Tiger Capital Predicts Spike in COVID-19 Related Closures, Bankruptcies & Liquidations

COVID-19 will cause a huge spike in asset dispositions across multiple sectors once the economic recovery begins, advised Dan Kane, co-founder and managing member of Tiger Capital Group, in a podcast interview with ABF Journal.

Retailers, manufacturers and distributors will be particularly hard hit due to the cascading economic effects of the pandemic, Kane told Phil Neuffer, managing editor, in the fifth episode of the magazine’s podcast series exploring the effects of COVID-19 on the ABL industry.

“I don’t see how the next year or two are not going to be very busy in retail store closings,” said Kane.

When economic activity starts to resume, the unknowns include whether consumers will feel safe enough or have enough money to resume shopping and whether altered business practices will dampen sales.

For now, though, lockdown orders make it impossible to run selective store closure sales or going-out-of-business events, Kane noted. “Until it is safe for employees and consumers to go shopping again, we just cannot run sales [via brick-and-mortar channels],” said the veteran ABL executive.

Oil and gas, too, has cratered. “Oil needs to be at $40 or $45 a barrel for producers to make money,” Kane noted. “Today it’s something like $20.” In the 15-minute interview, Kane described how Tiger has pivoted by relying more heavily on data in its approach to retail and wholesale inventory appraisals, which have continued during the pandemic. He noted that machinery and equipment appraisals are largely on hold because they typically require in-person examinations.

During the discussion, Neuffer asked Kane about the effects of the pandemic on junior debt and mezzanine lenders. In his candid response, Kane described the situation as “scary” right now. “You’ve got the bottom 20 percent of the loan, and all of a sudden there is just a massive drop in asset values everywhere,” Kane said. “It is really hard. These loans are just much riskier.”

Pricing new loans is challenging as well due to the unprecedented level of uncertainty, he added. As lenders try to account for such risks, borrowers could end up facing more conservative advance rates and higher reserves and pricing. “No one ever envisioned that you would almost have a total shutdown of the economy like this,” Kane said.

Until the pandemic passes, asset-based lending will face challenges, but stakeholders should be planning now for the next turn of the cycle, Kane advised. “Think ahead, because at some point the recovery is going to start, and you want to be ready to act very quickly.”

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