are worth more as care homes or residences.
Speculating about when the market will start to pick up, Shaun thinks this will happen sooner rather than later and thinks that weekend getaways will become the new normal, particularly during this spring and summer.
Nick Taylor – Retail Sector
Nick is responsible for Gordon Brothers Retail & Consumer Products Division. Looking back at 2020, while the high street has been hard hit by the pandemic’s multiple lockdowns, as a whole retail sales have not declined. When accounting for Bricks and Mortar and Ecommerce sales together, Nick said that in the whole year, trade was only down by 0.3% and in September alone trade was 5.5% above pre-pandemic levels in February.
In 2021, Nick expects to see five key trends that will have significant impact in the retail sector. Watch his video here.
As you will see in the video linked above, Nick expects to see the five following retail trends in 2021:
- Localism – according to Mintel, 58% of adults are cautious of travelling and 55% have developed a greater sense of community. This has resulted in many more people shopping locally, a trend Nick thinks will continue as evidenced in Credit Card transactions over the Christmas period.
- Price consciousness – customers are now far more price aware, much of which is driven by how visible prices are when shopping online. 34% of customers consider price as the most important driver in choosing a retailer and 28% consider it more important than value!
- Conscious consumerism – according to Retail Week, 51% of adults are more concerned about the environment than they were previously, and retailers are responding to the trend by joining the circular economy. This market currently is worth $10bn annually and is expected to triple in size by 2023.
- Brand Loyalties – according to Mckinsey, 75% of US consumers are adopting new shopping behaviours and switching brands at unprecedented rates - with consumers trading up, trading down or trading off and this is a trend Nick expects to see more of in the UK. The winners will be the big, trusted brand names.
- The Ecommerce Explosion – Pre-pandemic in the UK, ecommerce sales were about 20% of total retail sales, but in September 2020 this figure almost reached 40%. However, Nick did observe that moving sales from off-line to on-line could squeeze margins, unless managed carefully, as fixed cost in the estate remain the same (with less sales volume) and variable costs in on-line increase (with more sales volume). It’s broadly estimated that skimming 12 – 14% of sales from off-line to on-line will impact margins.
Looking forward to 2021, Nick believes that we will continue to see accelerated change in retail trends, but also believes a key characteristic of 2021 will be a property readjustment. Pre-pandemic research identified that retail was over-spaced by around 20%. Now, around 80% of retailers are looking to reduce space within their own property portfolios, exacerbated of course by the exponential growth in Ecommerce sales. Landlords will be key as a part of finding solutions and in some cases may need to adopt a more flexible approach.
Thank you to our panellists for sharing their reflections on a most difficult year and for their insights into what 2021 might bring. We hope you’ll join us for more TMA webinars in the coming weeks and months.
Upcoming TMA Webinars
21st January – TMA NextGen Mentoring Session and Online Networking. Register.
26th January – Online Networking – TMA Thames Valley – open to all. Register.
2nd February – Online Webinar in Partnership with LBS. Registration details released soon.
25th March – Webinar in Partnership with Herbert Smith Freehills. Registration details released soon.
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