Liquidity in the Age of COVID-19

DP: Good. Alan, let's talk liquidity. We're seeing companies hoard cash like they've never done before, billions and billions of dollars, particularly in the hard-hit sectors like airlines and hotels and so forth. We know that it's largely the uncertainty of the coronavirus that's leading companies to hoard cash. Now, the question is, is this good strategic planning or is it akin to people stocking up on toilet paper? It's just kind of somewhat unfounded.
AW: Well, Dave, I think these truly are extraordinary times, and I think companies that have the ability to access capital are going to be far better off in the near future. I think there's a tremendous amount of uncertainty in the marketplace right now. Whenever you have uncertainty, you do have a panic situation. I think well-managed companies are talking directly to their banks, trying to make sure they certainly do have access to capital. Because I think a lot of companies are expecting their cash flow to be severely impacted by COVID-19. I think a lot of companies are drawing down their lines of credit so they can certainly strengthen their balance sheets.

I think companies are looking at all their discretionary spending, trying to find ways they could reduce unnecessary expenses as a way of improving performance. I think companies are looking at the financial health of their customers. They want to make sure their customers have the ability to pay their bills. I think everything is on the table right now because of the uncertainty in the market and how severe the COVID-19 impacts are going to be on business.
DP: Sure. Do you think we're going to see companies in particularly hard-hit industries, travel, tourism, service businesses, potentially be gobbled up by competitors that have a better cash position? Along with that, are there any opportunities out there?
AW: I think a good business six months ago is still going to be a good business a year from now. I think when the COVID-19 disaster is over and we get back to a sense of normalcy, the companies that were able to come through this unscathed I think are going to have pretty good futures. I think there will be acquisition opportunities in particular industries, especially by companies may need professional money that are sitting on a lot of cash and can be acquisitive in terms of growing their businesses that way. You might see M&A activities of companies in competitive industries trying to save on SG&A costs. I think you're going to see banks providing less leverage into M&A transactions in the future.

I think you're going to see valuations at a much more realistic level compared to where they were two months ago. This is probably the correction that the market actually needed. You think about the travel industry, the hospitality industry, those industries have just been decimated the last 30 days. You're talking about the hotel industry where occupancy is at about 0%. I've heard numbers that 40 to 60% of hotels are going to default on their loans over the next 30 to 60 days. Those are tough industries.
DP:Now, the $2.2 trillion Federal Stimulus Package, are you looking at this as a giant lifesaver or a small band aid?
AW:Well, that's a really great question and it's hard to call $2 trillion a band aid.
DP:Sure.
AW:I think the reality is the first $2 trillion isn't it really stimulus. It's really a stabilizer. The federal government is trying to keep businesses in business, trying to keep people employed because that's going to go a long way for the turnaround. I think if we come through this in the next 60 to 90 days and businesses go back, there'll probably be another stimulus package that lawmakers pass through that will truly stimulate business growth in the future. I think this is real dollars right now. I'm not sure I'd call it a stimulus. I think it's more of a stabilization factor.
DP: Alan, let's put you in the role of CEO of Alan Wink Enterprises. What are the three or four things that you would do right now to help you maintain long-term liquidity?
AW:Well, I think the first thing I would do would probably be to apply for the loan programs that are available in the stimulus package, primarily the Paycheck Protection Program and the CARES Act and probably the SBA Economic Injury Disaster Loan. It's going to take time to access capital through these programs, but I would definitely apply for both. I think I would go back to my landlords and try to renegotiate my leases. I think the landlords are giving people 30 day rent abatement that'll be tacked onto the end of the lease. The lease will be extended by 60 to 90 days, but it gives you an opportunity to save those lease payments and apply it in other areas in your business, primarily paying your employees.

I would certainly draw down my lines of credit just to be sure that if you do need capital, it's available. I would take a hard look at discretionary expenditures, what can be eliminated and still allow me to operate my business effectively. I think those are the four things that I would probably do immediately.
DP:Good advice. Any final thoughts?
AW:Final thoughts is I just wish everybody can stay safe and sound and hopefully we'll all get through this together. It certainly takes a village.
DP:Well, that's a good note to end on. Alan, thanks for your expertise. I can't think of anyone better to talk to about this topic.
AW: Thanks, Dave. Please stay well.
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