Financial Stress:

Corona Virus Next Level Checklist

By: Luis Salazar

1. Consider whether to fully draw down on current bank line availability if liquidity may become a problem later.

 

2. Determine, anticipate, and calendar critical dates, including, but not limited to:

  • Loan/credit facility maturity dates

  • Debt service payment due dates

  • Material contract/lease payment due dates

  • Due dates of material pending deliveries of goods and services to and from customers.

 

3. Prepare financial projections and cash flow projections on low, likely, and high cases.

 

4. Review credit agreements and anticipate potential breaches of financial covenants.

 

5. Remaining current on payments of federal and state withholding, employment, and sales taxes (plus employee wages, in certain jurisdictions) is critical in the face of financial distress. Certain corporate officers, directors, and employees face potential personal liability if such taxes and wages remain unpaid (particularly for “trust fund” taxes that are withheld from employees’ pay or collected from customers), even if the company files for bankruptcy protection.

 

6. What costs and expenses can be eliminated, reduced, or suspended pending recovery from the current situation?

  • Evaluate and model the long-term impact of potential short-term cost reduction measures.

  • Review nonessential contracts for force majeure provisions, and consult with legal counsel regarding the potential applicability of such provisions.

 

7. Evaluate whether all employee travel should be curtailed.

  • Nonessential travel vs. essential business travel

  • What essential travel could be replaced by video conference or teleconference?

 

8. Visitor policies

  • If possible, prohibit all nonessential visitors at your facilities.

  • If possible, vendor activity on site should be limited to deliveries of essential goods and services.

 

9. To the extent possible, evaluate firm-wide ability of employees to operate remotely, including, but not limited to, all administrative staff. Check licenses for software, teleconferencing, and so forth to ensure sufficient access to key technology, and assess whether short-term improvements are available.

 

10. Review insurance policies for business interruption coverage. Be mindful of any upcoming renewals, payment dates, and notice periods. Consult with coverage counsel regarding potential new exclusions in renewal policies, and consider other means of managing risks that insurers will no longer cover.

 

11. For material supply contracts where your business is the seller of goods or services to customers at serious risk, evaluate potential use of any relevant contractual provisions and, for sales of goods, Uniform Commercial Code remedies to seek adequate assurance of future performance, stop goods in transit, reclaim delivered goods, or otherwise seek to curtail credit sales to customers at heightened risk of default.

 

12. For material contracts where your business is the purchaser of goods or services:

  • Evaluate the continued ability of your supplier to provide goods and services

  • Be prepared for a possible demand for adequate assurance of future performance, stoppage of goods in transit, or other efforts by the counter-party to mitigate its perceived credit risk.

  • Consider proactively contacting counter-parties under essential or otherwise material contracts.

 

13. Consult human resources and employment counsel regarding procedures and protocols for furloughs, layoffs, or terminations. Be aware of legal obligations in terms of paid/unpaid time off, advance notice requirements of pay cuts, and ensuring continued compliance with applicable exempt/nonexempt wage and hour laws.

  • Evaluate potential exposure under state and federal WARN, wage and hour, and other employment laws. Compliance with these laws, and timing of required notices and payments, is crucial if you expect to have to file for bankruptcy protection.

 

14. Review outstanding purchase orders submitted to vendors, and determine if any can and should be cancelled or deferred.

 

15. Contact key customers to discuss whether they expect to slow down or cancel purchases.

 

16. Determine if extended payment terms should be requested from specified vendors.

 

17. Anticipate requests from customers for extended payment terms, and implement a protocol for responding to such requests.

 

18. Anticipate inquiries and potential demands from lenders and bondholders, including, but not limited to:

  • Requests for updated financial projections and cost-curtailment measures

  • Requests/demands for additional collateral

  • Mobilization of bondholders and/or syndicated lenders in anticipation of default

  • Requests/demands for payment of default interest, professional fees, and so forth

  • Requests for payment of forbearance fees

  • Consider proactively engaging with bondholders and lenders.

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