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Posted: 13 Oct, 2020

On 8th October Andrew Pepper, Past President and TMA UK Director, interviewed Scott Stuart, CEO of TMA Global, on what is happening in the USA restructuring market due to Covid and how this is pertinent to the UK.

Andrew and Scott had an interesting and lively discussion covering various sectors, how restructuring professionals have been supporting companies in the US and how TMA as a global organisation can support the profession to respond to this global pandemic. You can listen to the recording here.

To begin the discussion, Andrew asked Scott to give us a picture of how the US has responded to the crisis. In the US, Scott said the economy is being kept afloat by public stimulus packages which he sees as a short-term solution to a long-term problem.

He also said it’s important to understand that a part of our economies won’t recover, and many small businesses will go out of business. In our profession, he said we’re used to finding solutions, but the pandemic presents too great a challenge for some business to recover from and we need to accept that: “We can’t save every business and many just don’t have the fundamentals to survive.”

He said that the pandemic is training us to think differently and “restructuring professionals are responsible for creating the foundation of the new economy.”

On retail…

Moving on to discuss sectors, Andrew asked Scott how the retail sector is faring in the US. Larger retail companies, Scott said, are suffering greatly with the problem being that many are so overexpanded that they are unsustainable in the current climate. Like in the UK, many depend on seasonal purchasing and without enough sales over the spring and summer period they will not survive the winter.

Scott also said that many retailers assumed they could rely on their insurance policies to pay out and keep them going, but claims are being denied. For restructuring professionals, Scott said this means they are having to look at the state of a business and think about how it can be salvaged without additional stimulus or insurance money. And as Andrew pointed out, even if insurance companies are found to be liable, they may not pay out for many months which most company can’t afford to wait for.

Whilst on the subject of cash flow, Scott said in the US he is seeing that many companies, particularly small and mid-sized companies, are reluctant to hire restructuring professionals because of the cost. He therefore thinks it’s imperative for us in the industry to convince executives of our value when we’re called in early on, rather than doing what most are doing which is to leave it too late.

But of course, there are some business that will never be saved, no matter how early they call in professionals. In these cases, Scott said we need to be realistic that “a segment of our economy is going to go away. Hospitality, hotels and aviation is not going to recover. We are going to have to rebuild.”

On aviation…

When discussing the aviation sector, Scott said that the key problem in the US is that airlines depend on business travel. To survive without this income many airlines have responded in a similar way to European airlines, by consolidating services and running fewer flights. Andrew asked how the lack of conferences has affected those US cities that depend on it. According to Scott, a single convention in Las Vegas or Chicago can see 100,000 participants and Las Vegas would usually have many going on at the same time. Clearly, without these events Las Vegas, Chicago, and other cities that depend on such global conventions have suffered greatly.

On manufacturing…

Moving on to manufacturing, Andrew and Scott discussed those manufacturers that supply the retail, hospitality and aviation industries. Without demand from those industries that they rely on, many can’t sustain their factories or workforce. Interestingly, Scott said that in the US, many manufacturers who, pre-Covid, were fiercely competitive are now cooperating with one another in order to survive.

On property…

Moving on to property, Andrew asked Scott whether he thinks we might see a repeat of the 2007 crash with more and more people likely to default on their mortgages because of business failure and redundancy. Unfortunately, Scott said this is a possibility with much of the US housing market dependent on secondary mortgages. But on a positive note, Andrew and Scott discussed how the housing markets in the UK and US are surprisingly buoyant in some places, with more people looking to leave cities for rural areas.

Moving on to discuss regional differences, Andrew asked Scott how restructuring professionals are supporting companies in different states. Scott said this is something restructuring professionals are finding difficult because there has been little uniformity in states’ response and, like the UK, government advice keeps changing. In response, restructuring professionals are having to tailor their advice depending on the state measures affecting the business and many are planning multiple restructuring or reopening models to plan for unexpected lockdowns or new measures.

Having discussed the pandemic’s impact on various sectors and regions, Andrew and Scott moved on to talk briefly about the technical aspects of restructuring. Scott said that there are some similarities between the UK and US in that both governments have introduced new legislation to aid rescue and restructuring. In the US, the newly introduced Subchapter V is a similar, though less arduous process than Chapter 11, which means it appeals to small and mid-sized companies. But, like the new moratorium in the UK, US restructuring professionals are eager to see how the tool will actually work and many are still favouring out of court tools.

Andrew then asked Scott if the stock market was giving us an accurate reflection of what’s happening in the US which Scott told us it wasn’t. He said the stock market is driven by large corporate sectors, with sustainable business models or lots of debt driven into them, so they do not give an accurate picture of the economy’s health.

Andrew then asked Scott whether he thinks US investors will be looking to buy up assets and companies in the UK. Scott said yes and that private equity has been looking for distressed assets for a while but there hasn’t been enough to supply the demand. The pandemic has changed this, and US investors will be on the lookout for their next investment.

To round off their discussion, Andrew asked Scott how TMA Global can help TMA UK and how TMA UK can help its members. Scott responded by saying that TMA is unique in its professional diversity and the level of trust members build between one another. He pointed out that any member can pick up the phone and call another member anywhere in the world. This, he said, is what TMA is intended for and members need to take advantage of the excellent network we have to build their connections, get help where needed, and grow their business.

Thank you to Scott for speaking to us, to Andrew for interviewing him and to everyone who joined to listen. We would be delighted if you would join TMA for our next webinar, details of which are below.

Upcoming Webinars

14th October – Demystifying and realising tax avoidance claims for companies in distress. Register.

22nd October – Gatwick Airport: A view from the inside with Alison Addy. Register.

11th November – An Economic Update from Bank of England. Registration details released soon.

19th November – Online Webinar with Simon Weston CBE. Registration details released soon.

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