The Pandemic. Aside from getting a whole bunch of people very ill, it has played havoc with the financial structure of our industry. Especially debt.
A sudden collapse of revenue means that the debt you had in place that met the needs of your asset, and was well within the covenants you agreed to when you borrowed the money, now does not work.
You have blown thru your debt coverage ratio, your debt yield promise, and worse, you are seeing your financial underwriting of your returns go dow the drain.
Here’s the good news:
Banks are being more flexible now than they have been in the past.
Also, the PPP money is holding together a shaky structure. And the vaccines and time will get up past this, and business will return.
In time. Not quite right now.
Can you hold out?
A little piece of advice I’ve learned over the last 45 years: When, and if (probably more like when), the banks ask what you need, treat it the way a person that has not eaten for while should.
We don’t know how 2024 will be, so be careful what you “re-borrow” in 2021 and 2022.
Take “debt baby steps” and borrow what you really need. If necessary, put in more equity and then later, when the coast is clear, add the debt to reclaim your equity.
Discretion is an important part of the cure. We’ll get there.