> Saddled with as much debt as possible, the business by design has been put in a position such that it cannot survive even a modest decline in revenue without raising significant additional capital.
I agree, but I think it's important to qualify what you mean when you say the "business can't survive". Because this implies that if a company can't meet its debt obligations that it will cease operations.
As long as operational cash flow is positive, then no amount of leverage or debt distress will halt the continued operations. The business might "fail" in the sense that the entity is legally re-structured and the equity owners, or even junior debt owners, are zeroed. But there's no reason in a country with well-developed bankruptcy law for this to have any impact on the employees, customers or operations of the business.
The issue with coronavirus and failing businesses is that it's causing many businesses to have negative operational cash flow. In this sense the business may fail and the operations discontinued simply because revenue is no longer exceeding expenses. But if the operations are cash flow negative (and capital markets are unwilling to extend financing in the hope of future cash flow) then the business will fail regardless of its capital structure or leverage.
I agree, but I think it's important to qualify what you mean when you say the "business can't survive". Because this implies that if a company can't meet its debt obligations that it will cease operations.
As long as operational cash flow is positive, then no amount of leverage or debt distress will halt the continued operations. The business might "fail" in the sense that the entity is legally re-structured and the equity owners, or even junior debt owners, are zeroed. But there's no reason in a country with well-developed bankruptcy law for this to have any impact on the employees, customers or operations of the business.
The issue with coronavirus and failing businesses is that it's causing many businesses to have negative operational cash flow. In this sense the business may fail and the operations discontinued simply because revenue is no longer exceeding expenses. But if the operations are cash flow negative (and capital markets are unwilling to extend financing in the hope of future cash flow) then the business will fail regardless of its capital structure or leverage.