What Should Business Leaders Be Doing in Days 2 to 90 Following The Coronavirus Crisis

Dear Friends, Colleagues and Clients:

Situation

“What a Difference a Day Can Make; it is no longer appropriate to wait until tomorrow as tomorrow brings another set of problems which requires a full day of more of action”.

While some people continue to focus on “Hope” and the potential relief from monetary easing [i] and the  “Coronavirus Aid, Relief, and Economic Security (“CARES”) Act [ii], Farrell Advisory Inc. continues to emphasize the need for management to immediately evaluate and refocus their business due to the enormous uncertainty [iii] surrounding the Coronavirus, which has been described as “one of the most dangerous and disruptive disease outbreaks since WWI” [iv]. Questions remain open about the ability of the US and global markets to recover quickly from this economic shock that has ground many parts of the economy to a halt and that may lead into a deep and prolonged recession, that will be substantially worse than the 9/11 terrorist shock[v], perhaps more due to the greater fear of the unknown and behavioral adjustments (“Social Distancing”) that is driving the current markets.

Crisis Management for Days 2 to 90

While most companies have dealt with the Day One priorities (e.g., employee and family safety, communications, business continuity, remote working and home schooling), I wanted to share with you some interesting thoughts about what to do next, “Day 2 to 90 Actions”. These thoughts will vary by sector [vi] given some sectors have been hit far harder than others, and the effectiveness of the CARES which appears will be signed into law in substantially similar form over the next few days. 

Whether triggered internally or by the U.S. or global marketplace dynamics, corporate distressed situations can be managed.  Boards and senior management are responsible for Triage (based on best likely, and not known outcomes of this economic shock) and the prompt allocation of limited resources, be they management, operational or financial in nature, to fix their problems.

Securing and maintaining liquidity will be now be a critical part of crisis management. Crisis management has four main elements (i) Transparent (Board) Leadership; (ii) Stabilization Actions; (iii) Planning (Asking and Doing); and (iv) Efficient Execution.

Transparent (Board) Leadership	Stabilization Actions	Planning (“Asking and Doing”)	Efficient Execution
Board Accountability One Voice Transparency Stakeholder Support Defined Success
	Communication & Trust	Strategic Plan and Business Optimization	Working Capital and Investor Management (including tax and CARES planning)
	Health & Safety	Management and Advisor Assessment	Process Optimization
	Business Continuity	Reporting (13-week cash flow), Planning and Forecast Controls (liquidity analysis, working capital targets)	Business Optimization
	Securing Liquidity	Risk Analysis, Financial Flexibility (i.e., ask from investors) and Contingency Scenarios	Resolve Trade-Offs

Key decisions must be made early and actioned to successful closure.  Do we have the right leadership in key areas which can quickly achieve trust and deliver results? Are we effectively capitalized for the short to medium term? Do we understand our (fixed vs variable) cost structure and change levers? Do we have contingency scenarios in place (e.g., rent abatement, deferred vendor payments, and RIFs) in case different outcomes arise over different time periods?  Do we have a laser attention on the cash conversion cycle? How can we utilize tax planning to preserve cash? Can we manage without certain procedures and reporting so that we can manage the level of the workforce? Have we and our management team been trained in crisis communication with outside entities (e.g., press, stakeholders, vendors, remote working employees etc.)? Can employees remain focused and work effectively remotely and is there any risks of losing confidential information? Has a Material Adverse Event occurred which could impact a contract? Can you win contracts and trust without meeting people (i.e., customers, lenders)? Where should our business be focused on and our we nimble enough to refocus our business?

Stressed situations can be used as a catalyst for positive change if actioned quickly and managed properly. Given these present circumstances and many unknowns, management must be highly focused on cash management and preservation, developing a new strategic plan and operating model to achieve (i) the right level of efficiencies and de-risked operating model; and (ii) drive to a new cash culture.  The potential significant benefits of addressing weaknesses early and how we might help include:

Potential Benefits of Reacting Swiftly	How We Can Help
Increased rigor and control in forecasting helps manage cash flow during times of critical need in evaluating compliance with or negotiating amendments to financial covenants.	Development of analytic tools to maintain and monitor newly implemented processes and budgets/forecasts. Design and development of customized cash flow models.
Focus on the competitive advantages of the company with early identification of (fixed) cost and expense management issues which helps reverse margin erosion and de-risks the operating model.	Implementation of new strategic and budgetary plans, operating and organization models and key performance monitors. Identification and improvement of costs and expenses via complexity reduction.
Fast and sustainable improvements in cash flow and working capital levels, reducing interest costs and improving liquidity and thus improving shareholder value.	Identification of where current business processes could be improved and the potential savings.
Facilitate a change in corporate culture and approach, enhancing effectiveness in the control and management of working capital.	Implementation of new or revised business processes, that can help convert working capital into cash flow.
Developing and putting into place a timely and appropriate debt and equity structure.	Review and analysis of the current debt/equity structure, potential future cash flows and financing requirements.

To further help your thought process I have set out as an Appendices the following topics:

• Appendix I: Tax and Coronavirus Aid, Relief, and Economic Security (“CARES”) Act Planning
  • This sets out the latest thinking on options and opportunities from a liquidity and tax planning perspective.
• Appendix II: Debt Planning
  • This sets out various options you should be considering with debt facilities in order to maximize liquidity.
• Appendix III: Planning: “What Should The Board be Doing and Asking”
  • This sets out what the Board should be considering and evaluating.
• Appendix IV: Alignment of Strategies and Improvement Plans
  • This sets out where management should be focused on to ensure that liquidity is maximized, and the company has an efficient equity/debt and cost base.

If you are considering making a distressed acquisition, I would recommend reading the presentation “Due Diligence On A Distressed Company” ,which is set out on Farrell Advisory’s website, as these types of acquisitions have many difference nuisances. Transaction risks will now be significantly increased due to potential restrictions placed on due diligence (i.e., restrictions on ability to physically meet management and go on site, ability to understand forecasts) and less favorable lending terms for buyers.

Call to Action

It is also important for senior management to seek approval for its new strategy from not just the Board but also from other stakeholders like management, key shareholders and financers in advance, while still maintaining confidentiality. Without the buy in of all key stakeholders, new strategies of companies are unlikely to address all the blind spots or be implemented efficiently. A well-thought out strategy, with very specific criteria, needs to be clearly set so that management is focused on the right sectors, geographies, products/services and other skills and resources that the business needs, not necessarily wants, to bring to the table to implement decisive and cash and profitable change.

We very much look forward to speaking with you, learning more about your businesses, and explaining more about Farrell Advisory and how we can help you protect and enhance shareholder value in these tremendously difficult times.

Best regards,

David Farrell

Appendix I

Tax and Coronavirus Aid, Relief, and Economic Security (“CARES”) Act Planning

1. Short Term Liquidity Considerations
   1. Relevant Tax Provisions of the CARES Act
      1. Special Net Operating Loss (“NOL”) Carryback Provisions
         1. Provides for a special 5-year NOL carryback for tax losses generated in 2018-2020, which will allow taxpayers to obtain cash refunds quickly for taxes paid in prior years. Companies with NOLs in 2018 and 2019 that paid taxes in the prior 5 years should start considering and valuing these carrybacks. The sooner the refund claims are submitted the sooner the cash refunds can be received. It also temporary provides for the removal of the 80% taxable income limitation for NOL deductions taken in taxable years prior to 2021.
         2. If a company is expecting 2019 NOL and the tax return is not yet finalized, it should consider:
            1. How to maximize the NOL in that period to maximize the refund possibility; and
            2. Whether filings can be accelerated (even before the audit is complete if necessary) to accelerate the cash refund.
      2. Contractual provisions will need to be considered, as many purchase agreements prohibit a buyer from amending or carrying back NOLs to tax years prior to an acquisition. Specific provisions of each transaction should be reviewed though, and there may be opportunities to negotiate the ability to carryback NOLs to pre-acquisition periods with former owners.
      3. Current owners of former portfolio companies may be making the same ask, which could be an opportunity to create cash for the fund if the refunds received are shared between the parties.
   2. Refundable Alternative Minimum Tax (“AMT”) Credits – AMT credits were previously refundable over a number of years following Tax Reform; those credits can now be refunded currently and quickly.
   3. Interest Limitations
      1. The 30% of EBITDA limitation has been increased to 50% for corporate taxpayers for tax years 2019 and 2020. Companies should take this into account for their 2019 returns, which may allow for a greater NOL that can be carried back per the provisions noted above. It also allows taxpayers to elect to use 2019 adjusted taxable income for purposes of computing the interest limitation for 2020.
      2. For partnerships, the 50% limitation applies for 2020, and 50% of the interest not deductible in 2019 will be deductible in 2020 without limitation.
   4. Charitable Contributions – Increases the limitation on charitable contribution deductions for C corporations to 25%, including increasing the limitation with respect to food inventory contributions for C corporations and other taxpayers, from 15% to 25% for 2020.
   5. Delay of Payroll Taxes – Allows employers to defer payment of the employer share of social security taxes and pay those taxes over the following 2 years. This provision should allow many companies to preserve cash needed for other purposes and repay that liability over time.
   6. Employee Retention Credits – Provides for a refundable payroll tax credit for 50% of wages paid by employers to “eligible employees” during from March 12 through December 31, 2020.
      1. Maximum credit of $5,000 per employee (based on maximum qualified wages of $10,000 per employee).
      2. For eligible employers with more than 100 FTEs during 2019, qualified wages are limited to wages paid to employees that not working either due to a COVID-19 related government order or due to a significant decline in business.
         1. For all other eligible employers, all wages paid to employees during a qualifying quarter appear to qualify for the credit.
         2. Tax-exempt organizations are eligible for the credit.
      3. “Eligible employer” is any employer that either:
         1. Had its operations fully or partially suspended due to orders from a governmental authority due to COVID-19; or
         2. Experienced a significant decline in gross receipts in 2020 compared to the prior year:
            1. Eligibility begins in the 2020 calendar quarter in which its gross receipts are less than 50% of the gross receipts for the same 2019 calendar quarter.
            2. Eligibility ends in the 2020 calendar quarter in which its gross receipts are more than 80% of the gross receipts for the same 2019 calendar quarter.
   7. Retirement Withdrawal – Retirement withdrawal rules relaxed for coronavirus-related withdrawals under $100,000 (e.g., 10% early withdrawal penalty waived, income attributable to distribution subject to tax over three years and increase in loans not treated as distributions to $100,000 and delay of repayment).
2. IRS Response to Coronavirus – Notice 2020-17
   1. IRS extended the deadline for the payment of federal income taxes, regardless of the income of the taxpayer, that are due on April 15, 2020 until July 15, 2020 to the extent the filer does not exceed (i) $10M for corporations; and (ii) $1M for all other taxpayers regardless of filing status.
3. Other Short-Term Liquidity Considerations
   1. “Quickie” Refunds – If a company has overpayments from 2019 that have been applied to 2020 estimated tax, it can request an immediate refund of the 2019 overpayment. The refund application for calendar year taxpayers must be made by April 15th (though the IRS may extend this deadline).
   2. Estimated Tax Payments – If a company is expecting a 2020 loss it should stop making estimated tax payments in the US and any other jurisdictions (where losses are expected, and where permitted).
   3. State Taxes – Any benefits are still to be determined but certain states will most likely follow federal guidelines and there may be opportunities to defer state taxes and/or refund historically paid taxes.
   4. Non-US Tax Payments – Many non-US jurisdictions have provisions that can allow businesses to defer tax payments (both income and non-income taxes) and may have provisions to allow for refunds of previously paid taxes.
   5. Accessing Foreign Cash – Accessing foreign cash can be costly, short-term structures may exist though to get that cash where it’s needed while avoiding withholding taxes.
4. Other Tax Considerations in an Economic Downturn:
   1. Debt restructurings:
      1. Asset Protection: If a company’s financial situation is such that a debt restructuring is expected / anticipated, it should be considered how to protect existing tax attribute value through that process. Without planning, the value of all NOLs, tax credits, and even tax basis can be largely lost. This planning often needs to take place prior to the initiation of the restructuring to be effective.
      2. Structuring new funding: Every situation is different, and each situation should be analyzed, but generally it’s more efficient to structure short-term cash for portfolio companies as debt rather than equity. Cash can often be loaned from funds to portfolio companies outside the credit group, the contributed into the credit group for an equity cure or generally infuse liquidity. This type of structure can help avoid taxes associated with getting short-term cash back out of a group, but the short-term debt should be formally documented. If a bridge line will be used for short-term liquidity, consideration should be given to whether the funds are loaned directly to the portfolio company or the fund itself and on-lent to the operating group.
   2. Declining Valuations: While declining valuations are obviously not a positive event, they can be used proactively to create longer term tax savings. For example, taxable spin-offs or freeze transactions on assets/businesses that may be sold in the future, supply chain or legal entity restructuring, etc. This may also be a time to consider estate tax planning for individuals.

Appendix II

Debt Planning

It may be appropriate to consider renegotiating the borrowing facilities (e.g., $, length and type of debt) and terms.

1. Options/Questions to Consider
   1. Negotiate new bank facilities.
   2. Partial or full draw down of revolver or unused banking facilities.
   3. Reduce minimum availability of revolver.
   4. Restrict return of excess cash to borrower.
   5. Deferral of interest and/or amortization payments.
   6. Request that cash interest payments be paid as Payment-In-Kind (“PIK”) interest.
   7. Conversion of outstanding revolver to term loan to free up availability under the revolver.
   8. Covenants:
      1. Covenant relief or holiday through a certain period.
      2. Change covenant levels to provide additional flexibility.
      3. If no covenant relief is possible, request equity cure options (without having to repay loans).
   9. Adjustment to the definition of EBITDA for covenant testing to exclude:
      1. Impact of COVID-19.
      2. Cost of restructuring.
      3. A more relaxed definition of EBITDA adjustments.
      4. Allowing for cost savings to be pro forma back for one year.
      5. Results for loss making businesses if there are plans to make businesses profitable.
   10. Representations and Warranties
       1. Add COVID-19 qualifier for representations and warranties (to the extent applicable) in order to prevent breaches due to rep bringdowns required in connection with quarterly (or more frequent) compliance certificates, borrowings or continuations of LIBOR loans.
       2. Remove requirement to bring down representations and warranties to continue loans at LIBOR or request automatic continuations at LIBOR (at least through end of Q3 or Q4) in order to avoid such bringdowns. 
       3. If request rejected, make sure to elect the longest available interest periods to avoid such bringdowns.
   11. Request for delay in filing audited financial statements with the bank in case the auditors cannot complete the audit.
2. Potential Resulting Requests from Lenders in response to some of the above requests
   1. Increased pricing (e.g., interest rates, amendment fees) across the credit facility.
   2. Introduction of anti-cash hoarding provisions (i.e. require repayment of loans if free cash on the balance sheet).
   3. Minimum availability requirement under revolvers.
   4. Prohibitions on Restricted Payments (e.g., dividends, Private Equity management fees) during impacted quarters (especially if requesting covenant relief). 
   5. Prohibitions on investments. 

Appendix III

Planning: “What Should The Board be Doing and Asking”

Whether triggered internally or by the U.S. or global marketplace dynamics, corporate distressed situations can be managed.  Boards and senior management are responsible for the early detection and remediation of structural issues, be they operational or financial in nature.  Key decisions must be made early and actioned to successful closure, even if a crisis is not present.  Do we have the right leadership in key areas? Are we effectively capitalized? Do we understand our cost structure and change levers? Do we have a crisis plan?  Do we have a laser attention on the cash conversion cycle? Have we and our management team been trained in crisis communication with outside entities (e.g., press, stakeholders, vendors etc.)?

The following findings summarize how distressed situations can be used as a catalyst for positive changes to create shareholder value in companies if identified quickly and managed properly and before formal restructuring negotiations are started.

Boards Are Responsible

With all economic crises and credit cycle turns, you have a combination of higher volatility and tighter credit conditions. So what should the board of directors (“Board”), together with management, proactively do to protect shareholder value and reduce risks in their operations?

A major responsibility of the Board is to ensure the viability and sustainability of the business. Boards must not be complacent and ensure they continually receive relevant, accurate and timely information so that they can apply their “judgement” to taking proactive and decisive actions.  In stressed conditions, the Board’s risks increase due to the possibility of their company entering the “zone of insolvency” which basically means the company cannot meet its ordinary debt obligations as they become due. At this stage, the Boards primary fiduciary duties shifts from shareholders to creditors and the legal protections afforded to directors under the business “judgement” rule become less clear.

So What Should the Board Be Asking and Doing?

Business trouble can arise quickly and for a variety of reasons. Companies may suffer from missed market expectations with non-optimal products/services portfolios, uncompetitive cost base, reduced operating profit or severe cash flow problems. Whether triggered internally or by marketplace dynamics, distressed situations can be managed and more easily the earlier the situation is identified. The Board should be asking and doing the following:

• Do we have the right management team for the task at hand?
  • Boards should avoid snap decisions as preserving continuity in leadership is generally always helpful; however, not all CEOs and management have the ability to decisively change track in distressed situations and aggressively act to remediate (e.g., to maintaining liquidity, monitoring cash flows and reduce the (fixed) overhead cost base).
• Do we have the right strategic plan?
  • Recapitalizing the company’s balance sheet does little to ensure demand for the company’s products and services and long-term cash flows. Equal attention must be placed on deeper strategic and structural problems in the core business with a focus on the competitive advantages of the company so that the long-term sustainability of the company can be preserved. Implementing change is not easy but the goal is to create a compelling reason for change before conditions worsen and expensive crisis measures are required.
• How do we preserve the Company’s access to capital?
  • Boards must understand the company’s long-term liquidity situation and requirements and the potential availability and cost of additional capital sources especially as relationships with present lenders become strained or fatigued during these difficult times. While valuation of the company and/or individual assets and the future cash flows of the business are key determinants of the ability to obtain capital, without confidence, transparency and trust in management, there is less ability to obtain refinancing. Management may also have to consider debt equity swaps, but this may dilute current shareholders value.
• Should we hire outside advisors?
  • Before the Board makes the decision to employ or not employ advisors, it should evaluate whether (i) it is receiving relevant, accurate and timely information and advice from management; and (ii) management has the ability and/or the appropriate resources to develop the new strategy and implement the change decisively? If either answer is no, then we suggest hiring an outsider advisor which would be beneficial to not only the Board but to management as well. Professional advisors can bring a wealth of experience, technical expertise and independence to rapidly push through focused and profitable change.

So What Should Management Be Asking and Doing?

Before any new strategies are implemented, we recommend that senior management performs an assessment of the company, organization, infrastructure and service/product offerings to see where the strengths and core (profitable) activities of the company are. Management should also evaluate the cost benefits of reorganization. This self-assessment will require management to look ‘out of the box’ and be more proactive in finding new efficiencies and opportunities to preserve profitability and cash. Examples of opportunities to increase profitability and cash include:

1. Reporting, Planning and Forecast Controls
   • As liquidity becomes increasingly difficult to manage in distressed situations, management needs reliable and detailed reporting and planning tools that provide an understanding of business prospects. If a distressed company has weak coordination between Business Development (Pipeline Reporting), financial and operational reporting, FP&A (Budget/Forecasting), Operations and Treasury (Cash Management), management can be caught off guard given potential disconnects between functional and operating elements. These reporting tools need to be interactive so that management can assess how the potential changes in strategy will impact its business (e.g., infrastructure, work force structure, profitability).  Board must be prepared to challenge assumptions made within forecasts.

2. Operational Process Optimization
   • Process improvements will not only provide enhanced transparency to operating results but will provide management with the necessary accountability model to manage and optimize, in real time, the future business activity without unduly impacting organizational effectiveness.
   • Management should look at their procurement and operations processes for opportunities to gain increased efficiencies in reducing material and overhead expenses and inventory holdings so that demand and supply are “in cycle”.
   • Management needs to have in place effective controls to monitor all phases of the ordering and billing process to ensure a tight cash collection cycle.
   • Finally, management also needs effective and integrated tools in order to manage working capital and effectively promote the business to the capital markets especially as lending institutions will now be taking a more active monitoring role.

3. Identify and Shift Mix of Services/Products to Core Profitable Areas
   • Management will need to evaluate their business development pipeline to ensure that they are pursuing profitable opportunities in the core operations of the company rather than pursuing all new business regardless of competition, profitability and probability of winning.

Increasing Expectations of the Chief Financial Officer (“CFO”)

CFOs will also have to step up. CFOs will not only be expected to deliver a finance organization that gets the numbers right (“Reactive Participant”) but to partner with CEOs, Boards and Shareholders in shaping the company’s infrastructure and strategy and provide the right tools to monitor and forecast (e.g., 13-week cash flow statement) the operations of the company (“Proactive Leader”). CFO will need to become more efficient in identifying and reacting to trends that unfavorably impact future levels of revenue, profitability and cash flows. In addition to considering cost reductions, CFOs should consider extracting efficiency savings from their business systems, eliminating unnecessary procedures, bolstering internal controls, focusing on the core profitable business and developing billing and cash collection procedures to maximize and improve cash flow.

Appendix IV

Alignment of Strategies and Improvement Plans

Alignment of Strategies and Improvement Plans with stakeholders. Design of organization (including equity/ debt structure), management structure/ operating/ budget plans and Improvement Plans (teams, allocation of responsibilities, new leadership team and incentive/ retention plans) and Reporting models with effective corporate governance and tax strategy.

Authored by:

David Farrell, President, Farrell Advisory Inc.

Background on Farrell Advisory Inc.

1621 35^th Street, NW Washington, D.C. 20007 U.S.A.

(w) 202.525.2055 (c) 202.436.2629 

David@FarrellAdvisory.com

www.farrelladvisory.com

Farrell Advisory Inc. provides highly customized Corporate Finance services to business owners, boards of private equity firms, corporations and banks with regards to promptly and efficiently helping companies deliver shareholder value through:

1. Chief Financial Officer and Restructuring & Business Reengineering solutions offerings for companies who are not operating optimally or in a stressed environment.
2. M&A/Refinancing Transactions ((a) Buy-Side: formal buy-side due diligence, inhouse corporate development function and M&A disputes; (b) Sell-Side: pre-investment diagnostic, maximization of valuation by advanced preparation and implementation, carve-outs and M&A disputes; and (c) Merger Integration and Growth Initiatives); and

David Farrell has over twenty years of experience in Reengineering/Restructuring and Transaction Advisory Services (buy-side and sell-side due diligence, carve-outs) either as a consultant (Partner and Managing Director) at Big 4 (KPMG), international consulting practices (FTI Consulting, Farrell Advisory) and national accounting firms (Cherry Bekaert, a Baker Tilly network firm) or as principal (CFO or Strategic roles) at European listed businesses, covering both the strategic as well as the transactional side of the business, with deep knowledge of the U.S., European and emerging markets. Mr. Farrell earned a B.Sc. in Economics and Accountancy from Loughborough University in the United Kingdom. He is a Chartered Accountant (“ACA”) in England and Wales and has obtained the Corporate Finance (“CF”) qualification from the Institute of Chartered Accountants in England and Wales (“ICAEW”).

Disclaimer

This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute tax, consulting, accounting, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. Farrell Advisory Inc is not responsible for any loss resulting from or relating to reliance on this document by any person.

March 27^th, 2020

[i] The Federal Open Market Committee (“FOMC”) cut the Federal Funds rate by 50 basis points on March 3 and another 100 basis points on March 15^th, 2020, lowering the target rate to a 0-0.25% range. The FOMC directed the Federal Reserve Bank of New York to begin asset purchases of Treasury Securities and Agency Mortgage-Backed Securities to total at least $700 billion. The Federal Reserves has now pledged to buy unlimited amounts of Treasury and mortgage-backed securities (including commercial mortgages) — starting with purchases of $75 billion and $50 billion per day, respectively. As of March 25 (latest data reported), the Fed balance sheet sits at $5.2 trillion. That is a $1.5 trillion increase since last September, when the Fed began increasing its repo operations to help calm the bank lending markets, already under some stress even before the virus hit. 

[ii] On March 27^th, 2020 President Trump signed the stimulus bill of estimated $2.2 trillion to provide relief to individuals, families, small business and industries mainly in 2020; this compares to the much smaller $787 billion stimulus package (American Recovery and Reinvestment Act 2009) which was focused over 2 years.

[iii] Even if in the best-case scenario, the most acute health impacts of this crisis are overcome in the next few months, its economic and social consequences will need a long-term response.

[iv] Larry Summers, former Secretary of the Treasury and President Emeritus of Harvard University, March 2020.

[v] The current Coronavirus crisis has generated a sudden economic stop that is affecting both the demand and supply sides globally and that has affected the entire world at the same time through multiple channels: (i) first and foremost, the health emergency, which represents a shock to already fragile health systems having to cope with the pandemic itself; (ii) the immediate economic impact that is leaving workers and businesses without paychecks and revenues due to both social distancing policies in their communities as well as due to the general global slowdown; and (iii) the longer term macro-economic fragility of many developing countries governments and businesses. Unlike the Global Financial Crisis of 2007-08 (“GFC”), countries and businesses are entering this crisis with high levels of debt. (S&P Global Ratings said that companies, government and households increased the combined debt load by 50% to $178 trillion as of June 2018 in the 10 years following GFC. One area of concern is corporate debt especially on the lower end of the scale and the amount of leverage loans with “covenant lite” terms.) We are also seeing two other phenomena that may be problematic for many developing countries (i) a strong drop in the price of oil; and (ii) the devaluation of their currencies with respect to the US dollar. If the GFC was about putting money in the bank’s coffers, the current crisis is about getting money quickly to suppliers of goods, hospitals and to people on the streets that have been quarantined out of their jobs. 

[vi] Jan Hatzius, Chief Economist and Head of Global Investment Research indicated that while there will be a surge in healthcare consumption, other areas of consumer spending are forecast to decline, from 15% for education services to as much as 85% for sports and entertaining  and 90% for casino gambling and package tours. Manufacturing is expected to decline by 20%, partly driven by closure of automobile manufacturing plants and supply-chain disruption from China and fall in exports. Homebuilding and business structures investment is expected to decline by 25%.