Distressed Debt and Special Situations

As the economic impact of COVID-19 continues to affect Australian businesses across all industries, a range of temporary government measures may be delaying inevitable restructurings and insolvencies.

Distressed companies need to act now

Through temporary incentives and regulatory changes, distressed companies have been granted additional time to set themselves up to be an attractive prospect for capital investment.

It's important that the time is used wisely, with careful consideration given to potential restructuring measures well before lending covenant breaches occur or repayments can't be met.

Debt funds will offer a much-needed source of capital

While Australia’s big four banks have provided unprecedented support to most borrowers, they will not be able to support the market on their own. This is where non bank lenders and other alternative capital providers will play an important role.

In order to receive funding, companies will need to demonstrate that they have a viable business plan going forward, and that future growth looks realistic and promising. Businesses may need to be recalibrated to achieve that.”  

How to prepare for the future

There are critical actions that companies and funds can take now that will prepare them for opportunities and challenges that the future may bring – even if the precise nature of them is unknown.

• Review, reorganise and recalibrate. In order to receive capital funding or investment, companies need to demonstrate that they have a viable business plan going forward. Restructuring and refinancing decisions need to be made now to ensure companies' ongoing viability and resilience.
• Recognise the different pathways across industries. Different Australian industries offer a diverse cross section of opportunities and challenges, with recovery and permanent change expected on different timeframes. Detailed industry knowledge, including government regulation and incentives, will help funds and investors understand how to maximise their chances of success.
• Understand Australia's changing regulatory framework. COVID-19 has brought with it new complications such as Foreign Investment Review Board criteria changes and additional tax considerations. ASX and Corporations Act rules, for example, are critical factors in shaping how to inject capital into distressed companies. An early understanding of how to operate within this framework is key to ensuring a successful outcome.