Real-Time Issues and Actions You Can Take to Preserve Liquidity During a Crisis

Navigating in This Challenging Environment

Real-Time Issues and Actions You Can Take to Preserve Liquidity During a Crisis

The current environment is presenting all of us with many new challenges and a world of unknowns. The US Labor Department reported that, in the week ending March 14, 2020, 281,000 Americans filed unemployment benefits for the first time. A Goldman Sachs report predicts that another 2.25 million Americans have filed initial unemployment claims last week. Most states have already, or plan to, enact some form of reduced operations or “shelter in place.”

Over the past few weeks, the team at Carl Marks Advisors has been in the thick of difficult discussions with middle-market companies, lenders and other advisors to help them to navigate this challenging environment. We’ve been sharing—and hearing—about what businesses across some of the most affected industries are experiencing, as well as the actions to take now in order to survive in the near-term while also creating pathways for future opportunities.

Cash is now king for middle-market companies in impacted industries. Operators are drawing down on available lines of credit, cancelling capex investment and deferring non-essential vendor payments. Many are weighing the difficult decision of furloughing or terminating non-essential personnel. While it is unknown how long the current situation will persist, companies are hunkering down for an extended timeframe by minimizing their cash burn.

Carl Marks Advisors is seeing some lenders and financial sponsors assume a “wait and see” posture, holding for a policy response on government assistance or further clarity on insurance provisions. However, we believe management teams, lenders and advisors need to act and begin preparations now. Making critical decisions today and putting response plans in place quickly will be key for businesses in the most harshly affected industry sectors to survive this situation. It will also be vitally important for companies across the board as they work to rebuild once we get to the other side of the current crisis environment.

The four sectors below are facing enormous challenges. We at Carl Marks Advisors wanted to share our thoughts with you on how the coronavirus outbreak is impacting them and what companies in these industries can do to overcome the trials ahead.

Restaurants, Retail & Hospitality

Restaurants, retail and hospitality companies have been some of the hardest hit as a result of the COVID-19 outbreak. Many are operating at reduced capacity or are fully shut down for some undetermined period of time. In this environment, maintaining liquidity, both to survive the downturn and to emerge from it once it subsides, is critical. Additional support from the government (via a stimulus package) and insurance providers (business interruption insurance coverage) may be coming in some form—but it cannot be relied upon to buoy cash reserves in the immediate term.

Assessment of the situation

Companies must perform a rapid assessment of the situation that focuses on strategies to 1) immediately reduce cash burn and 2) position the company for survival, with an eye on future growth. Performing a break-even analysis for brick and mortar locations will help weigh a “reducing operations” operating structure (where allowable) vs. “moth-balling” a location for the time being.

Resource Allocation

Capital allocation is critical. This is the time to defer and/or cancel any non-critical investment. However, there is merit in potentially allocating resources to build out capabilities that may thrive in the current situation (online for retailers and takeout/delivery options for restaurant operators), as long as it aligns with a company’s go-forward business model.

Coordination with landlords and vendors

To preserve cash, companies should coordinate with key stakeholders to “share the pain.” Companies should immediately pursue rent concessions or deferments with landlords. Reviewing leases for applicable clauses (force majeure, kick-out clauses, etc.) may assist in these negotiations.

At the same time, companies should try to negotiate longer terms or payment holidays with key vendors to further reduce the cash burn. Non-critical or ancillary vendor contracts should be reviewed for postponement. To ensure the continuation of business, strengthen the supply chain and locate secondary suppliers where applicable.


Companies face a tough decision in furloughing and/or terminating non-essential personnel. Factors they must consider include: near-term liquidity, impact to long-term operation with the loss of skilled/trained work force, ramp-up costs post-recovery, company benefit and healthcare plans as well as the availability of COBRA benefits, existing severance agreements, state and federal labor regulations (WARN, etc.). However, companies need to remember that on the other side of this situation is an assumed return to normalcy. Retaining existing talent will allow for a quicker return to normal course operations, as compared to locating and training a somewhat inexperienced workforce.

Some companies are working with “essential” retailers and grocery stores to offer temporary jobs for impacted employees (30-60 days). This provides a bit of goodwill for employees that have been terminated and hopefully will help with retention of employees post-emergence.


This is a time where crisis management skills and healthcare industry experience are in demand. We are advising several middle-market healthcare businesses on the best ways to reposition their business models and critical processes such as logistics, revenue, and resource optimization. Trends and issues which we are advising clients on include:


Expanding telehealth availability opens up new revenue opportunities for hospitals and physician practice groups, and lifelines for financially stressed healthcare services providers. Medicare recently announced that doctors and hospitals will be paid for a broad range of telehealth services on a temporary basis, effective March 6, 2020. The program will pay for office, hospital and other visits furnished via telehealth across the country, including in-home patient calls. Doctors, nurse practitioners, clinical psychologists, and licensed clinical social workers will be able to offer telehealth to their patients and be reimbursed at the same level as in-person visits. Patients will have easier access and more availability to doctors and other healthcare professionals.

Supply Chain Disruption

According to an ISM survey, the COVID-19 outbreak has caused supply chain disruptions for nearly three-quarters of US companies, and many are already adjusting prices in reaction to revenue losses as a result.

This has created significant challenges for the healthcare supply chain at a time when there is a pressing need for scarce resources, including latex gloves, disinfectant wipes, and masks. The lack of these supplies is amplifying the staffing challenges at hospitals, clinics and other healthcare settings as staff are fearful about being on site and interacting with patients without adequate protection.

Re-allocation of Resources

We are seeing traditional healthcare and non-healthcare assets being re-purposed to help fight COVID-19. Inpatient facilities are being converted to treatment centers, and testing capabilities are being expanded at an increasing rate. States with significant numbers of confirmed cases are starting to take drastic steps to increase the number of hospital beds available, but there are limits to what they can achieve in the short term. Planning is underway to utilize non-healthcare space such as the Javits Center in New York City and other assets (e.g., army field hospitals). There is also demand for repurposing non-healthcare workers during this crisis, including help with frequent deep cleaning and sanitizing of facilities.

Shortage of Doctors and Nurses

Over the last few weeks, as coronavirus has spread across the country, many have been sounding the alarm about our country’s lack of critical resources, such as ventilators and hospital beds. But the worst shortage we face is doctors, nurses and the healthcare professionals who can staff beds, administer the life-supporting intravenous medications and run the ventilator machines. Many facilities are asking retired professionals to return to work temporarily to fill this gap.

Oil & Gas

Oil and gas companies need to take dramatic, immediate action to ensure their near-term and longer-term viability in response to both the coronavirus impact and the breakdown of Saudi Arabia and Russia’s cooperation on limiting excess production. Key issues and questions impacting stakeholders in oil and gas related companies include:

Duration and magnitude of demand destruction

How much demand destruction will there be and for how long. The world consumes approximately ~100mm bbls per day and near-term demand destruction projections range from 5% to 25% by April. With 900mm bbls of estimated global spare capacity at a 10% demand cut, storage could be full in 90 days.

Impact on US oil and gas producers

Assuming an annual global oil production decline rate of 5% (rate at which oil depletes from already producing wells; BP says it’s 4.5%, Exxon says it’s 7%), if demand drops by 10% on average for the rest of the year, the world will potentially not need another well drilled for years. Producers will need to drastically cut staff as well as drilling and fracking activity to simply be cash-flow positive. In this environment, any debt is too much debt.

Saudi Arabia and OPEC response to dramatic price declines

This seems to be a no-brainer that Saudi Arabia, OPEC and other producers will cut production as their economies and societies fall apart at $20 oil. The contrarian view is that they may run this low price out a while, trying to kill off the US shale industry.

Severity of oilfield service company impact

Service providers could be decimated as already weak demand and pricing declines to a level where there is just no market for their services.

Higher Education

College administrations are facing unprecedented challenges in the wake of the coronavirus pandemic. While each situation is unique, there are several immediate key steps every school should consider:

Communicate Clearly to Students, Faculty and Administration

In order to maintain the trust of students and their families, faculty and administrators, schools need to be transparent and in constant communication. Schools must provide consistent updates and be prepared to answer student concerns. Given the rapid pace of change, the communications horizon should be kept to two weeks or less.

Convert from Campus-based Learning to Virtual Campus

The virtual classroom is a temporary solution. A traditional college won’t be able to replicate in-classroom quality instruction in a short period of time, so it is best to be forthright about the limitations and the time frame for any changes.

Focus on Registration and Newly-Admitted Students

Over the next few weeks, acceptance letters will be sent to potential new students, who will make school selections, likely without the benefit of another visit or new student day. In lieu of these on-campus activities, schools should invest in additional marketing and communication with prospective students.

Re-evaluate Your Financial Stability

During these times of upheaval, it is imperative that your team review projections for the remainder of the current year and the next school year. Schools with budgets and tracked results against those budgets are in the best position to make prudent decisions. Projections on enrollment and costs need to be evaluated and updated. If you haven’t created integrated financial statements, including an Income Statement, Balance Sheet and Change in Cash Position, now is the time to get started.

Cater to Future Alumni

For those nearing graduation (potentially 25% of your student body), these final months of enrollment will shape the type of alumni they will be for years to come. This group is most concerned about its potential for employment upon graduation, and without the job fairs and employer visits, schools must create alternative employment support solutions. Think outside the box to address this need. Work with your business partners to match graduating students with jobs.

Five Actions Higher Education Leadership Must Take to Address the Coronavirus Pandemic
If you, a colleague or someone you know has questions about what they should be doing in these uncertain times, please don’t hesitate to reach out to a member of our team listed below.

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