Five Rules of Thumb: Crisis Management for Hospitality Executives

Hospitality, Gaming & Leisure | Corporate Finance & Restructuring

March 23, 2020


No one knows what the future holds for the leisure and tourism industries — but we do have lessons from prior crises that may prove instructive as we navigate this one.

Liquidity Planning: Make sure you have ample liquidity to weather the storm.

It’s widely reported that bulge-bracket private equity firms urged their portfolio companies, particularly those in the hospitality and energy industries, to draw down on their credit lines to prevent liquidity shortfalls (although subsequently denied by said firms). Hilton, in a move way ahead of the curve, borrowed the maximum under its $1.75 billion revolving credit facility as a “precautionary measure,” according to its 8K filed on March 5th, despite having significant existing cash balances. Boeing borrowed the remaining balance of its credit facility, $13.8 billion.

Not only having cash, but understanding the “runway,” is of critical importance to sustaining an organization through a crisis.

Read your credit agreements: Nobody reads them.

Too many investors and senior executives put the loan documents in the drawer. They argue that these are for the lawyers, and sometimes the finance team, to read and understand.

Now is the time to pull them out and read and understand them. Are there tests that the borrower could fail? Are there covenants? Could funds be diverted from certain accounts? Are there extension options that could/should be exercised? What are the rules, covenants and obligations, including recourse obligations, that ought to dictate behavior? Borrowers and lenders who both read and understand their obligations under their credit agreements may be able to prevent disastrous outcomes.

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