SNN Network Conference Panel Presentation on COVID-19 Impact: What’s Next from a Legal Perspective

August 17, 2020

Not only has the COVID-19 pandemic caused businesses to change during the pandemic, but it has forever changed the way business will be handled in the future. Businesses will continue to need to pivot and adapt to new ways of operating and venturing into unchartered legal matters arising as a result of COVID-19.

The SNN Network recently hosted a virtual panel titled: “COVID-19 Impact: What’s Next from a Legal Perspective.” Lynne Bolduc of Fitzgerald Yap Kreditor LLP was one of the panelists for this presentation.

A summary of Lynne’s points made during the presentation are:
• How clients have pivoted during the pandemic
• Robust activity in mergers and acquisitions (M&A) and public markets
• Call in the specialists, it is worth it to save distressed assets
• You can’t blame everything on COVID-19

You can view the entire presentation here.

Here are excerpts from the transcript for pertinent key points of Lynne’s presentation:

3:37: Moderator: I was surprised by the number of transactions that were getting finished and deals that were going on. Private equity side, if they had deals, they closed them but they are sort of waiting now to see what is happening with valuations, I don’t know if you would disagree with me. We have seen robust activity in M&A and in the public markets – but not as much on the private equity side.

Lynne: I couldn’t agree more, I had an IPO that started before the pandemic began, they never postponed it, and it never ended, they did more than 50 virtual roadshow presentations – so it actually got more traction.

15:00: Moderator: I know the SEC has given specific recommendations regarding COVID disclosures.

Lynne: In our first panel presentation we talked about how to disclose, but now the SEC has been looking very, very closely at all of the COVID disclosures that are being made – it’s their hot button right now, obviously. And they are issuing comments about the reports and disclosures. It is not enough to have a risk factor – even a specific risk factor – just in the risk factors section. The SEC has reached out to several public companies and asked for extensive disclosure in the management’s discussion and analysis of financial condition and results of operations section as well.

How exactly has the pandemic affected your financial condition and results? Again, disclose in risk factors and MD&A. Something else that is being considered right now by a lot of companies is do we need to make a disclosure in the financial statements as well? Do we put a subsequent events footnote in the financial statements and who drives that decision? The audit firm? The issuer? When in doubt: disclose, disclose, disclose!

16:30:Lynne: Something else interesting that happened, the SEC issued several comment letters to companies and said, “Your disclosure regarding COVID is almost over disclosure, but we think it’s something else, and it wasn’t just the pandemic.”

Moderator: How are your clients dealing with distressed assets?

29:59:Lynne: In our first panel, we talked about how M&A deals were getting the COVID discount – or COVID haircut – on the purchase price. Now that the companies are into the acquisition, the assets are still suffering.

a. The purchasers should already be aware of it, but continue to disclose.
b. Call in the specialists – if the company is suffering, you are not going to make your earn-out and the risks are huge – sort of like the government is throwing money at the problem, you need to do that and get turn-around specialists, it is worth it.

31:06:Lynne: Something that is going on a lot with my clients (I represent a lot of PE funds) is that a lot of them have pivoted and they dropped their prior funds and now formed distressed asset funds. Now they are going out and acquiring these distressed assets, mostly hospitality and retail, but also real estate, parcels of raw land, etc., and there are investors that have an appetite for that.

So, worst comes to worst, you could sell the company – albeit it is going to be at a big discount but you can recover something for the benefit of the purchasers.

34:34:Moderator: When should a company notify its lender regarding any impacts on their business – such as involuntary suspension of business based on what is happening now?

Lynne: So now what we are having is businesses suffering. I know you don’t want to do it – but stay in contact with your lenders – let your bank contact know what is going on. Over the last 30 days, a client notified the bank what was going on and the bank declared an event of default on my client saying, “You didn’t notify us soon enough.” We are fighting it.

36:47:Moderator: What has your experience been with banks?

Lynne: Most of my clients haven’t even heard of the Mainstreet Lending Program and I only had one bring it up. It wasn’t like the PPP where everyone jumped on the bandwagon.

Moderator: Any thoughts anyone has on post-COVID realities, both legal and non-legal? Lynne, I think we discussed some. How far can we ask a third party to provide information? How much impact will this have on re-negotiating contracts?

50:24:Lynne:

1. Moving forward: Make sure all of your contracts list specifically a “pandemic” in the force majeure clause.

2. A really practical suggestion is a “business continuity plan” – a BCP. That is required of registered investment advisors in the U.S., but I don’t know if other companies have these – regular private and public companies. Where are our records stored? Who is going to be our contact? Where do we get the records from? If you do have a BCP- how did it work? What needs to be tweaked? This would be very helpful for your employees moving forward.

3. Ask your vendors for their business continuity plan.

Host: One thing that stuck out and I think Lynne said this, “You can’t blame everything on COVID-19.” There are a lot of investors watching this right now. What are some of the things they should look for in the press releases or the filings that may indicate maybe this is not all COVID-19 related or having a downturn?

56:50:Lynne: It’s the financial statements and there are three things to look at:

1. Look at the cash position of the company. How much cash do they have? Do they have enough cash? Will they need financing? Debt financing?

2. The bottom line, are they profitable? If not, why not? Have they had a decrease over the year? What is really going on? Is it COVID or more?

3. Read the notes: the auditors notes will tell the story of those numbers – that is what investors should look at.

To learn more about the SNN Network and future events, you can visit their website. You can view Lynne’s bio here.

To view the first presentation referred to herein, click here.