Reviving and Restructuring - the Corporate Sector Post-Covid DESIGNING PUBLIC POLICY INTERVENTIONS - Oliver Wyman
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Reviving and Restructuring the Corporate Sector Post-Covid DESIGNING PUBLIC POLICY INTERVENTIONS
DISCLAIMER
This report is the product of the Group of Thirty’s Steering Committee and Working Group
on Corporate Sector Revitalization and reflects broad agreement among its participants. This
does not imply agreement with every specific observation or nuance. Members participated in
their personal capacity, and their participation does not imply the support or agreement
of their respective public or private institutions. The report does not represent the views
of the membership of the Group of Thirty as a whole.
ISBN 1-56708-181-9
Copies of this paper are available for US$25 from:
The Group of Thirty
1701 K Street, N.W., Suite 950
Washington, D.C. 20006
Telephone: (202) 331-2472
E-mail: info@group30.org
Website: www.group30.org
Twitter: @GroupofThirty
Reviving and Restructuring
the Corporate Sector Post-Covid
DESIGNING PUBLIC POLICY INTERVENTIONS
Published by
Group of Thirty
Washington, D.C.
December 2020
Working Group on Corporate
Sector Revitalization
STEERING COMMITTEE
Mario Draghi, Co-Chair Jason Furman
Former President, European Central Bank Professor of the Practice of Economic Policy,
Former Governor, Banca d’Italia Harvard University
Former Chairman, U.S. Council of Economic Advisers
Raghuram Rajan, Co-Chair
Professor of Finance, Chicago Booth School of Business Tharman Shanmugaratnam
Former Governor, Reserve Bank of India Senior Minister, Singapore
Chairman, Monetary Authority of Singapore
PROJECT DIRECTORS
Douglas Elliott Victoria Ivashina
Partner, Oliver Wyman Lovett-Learned Professor of Business Administration,
Harvard University
WORKING GROUP MEMBERS
Gerd Häusler Hélène Rey
Member of the Supervisory Board, Munich Reinsurance Lord Bagri Professor of Economics,
Former Chairman and CEO, Bayerische Landesbank London Business School
Former Professor of Economics and International
John Heimann Affairs, Princeton University
Senior Advisor, Financial Stability Institute
Former Comptroller of the Currency, United States Masaaki Shirakawa
Distinguished Guest Professor,
Gail Kelly Aoyama-Gakuin University
Senior Global Advisor, UBS Group AG Former Governor, Bank of Japan
Former CEO and Managing Director,
Westpac Banking Corporation Yi Gang
Governor, People’s Bank of China
GROUP OF THIRT Y vEXPERTS
Andrew Bailey, Oliver Wyman
Stuart Mackintosh, Group of Thirty
Sofia Price, Oliver Wyman
vi Reviving and Restructuring the Corporate Sector Post-CovidContents
Foreword.............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ ix
Acknowledgments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. x
1 Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............... 1
1.1 The situation... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 1
1.2 The response.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 1
1.3 Core principles.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 2
1.4 Making hard choices... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 4
1.5 Potential tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 5
1.6 Decision framework... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 5
1.7 Time to act.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 6
2 Introduction... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 7
2.1 Policy objectives.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 7
2.2 Report scope, structure, and conceptual approach.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 8
3 The unique economic challenges presented by the Covid-19 pandemic and the initial policy response. . . . .............. 9
3.1 The unique economic challenges presented by Covid-19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 9
3.2 The first wave of policy responses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 13
3.3 Why we have not yet seen major solvency issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 14
3.4 Why the existing measures are insufficient. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 16
4 Targeting: Which companies to assist, and why?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 17
4.1 What are your priorities?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 17
4.2 What resources do you have available?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 18
4.3 Where are there market failures with substantial social costs?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 19
4.4 Which firms should be assisted through public policies to address these market failures?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 20
5 Governance: Who decides which companies to assist?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 25
5.1 How should the viability and needs of individual firms be determined, and by whom?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 25
6 Design and implementation: How to assist them?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 29
6.1 What public support could be provided?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 29
6.2 How should the chosen intervention be structured?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 30
6.3 When should the interventions be made, and for how long? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 47
6.4 Is additional action needed to prevent spillovers to the financial sector?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 47
7 Recommendations for policymakers: Putting this into practice.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 53
7.1 Ten core principles for policymakers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 53
7.2 Decision framework... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 55
7.3 Putting these recommendations into practice.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 55
8 Conclusion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 57
APPENDIX A: Emerging pandemic business interruption insurance proposals post-Covid 19.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 59
APPENDIX B: China’s asset management corporations to tackle nonperforming loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 60
Bibliography .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 63
Group of Thirty Members 2020.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 69
Group of Thirty Publications since 2010... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 73BOXES
Box 1. Why focus on small firms?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 18
Box 2. Zombie firms: The dangers of the walking dead.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 22
Box 3. Example of criteria for determining nationalization or part-nationalization.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 27
Box 4. How the US, German, and Australian governments have updated original
Covid-related lending programs to better target credit.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 34
Box 5. Recent approaches to public-private co-investments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 38
Box 6. United States – 2009 Public-Private Investment Program.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 38
Box 7. Insolvency process reforms in response to Covid-19: The UK and Singapore. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 40
Box 8. Europe’s Restructuring and Second Chance Directive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 44
Box 9. PathogenRX – The insurance no one wanted until it was too late. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 44
Box 10. Lessons from terrorism risk insurance for the design of public-private pandemic risk insurance. . . . . . . . . . . . . . . . . . . . . . . . . .......... 46
Box 11. A private sector shared utility restructuring approach: Greece’s Solar platform.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 50
Box 12: Designing a “good” bad bank: Lessons from Ireland and Spain after the global financial crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 50
FIGURES
Figure 1. Year-on-year (YOY) revenue growth by industry segment in three sample economic areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 10
Figure 2: Levels of debt by sector from pre-global financial crisis to pre-Covid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 12
Figure 3. Subsector level net income post-Covid accounting for income of government mitigation action
in 2020 based on three-month lockdown and mitigation measures for a sample G20 country. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 15
Figure 4. Firm classification.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. 21
Figure 5. Policy toolkit by category of firm... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 30
TABLES
Table 1. How the context and propagation of the current crisis differs from that of 2008
(debt levels for Q1 2007 and Q1 2020).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ 11
Table 2. Potential models for government intervention to encourage and facilitate restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 49Foreword
T
he Group of Thirty (G30) aims to deepen under- economies to emerge fitter and stronger. Further, private
standing of international economic and financial sector capabilities should be relied on to prioritize and
issues, and to explore the international repercussions administer support in jurisdictions with strong private finan-
of decisions taken in the public and private sectors. cial institutions and deeper capital markets. Government
The human cost of the Covid-19 crisis continues to intervention is best focused on addressing market failures,
mount. We pay tribute to the efforts of healthcare pro- and to managing the pace of the needed creative destruc-
fessionals, scientists, policymakers, business leaders, tion. Where they do act, policymakers should be willing to
non-governmental organizations and all others who have be creative in the tools they deploy.
helped in their own way to respond to the challenge so far. The most effective mix of policy responses will vary
The crisis has struck, too, at the health and viability of depending on the specific circumstances in each jurisdiction.
a significant part of the corporate sector around the world. The report’s recommendations therefore cover key universal
It has accelerated underlying trends, ushered in structural principles, a set of policy tools, and a decision framework
changes in our economies and societies, threatened jobs, that should inform the policy response tailored to local con-
and generated immense uncertainty. ditions. We hope these will support the ongoing debate on
Policymakers around the world acted rapidly and how to support the corporate sector through the Covid-19
boldly in their initial policy responses to the pandemic. crisis, and provide a practical guide to policymakers as they
However, this report highlights how, in the face of these face difficult tradeoffs now and in the months ahead.
structural changes and a growing corporate solvency crisis, In short, policymakers must make hard choices. The
governments now need to alter their responses. It aims to decisions they make now will define the strength and resil-
provide a guide to policymakers as they consider how best ience of their economies, and the wider global financial
to intervene to support the corporate sector, addressing system, over the coming decade.
three pivotal questions: Which companies to assist, and On behalf of the G30, we extend our thanks to Mario
why? Who decides which companies to assist? And how Draghi and Raghuram Rajan for their astute leadership of
to assist them? the Working Group behind the report, and to the Project
Governments will increasingly need to move away from Directors, Douglas Elliott and Victoria Ivashina, for their
broad support to more targeted measures. This means capable construction of the report. We also thank those
refraining from trying to preserve the pre-pandemic status who participated in the study as Steering Committee and
quo, and enabling the reallocation of resources needed for Working Group members.
Jacob A. Frenkel Tharman Shanmugaratnam
Chairman, Board of Trustees Chairman
Group of Thirty Group of Thirty
GROUP OF THIRT Y ixAcknowledgments
O
n behalf of the Group of Thirty, we would like We also extend our thanks to the Project Directors
to express our appreciation to those whose Douglas Elliott and Victoria Ivashina for their support
time, talent, and energy have driven this project and careful drafting of the report, and to the extended
to a successful completion. We would like to thank the drafting team experts, Andrew Bailey and Sofia Price, for
members of the Steering Committee and Working Group their efforts.
on Corporate Sector Revitalization, who guided our col- The coordination of this project and many aspects
lective work at every stage. The intellect and experience of of project management, Working Group logistics, and
this diverse and deeply knowledgeable team was essential report production were centered at the G30 offices in
as we sought to craft the report’s findings and policy rec- Washington, D.C. This project could not have been com-
ommendations in the approach to corporate restructuring. pleted without the efforts of our editor, Diane Stamm, and
We also thank the many leaders in the financial com- the work of the Executive Director, Stuart Mackintosh,
munity and the wider corporate sector who supported and his team, including Desiree Maruca and Emma Prall.
the study and agreed to be interviewed, illuminating how We are grateful to them all.
their institutions and firms are dealing with the current
economic environment and what policy interventions are
needed moving forward.
Mario Draghi Raghuram Rajan
Co-Chair Co-Chair
Working Group on Corporate Working Group on Corporate
Sector Revitalization Sector Revitalization
x Reviving and Restructuring the Corporate Sector Post-Covid1. Executive summary
1.1 THE SITUATION 1.2 THE RESPONSE
The coronavirus pandemic, by dramatically changing con- The first wave of liquidity-focused policy measures has
sumption patterns and business operations, is triggering a prevented much more severe consequences for the corpo-
major corporate solvency crisis in many countries. Apart rate sector, jobs, and for the economy more broadly. As the
from policies directly supporting employment, initial crisis progresses, jurisdictions now need to develop policy
policy responses to support businesses focused heavily on responses that accommodate structural changes in the
liquidity issues. Some liquidity support is still needed, but economy triggered by the pandemic, and address the follow-
the crucial issue now is solvency. ing problems that make the initial response unsustainable:
Policymakers need to act urgently, as the solvency crisis
• Inadequate targeting of support, which fails to suffi-
is already eroding the underlying strength of the business
ciently tailor the policy response to the situations of
sector in many countries. The problem is worse than it
different firms
appears on the surface, as massive liquidity support, and
the confusion caused by the unprecedented nature of this • An excessive focus on credit provision, which risks over-
crisis, are masking the full extent of the problem, with a burdening firms with debt, promoting inefficient use of
“cliff edge” of insolvencies coming in many sectors and resources, and engendering future problems
jurisdictions as support programs lose funding and existing
• Excessive direct government decision-making and sub-
net worth is eaten up by losses. However, the difficulty of
optimal use of private sector expertise that could be
predicting the duration and recovery path after the pan-
used to better direct support
demic, and of differentiating between structural versus
temporary changes in demand, makes it hard to determine • A level of public spending that would be unsustainable
the long-term viability of enterprises during the pandemic. over the potential duration of the ongoing economic
This complicates the targeting and design of measures to crisis.
support the corporate sector.
This solvency crisis differs sharply from the global In this report we recommend for policymakers:
financial crisis, which centered on the financial system • A set of universal core principles to guide the design
and on liquidity problems. Some of the answers from that of the policy response
previous crisis are valid now, but new approaches are also
needed. • A set of potential tools with which to respond
• A decision framework to determine appropriate policy
responses for a specific jurisdiction.
GROUP OF THIRT Y 1Our objective is to encourage the development of policy design constraints on adjustments to restructuring and
actions that support long-term economic resilience and bankruptcy measures. The appetite for using the private
growth, and broad-based improvements in living stan- sector to distribute taxpayers’ money for credit and invest-
dards, while minimizing the costs to the public. ment also varies across the world. Views differ as well on
Desirable, and feasible, responses will vary across industrial planning or the desirability of incorporating
nations and regions due to differences in available govern- national objectives, such as the greening of the economy
ment resources, institutional capabilities, and social and or digitalization, into policy responses. Market failures
political priorities and constraints. will manifest differently for firms of different sizes, and
any support deemed appropriate may need to be tailored
Available resources: All countries have to assess pro- to the company size. Policy interventions will therefore
grams based on whether they are a good use of resources, also differ significantly between large corporates and the
particularly in helping engender robust economic growth small and medium-sized enterprises (SMEs) that provide
and recognizing that any government costs today will even- a substantial share of employment and whose failure may
tually have to be paid for. To the degree that a country faces have significant economic and social costs.
constraints on borrowing or higher borrowing costs, as is
especially true of many emerging markets and developing
1.3 CORE PRINCIPLES
countries, they will have to make tougher trade-offs in the
We recommend a set of core principles that are critical for
targeting and scale of possible interventions, and place
success. These fall within three broad areas of focus for
more emphasis on harnessing foreign investment flows.
policymakers.
Without assistance from advanced economies, and sover-
eign debt relief, some developing countries would struggle • Focus on the long-term health of the corporate
to create the fiscal resource envelope to allow them to sector. The duration of the pandemic forces us to focus
respond to the crisis. In countries where a larger share of on structural issues and solvency, rather than buying
the financial and corporate sector is state-owned, there will time through a focus on liquidity. This also means we
be less scope for private risk holders to absorb some costs. need to shift from broad-based to targeted measures,
allowing reallocation of resources to occur.
Institutional capabilities: In countries where there is a
• Focus on the most productive use of resources. It is
strong privately owned banking sector or well-developed
critical at this stage that public policy is geared towards
capital markets, there will be greater opportunity to use the
a strong economic recovery. This is one reason for taking
private sector to target and deliver support than in others.
advantage of private sector capacities where they exist,
Some countries, including some emerging markets and
in order to leverage scarce public resources and to make
developing countries, have significant public sector invest-
use of private sector expertise to evaluate the viability
ment capability to draw upon through sovereign wealth
of businesses. This also means that the choice of strat-
funds and development banks. Countries with independent,
egies aimed at achieving other societal objectives, such
government-sponsored long-term pools of capital that have
as greening of the economy or digitalization, should be
a record of successful partnership with the private sources of
based on their synergies with the efforts to accelerate the
capital have certain advantages when responding to this type
recovery. Finally, the design of any scheme to support the
of crisis. The strength and efficiency of bankruptcy systems
corporate sector should contain the risks of adverse selec-
will determine the extent to which they can be relied upon
tion, with weaker players seeking to take great advantage
in the crisis versus demanding other intervention.
of such support.
Social and political priorities and constraints: • Focus on preventing collateral damage. The main
Countries vary in what they value and what they can do example of this is avoiding unintended consequences
politically or bureaucratically. Some countries are more for financial stability, including preserving the ability
open to full or partial state ownership of firms. Similarly, of the financial system to sustain lending and otherwise
cultural attitudes toward debt forgiveness and second support the recovery.
chances for bankrupt individuals and firms may place
2 Reviving and Restructuring the Corporate Sector Post-CovidWe believe policymakers should rely on a set of ten core longstanding difficulty in funding SMEs effectively.
principles to help put into practice these areas of policy Other market failures are artifacts of this specific crisis,
focus. such as the high degree of uncertainty that can deter
private investment.
1. Act urgently to tackle the growing corporate sol-
vency crisis. This crisis threatens prolonged economic 5. Private sector expertise should be tapped to opti-
stagnation, and harm for households and workers, if it mize resource allocation, where possible. Properly
precipitates a “cliff edge” wave of insolvencies or the functioning markets can help allocate resources (and
creation of masses of zombie firms. Many measures costs) using existing expertise and funding channels.
to support the recovery will take time to deliver and Governments are usually less able to pick winners and
should be initiated early. Some nations have already losers and to structure funding injections that properly
made significant progress in this area. align incentives. Harnessing private sector expertise is
also likely to reduce adverse selection problems. When
2. Carefully target public support to optimize the use
combining private and public sector expertise and
of resources and help economies emerge fitter and
resources, often the optimal solution will be to provide
stronger. Policymakers need to consider how to allo-
government incentives to encourage or channel private
cate scarce resources, and how to facilitate appropriate
sector investment. Some states additionally have sub-
loss absorption by existing stakeholders. Indiscriminate
stantial investment expertise and financial resources
support carries the danger of imposing a significant
in long-term capital pools, including sovereign wealth
burden on taxpayers. Not all struggling firms should
funds and development banks, that can complement
receive public support. Resources should not be wasted
private sector expertise.
on companies that are ultimately doomed to failure
or which do not need public support. Moreover, firms 6. Carefully balance the combination of broader
that would otherwise be successful should not receive national objectives with business support mea-
unjustified windfalls. sures. Many countries are interested in using their
policy responses to solvency and liquidity crises to
3. Adapt to the new business realities, rather than
accelerate strategic changes, such as the greening of the
trying to preserve the status quo. The business
economy or digitalization. This is a legitimate choice,
sector that emerges from this crisis should not look
but requires a careful balancing of the desire to direct
exactly like it did before due to permanent effects of
the change process against the need to avoid imposing
the crisis and the pandemic’s acceleration of existing
excessive constraints on struggling businesses or too
trends such as digitalization. Governments should
narrow an allocation of support into too few business
encourage necessary or desirable business transforma-
sectors or specific firms. In many cases other policy levers
tions and adjustments in employment. This may require
may be better suited to advancing national objectives.
a certain amount of “creative destruction” as some
firms shrink or close and new ones open, and as some 7. Minimize risk and maximize upside potential for
workers need to move between companies and sectors, taxpayers, while ensuring stakeholders’ share in
with appropriate retraining and transitional assistance. losses and do not receive unjustified windfalls.
However, even governments that support such adapta- Where possible, government support measures should
tion in principle may need to take measures to manage limit risk for taxpayers, such as through staged deploy-
the timing of creative destruction to account for the ment of funding, and come with some direct upside,
knock-on effects of excessively rapid shifts, such as for such as through a share of future profits.
insolvency regimes that could become overwhelmed.
8. Be mindful of moral hazard issues without under-
4. Market forces should generally be allowed to mining the core objectives. Where companies entered
operate, but governments should intervene to the crisis with excessive debt leverage, there is the
address market failures that create substantial danger of “bailing out” owners and managers who took
social costs. Some existing market failures are par- too much risk, which could also create moral hazard
ticularly troublesome in the current crisis, such as the problems, through the expectation of future rescues. At
GROUP OF THIRT Y 3the same time, governments should avoid an excessive 1.4 MAKING HARD CHOICES
focus on assigning blame or withholding support; such These principles provide a guide for the hard and often
an approach could cripple essential business support unpopular choices that most governments will have to
measures necessary for the sake of society as a whole. make. These choices include:
9. Get the timing right in the staging and longevity Reducing broad support of businesses and moving
of interventions. The duration of the pandemic, the to more targeted measures focused on those firms
shape of the economic recovery, the long-term conse- that need support but are expected to be viable in the
quences for demand, and the structural impacts on post-Covid 19 economy. Our interviews with govern-
businesses are still unknown. Policymakers should ment officials, central bankers, private sector executives,
move quickly, but design their programs to reflect and academics demonstrated a broad consensus in favor of
this uncertainty, as well as mitigate political and targeting business support measures to firms viable in the
bureaucratic tendencies to make temporary programs long run that face temporary financial problems. A key task
effectively permanent. Policy interventions should be will be to communicate these aims clearly, and manage the
designed to phase out when they are no longer needed. inevitable pushback against winding down broad, untar-
Policymakers may also wish to keep some “dry powder” geted support programs and allowing some businesses to
available for later interventions, although this must be fail. It is equally necessary to provide proactive support to
balanced against the benefits of the strongest possible displaced workers, to help them transition into growing
early intervention to head off later problems. industries and firms.
Limiting government support of businesses to those
10. Anticipate potential spillovers to the financial circumstances where there is a market failure. Again,
sector to preserve its strength and enable it to help there was broad support in our interviews for saving gov-
drive the recovery. While this is primarily a crisis of ernment resources for those situations where private sector
nonfinancial firms, government may need to intervene mechanisms were not adequate to solve problems effectively.
to protect or bolster the ability of the financial sector to Partnering with the private sector to finance nec-
support the economic recovery. Further, policy choices essary balance sheet restructurings. Virtually every
should avoid actions that would significantly weaken serious analyst recognizes that governments face severe
the financial sector, such as forcing banks to make bad practical and political constraints in targeting loans and
loans as a way of supporting the economy. investments to firms that will be viable in the long term
There are other important considerations for policy- but need support now. Banks and private sector investors
makers that are outside the scope of this report, which usually have substantially more expertise in evaluating via-
focuses specifically on the corporate solvency crisis. bility, and they certainly face less political pressure as they
These include: make those decisions.
Investing in equity and quasi-equity of businesses.
• Wider economic policy responses to the recession, such Now is a time for many businesses to increase the amount
as fiscal and monetary policy stimuli. of their equity funding and to limit their debt, to give
themselves a greater margin for error and to decrease repay-
• Policies designed to support broader national objectives
ment burdens. Governments can get the most “bang for
such as digitalization, environmental sustainability, or
their buck” by encouraging that balance sheet restructur-
the promotion of new or strategic industries. We note
ing through incentives for new equity and quasi-equity in
that some of these measures could be incorporated into
these targeted firms or by making such investments them-
the targeting or design of responses to the corporate
selves. Properly structured, these government initiatives
solvency crisis, but do not discuss these in detail.
can generate substantial investment earnings to partially
• Responding to the implications for individuals of busi- or fully offset the cost of the incentives or the losses gov-
ness failures. By accepting that some firms should be ernments incur from firms that collapse.
allowed to fail, governments will need to ensure their Changing bankruptcy laws or introducing new
social safety nets are robust, and provide support for restructuring schemes for firms that would otherwise
retraining and entrepreneurship. go bankrupt. There has been a strong consensus for years
4 Reviving and Restructuring the Corporate Sector Post-Covidthat most countries have bankruptcy laws that are ill- establishing “bad bank” structures, or encourag-
suited to a situation like the current one, where there are ing the use of specially designed Asset Management
many businesses that are fundamentally sound but have Companies to take on nonperforming assets.
unsound balance sheets. This crisis increases the need to
tackle reforms of insolvency laws or to pilot new schemes
1.6 DECISION FRAMEWORK
that would facilitate contractual debt restructurings
There is no “one-size-fits-all” answer to this complex crisis,
without the use of bankruptcy procedures.
given the many differences across countries and regions.
In the remainder of this paper, we present a series of
We therefore propose a framework for decisions, rather
policy tools to help governments follow through on our ten
than a single set of answers. We recommend that policy-
principles, as well as a decision framework to help optimize
makers address the following set of questions to determine
the use of these tools. We urge policymakers to stay true
whether and how to deploy these tools.
to these principles, despite the political pressures they will
inevitably face in the short run.
TARGETING
1.5 POTENTIAL TOOLS Which companies to assist, and why?
We propose a toolbox of policy measures from which 1. What are your priorities? This includes
policymakers can choose to tackle the solvency crisis in being clear about attitudes toward firm failure,
their jurisdiction. Some are long-standing tools, some are protecting jobs and assets in SMEs versus
substantial adaptations of existing tools, and some are novel. large corporates, the importance of broader
Our primary focus is on the following tools to support strategic objectives such as preservation of
the corporate sector in the current crisis: critical industries or encouraging the greening
• Targeted credit programs: Government programs or of the economy, and the balance of cost burden
guidance to encourage lending to viable, solvent firms sharing across different stakeholders.
while discouraging indiscriminate lending 2. What resources do you have available?
• Infusions of equity or equity-like investments: Clarity over available resources (both domestic
Policies to make, or encourage the infusion of, equity and through foreign investment) will drive the
or equity-like investments in viable firms targeting and scope of support measures.
• Balance sheet restructuring of otherwise viable 3. Where are there market failures with sub-
businesses: Enable restructuring of balance sheets to stantial social costs? Identify for different
be achieved rapidly and inexpensively for qualifying types of firm whether there are sufficiently
businesses, including through modified bankruptcy significant market failures to require interven-
processes and workout procedures. tions, and the barriers to the private sector in
resolving them. In addition, identify where the
A further tool is briefly explored, with potential to costs of financial distress and the social costs of
support the corporate sector primarily against future business failure are substantial.
pandemic risk:
4. Which firms should be assisted through
• Government-backed (re)insurance against future public policies to address these market
pandemic-related business interruption. failures? Define your policy objectives for the
different categories of firm defined by their
In addition, we address further measures that could
size, financial constraints, nature of any market
support the health of the financial sector:
failures, and costs of business failure. This will
• Measures to deal with bad debt efficiently and depend on social and political priorities.
effectively: Buying or guaranteeing bad assets,
GROUP OF THIRT Y 5GOVERNANCE 1.7 TIME TO ACT
Who decides which companies to assist? Policymakers need to act urgently if they are not already
doing so. The solvency crisis is already eroding the under-
5. How should the viability and needs of indi-
lying strength of the business sector in many countries.
vidual firms be determined, and by whom?
Action is required to design and implement the policies
Establish whether the private sector can deter-
and structures required before companies have failed.
mine the viability and needs of the firms in
Although the situation varies by country, officials cannot
question, or whether and what government
afford to be complacent in any jurisdiction.
action is required. This will depend on local
institutional capabilities. Where government
does intervene, it should do so in a transpar-
ent way, with clear accountability, to provide
clarity to the market and wider public.
DESIGN AND IMPLEMENTATION
How to assist them?
6. What public support could be provided?
Identify the desired intervention or interven-
tions to support firms in different situations.
7. How should the chosen interventions be
structured? Design the delivery of the inter-
vention, making best use of private expertise.
The design of the intervention will depend on
available government resources, institutional
capabilities, and social and political priorities.
8. When should the interventions be made,
and for how long? Determine when interven-
tions should be introduced to have the greatest
effect at lowest cost, and consider for how long
they should last.
9. Are actions needed to prevent spillovers to
the financial sector? Identify whether there
is risk to the health of the financial sector that
justifies government action to ensure it remains
resilient and capable of supporting the recovery.
6 Reviving and Restructuring the Corporate Sector Post-Covid2. Introduction
I
n the first phase of the response to the economic effects range of policy tools through which to take action. The
of Covid-19, governments and central banks devoted framework and tools will drive the allocation of finite
trillions of dollars to deal with the corporate liquidity government resources in the context of a potentially
crisis, mostly through the provision of loans.1 However, prolonged coronavirus recession whose duration and
there is a growing corporate solvency crisis in most of magnitude are uncertain.
the world, as balance sheets are hit hard by losses and the Many governments have already acted and innovated
resulting need to pile up debt. In addition, many compa- in their policy responses. The approaches and recom-
nies entered the coronavirus recession with unusually high mendations in this paper should be of value for assessing
levels of leverage. and adapting existing policy responses, and for designing
This solvency crisis is too severe to be fixed through interventions going forward. Our focus necessarily spans
the normal operations of markets, without generating companies of all sizes, from large corporates to small and
massive harm to the global economy. Therefore, it behooves medium-sized enterprises, since they all affect individuals’
policymakers to address the crisis proactively. Different gov- jobs and living standards and the advancement of econo-
ernments are at different stages of addressing the solvency mies as a whole.
crisis. This paper provides frameworks and tools that will
help them target and tailor their ongoing policy response.
2.1 POLICY OBJECTIVES
Policymakers need to address three central questions:
This report seeks to spur policy interventions that
Targeting: Which companies to assist, and why? support economic resilience and growth, and high
living standards, by:
Governance: Who decides which companies to assist?
• Helping restore financial health to the corporate
Design and implementation: How to assist the companies?
sector while enabling efficient reallocation of resources
In the initial phase of the crisis, the overarching policy through desirable economic and business model
objective was to avoid extreme downsides. This, and the transformations
need for urgent action, meant the initial answers to these • Minimizing or mitigating the spillover of problems to
questions were, broadly: help everyone, have the govern- the broader financial sector, while strengthening it to
ment decide directly, and provide funding through debt. support financing of the recovery
Policymakers now need an actionable framework to
inform more nuanced answers to these questions, and a
1 See, for example, Gourinchas et al. (2020) for a detailed overview of the fast-expanding academic research on the effectiveness of the initial policy response to the
Covid economic crisis.
GROUP OF THIRT Y 7• Avoiding short-term responses that undermine the Governance: Who decides which companies to
medium- and longer-term recovery assist? (section 5)
• Minimizing the long-term cost to the public of achiev- 5. How should the viability and needs of individual firms
ing these objectives. be determined, and by whom?
2.2 REPORT SCOPE, STRUCTURE,
Design and implementation: How to assist them?
AND CONCEPTUAL APPROACH (section 6)
The report first identifies the unique economic challenges
posed by the Covid-19 pandemic (section 3). It then posits 6. What public support could be provided?
nine questions policymakers can ask to inform how they
7. How should the chosen intervention be structured?
target, govern, and deliver their policy response. These
questions form our recommended decision framework. 8. When should the interventions be made, and for how
long?
Targeting: Which companies to assist, and why? 9. Is additional action needed to prevent spillovers to the
(section 4) financial sector?
1. What are your priorities? This report is intended to be of use for policymakers
2. What resources do you have available? globally. Specific policy choices will be influenced by
factors including countries’ available resources, institu-
3. Where are there market failures with substantial social tional capabilities, and social and political priorities and
costs? constraints, which are outlined in subsection 6.2
4. Which firms should be assisted through public policies Section 7 makes recommendations for key principles
to address these market failures? and the decision framework by which these elements can
be combined in practice.
8 Reviving and Restructuring the Corporate Sector Post-Covid3. The unique economic challenges
presented by the Covid-19 pandemic
and the initial policy response
T
he current policy challenges are rooted in the airlines, travel and leisure, and energy, but the magnitude of
speed, scale, and uncertain nature of the Covid- impact across sectors varies by country (see Figure 1). Travel
19 pandemic and its economic consequences. and tourism sector revenue, which accounts for 10.4 percent
Making the right policy choices in the current environ- of global GDP,2 is estimated to drop by approximately 35
ment requires understanding the unique characteristics of percent from 2019 to 2020.3 By suddenly stopping the
the coronavirus recession. This context explains both the activities of many companies and radically changing con-
nature of the initial policy response, and why that policy sumption patterns, the initial Covid shock presented an
response is insufficient in the medium and longer term. immediate threat to jobs, with widespread consequences
This section sets out these unique economic circumstances, for household incomes if left unmitigated by governments.
the resulting global economic policy response to combat Businesses of all sizes have been affected; however, SMEs
the crisis, and the reasons why this response now needs to (which are more heavily concentrated in some countries
evolve to meet the policy objectives set out for this paper. and industries than others) are often less resilient to shocks
than larger firms, because they typically have fewer routes
to access private capital or a greater dependency on fewer
3.1 THE UNIQUE ECONOMIC
suppliers. Self-employed individuals in many areas have also
CHALLENGES PRESENTED been heavily impacted by decreased revenues.
BY COVID-19 The global and largely synchronized nature of the
The sudden and extreme supply shock made previous shock has disrupted supply chains. The initial outbreak
methods of production impossible in many cases and in China led to plant closures and supply shortages that dis-
dramatically changed consumption patterns, triggered rupted global supply chains even before the virus reached
by the virus and associated restrictions, leading to a other parts of the world—938 of the Fortune 1000 have
collapse of revenues for many companies, thereby Tier 2 suppliers in the Chinese provinces most affected by
creating substantial losses and urgent and continuous the virus.4 Even as China began to lift its lockdowns, other
liquidity needs to ensure business continuity. Many economies were implementing their own.
industries, particularly those with high fixed costs, are The difficulty of predicting the duration and recovery
facing extreme cash flow pressures as sales plunge due to path after the pandemic, and differentiating between
government lockdowns and changes in consumer behav- structural versus temporary changes in demand, make
ior. Uncertainty and lockdowns preventing spending have it difficult to determine the long-term viability of enter-
caused consumers to limit their expenditure to essential prises during the pandemic. There is the risk of further
products and services. The hardest hit industries include disruption to consumer demand and to businesses’ supply
2 Jones 2020.
3 Statista 2020.
4 Dun & Bradstreet 2020.
GROUP OF THIRT Y 9FIGURE 1. Year-on-year (YOY) revenue growth by industry
segment in three sample economic areas
June 2019 to June 2020; publicly listed companies only
UNITED STATES June ’19 Revenue (USD B)
Airlines -24% $162
Travel & Leisure -18% $377
Energy -18% $1207
Utilities -2% $404
Telecom 5% $487
Technology 7% $1535
Construction 7% $8
Retail 9% $1465
Grocery & Pharmacy 9% $1057
Health Care 14% $1428
Enterinment 15% $87
EUROPEAN UNION June ’19 Revenue (USD B)
Airlines -22% $123
Energy -21% $1266
Entertainment -17% $3
Travel & Leisure -12% $276
Utilities -4% $750
Construction -3% $320
Retail -2% $262
Grocery & Pharmacy -2% $648
Telecom 2% $452
Health Care 8% $407
Technology 8% $197
CHINA June ’19 Revenue (USD B)
Airlines -27% $3
Entertainment -23% $4
Travel & Leisure -11% $12
Telecom -1% $83
Energy 1% $4
Technology 1% $96
Utilities 4% $41
Construction 11% $71
Health Care 19% $3
Retail 31% $141
Grocery & Pharmacy 47% $13
Sources: Refinitiv DataStream; Oliver Wyman analysis.
Note: Includes the 26 members of the EU and the UK.
10 Reviving and Restructuring the Corporate Sector Post-Covidchains from further waves of the pandemic and additional balance sheets of firms in the real economy, with the poten-
lockdowns. Some industries may face sustained impacts due tial risk of spread to the balance sheets of banks.
to lasting changes in consumer behavior and to acceleration In the past decade, alternative private capital
of the pre-pandemic trends of growth in demand for online sources have become more abundant and diverse.
services, including shopping and education. Many long-term investors around the world, including
The propagation mechanisms, financial players, and pension and sovereign wealth funds, have built capacity
financial context are different from those seen in the and expertise for nontraditional investments through
2008 global financial crisis (Table 1). Following the 2008 private fund structures and directly. Between 2005–2007
crisis, the banking sector was recapitalized and subject to and 2017–2019, growth in private equity and private debt
more prudent regulation and supervision. Moreover, the globally outpaced global GDP growth of 51 percent (from
2008 crisis was primarily a financial crisis that directly hit US$58 trillion to US$88 trillion).5 Private equity fund-
the balance sheets of banks and eventually spread to the real raising in developed markets grew by 69 percent, from
economy through the contraction of credit supply. Most US$957 billion to US$1,614 billion; and in emerging
economies confronted the coronavirus crisis with a much markets by 635 percent, from US$52 billion to US$382
stronger and better capitalized banking sector, with better billion. During the same period, private debt in developed
risk management, and with flexible stress testing tools that markets grew by 176 percent, from US$129 billion to
allow for a more timely insight into banks’ risk exposure. US$357 billion; and in emerging markets by 973 percent,
Unlike in 2008, the Coronavirus crisis has directly hit the from US$1.6 billion to US$17 billion.6
TABLE 1. How the context and propagation of the current crisis differs
from that of 2008 (debt levels for Q1 2007 and Q1 2020)
2008 global financial crisis 2020 Covid-19 pandemic
Initial shock to the • Households • Businesses
balance sheet of: • Banks • “Non-bank” high-yield lenders (collateralized
loan obligations, mutual funds, and business
development companies)
Sources of capital: • Limited private capital • More transparent and better capitalized banking
sectors
• Official sector
• Abundant private capital (through fund structures
and direct investments by sovereign wealth funds,
pensions, and family offices)
• Official sector
Corporate leverage: • 73% of GDP globally for • Higher: 91% of GDP globally for nonfinancial sector
nonfinancial sector corporates corporatesa
Household leverage: • 57% of GDP globally • Slightly higher: 60% of GDP globally
Public sector debt:b • 58% of GDP globally • Higher: 88% of GDP globally
Note: a. Although due to the lower interest environment and compression of spreads in the credit market, corporate debt servicing has been less burden-
some. Carrying significant amounts of leverage, and especially senior secured leverage, exposes firms to a limited ability to access liquidity when dealing
with negative shocks. In addition, much of the debt can become binding through the covenants structure. b. Lower interest rates mean debt service costs
for many countries were still lower at the start of the current crisis than previously despite higher public debt burdens.
5 World Bank 2020.
6 Preqin. Since fundraising is not continuous, the value of closed funds is measured over a window of time rather than for one single year.
GROUP OF THIRT Y 11FIGURE 2: Levels of debt by sector from pre-global financial crisis to pre-Covid
Debt as a % of GDP by market
NONFINANCIAL CORPORATES HOUSEHOLDS
Q1 2007 Q4 2019 Q1 2007 Q4 2019
100% 100%
90%
80%
90% 80% 72%
91% 91%91%
79% 70%
80%
60%
57% 60%
50%
70% 73%
40%
62% 40%
60% 30%
20%
20%
50% 10%
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Global Developed Markets Emerging Markets Global Developed Markets Emerging Markets
GOVERNMENT FINANCIAL INSTITUTIONS
Q1 2007 Q4 2019 Q1 2007 Q4 2019
120% 140%
130%
110%
110% 120%
100%
110% 118%
90% 100% 108%
88% 90%
80%
71% 80% 84%
70% 81%
70%
58%
60% 60%
53%
50%
50% 35%
40%
36% 27%
40%
30%
20%
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Global Developed Markets Emerging Markets Global Developed Markets Emerging Markets
Source: IIF Global Debt Monitor Database, Oliver Wyman analysis
Levels of debt in the nonfinancial sector in many Overall levels of public debt going into the Covid-
developed markets are higher than in 2007, as cheap 19 crisis were higher than in 2008, and in some cases
and readily available funding encouraged borrowing. already exceeded 100% of GDP. However, interest pay-
Global nonfinancial sector corporate debt levels as a ments on the debt were generally lower than in 2007
percent of global GDP was 73 percent at the beginning of given low interest rates. Across the OECD, for example,
2007 compared with 91 percent at the beginning of 2020, general government net interest spending as a share of
and in emerging markets specifically, levels increased from GDP fell from 2.25 percent in 2007 to 2.04 percent in
62 percent to 91 percent of GDP between 2007 and 2020.7 2018. 8 Countries therefore had varying fiscal headroom
This higher leverage meant the corporate sector in many coming into the crisis, linked to their existing debt and
countries entered the coronavirus recession more vulnera- borrowing capacity going forward.
ble to financial stresses.
7 IIF 2020.
8 OECD.Stat. 2020.
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