Navigating the CARES Act
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The document outlines critical considerations for businesses facing financial distress due to COVID-19 and the CARES Act, emphasizing the importance of proactive planning, liquidity management, and government support. It highlights the potential scrutiny and requirements set forth by the government for companies accepting aid, advising them to establish accountability and transparency in their use of taxpayer funds. Additionally, it details the role of FTI Consulting in providing expert guidance on managing the complexities of government aid and maintaining business integrity during this crisis.
Navigating the CARES Act
- 1. April 2020 Stabilizing Businesses in Crisis and Navigating the CARES Act April 2020
- 2. .13 Critical Considerations for Companies to Address Today 22 Assessing liquidity issues, determining financing needs and reviewing opportunities to reduce costs Evaluating business plan under various contingency planning scenarios Identifying and assessing opportunities for U.S. government support, including benefits and pitfalls of accepting government support Implementing best-in-class operational, governance and communications practices to protect against government investigations, litigation, and reputational damage FTI Consulting is a global business advisory firm that is uniquely positioned to provide holistic expert advice to businesses that are facing financial distress due to the impact of COVID-19 and companies seeking government support through the CARES Act.
- 3. .13 Managing Uncertainty Proactively Most companies (like most individuals) underestimate the severity and duration of problems. Hence, the origin of the expression for having done “too little, too late”. To help companies avoid doing “too little, too late”, we have developed a framework to identify, anticipate and mitigate inevitable issues that companies are facing. Companies that face operational disruptions need to focus on the following actions: — Prepare immediately for the unpredictable timing of an eventual rebound in the global economy and customer demand ○ Revise cash flow forecasts and reduce costs to eliminate discretionary and non-essential spending ○ Test business plan under various contingency scenarios ○ Communicate to your employees and external stakeholders with transparency and consistency — Plan for supply chain and operation resilience for unexpected events that can impede growth and place down-side pressure on the business ○ Create the processes and procedures needed to support your financial systems and people ○ Insulate your supply chains and operations from disruption 3
- 4. .13 Contingency Plans Should be Fueled by Liquidity and Tested by Scenario Analyses Buying time to last through the downturn, however long it lasts, and preparing for an eventual rebound are the predicates for building longer term operational resilience. 4 TIMING: NOW NEAR TERM SOON AS FEASIBLE Revise Cash Flow Forecasts Reduce Costs Test Business Plan / Contingency Scenarios OBJECTIVES ▪ Revisit cash inflows and outflows ▪ Maximize liquidity through working capital management ▪ Stabilize situation ▪ Assess cost structure – fixed vs. variable costs ▪ Manage/control spending ▪ Identify core businesses/assets ▪ Determine achievability of business plan under a variety of likely and “could never happen” scenarios ▪ Drill-down on business unit profitability TOOLS ▪ 13 week cash flow ▪ Weekly “dashboards” ▪ Payable aging ▪ Receivable analysis ▪ Vendor negotiations ▪ Vendor terms over time ▪ Vendor/contract rationalization ▪ Overhead/cost analysis ▪ Capital/liquidity allocation ▪ Accounts receivable weakness ▪ Profit cube – product and sales contribution ▪ Reassess revenue drivers ▪ SWOT Analysis – Competitor benchmarking ▪ Scenario planning and sensitivity analysis
- 5. .13 Consideration: The CARES Act and Government Aid 5 ■ On March 27, President Trump signed the CARES Act into law, the largest economic rescue package in American history. The package includes over $2 trillion in government funding – in the form of direct payments, loans, loan guarantees and grants – for individuals, small and large businesses, health care providers, and others. ■ In the coming months, the U.S. government will begin distributing trillions of dollars in economic relief to bolster individuals, state and local governments, and large and small businesses under duress. ■ Businesses feeling the strain of the economic contraction will need to determine if they qualify for government relief, how to apply for assistance, and what the ramifications of that decision will be. ■ The process will be messy and political, and there will be confusion, especially as the program starts to rollout. ■ Companies accepting government aid should expect to receive heightened political and public scrutiny. ■ Similar to the assistance given to the private sector during the economic downturn in 2008-2009, accepting funds will be tethered to government-imposed restrictions on certain business activities, including layoffs and furloughs, stock buybacks, dividend payments and executive compensation limits. Companies accepting government funds should expect heightened public scrutiny from voters, elected officials, investors, employees, and customers in the coming months as the relative success of the government relief programs are assessed. Congressional investigations and hearings could include subpoenas of e-mails and other sensitive business documents that would be made public. ■ Companies should prepare for these communications challenges as they work with the government to manage their business through this crisis and educate critical stakeholders on their recovery strategy. Companies seeking government relief will need to put internal systems in place to demonstrate accountability and develop communications strategies to mitigate reputational risk.
- 6. .13 “What did we do with government funds?” 6 This is the question to ask yourself today. Your answer will be critical in avoiding the ramifications of the investigations and oversight that will come later. Proactively demonstrate accountability and transparency in how they are using taxpayer funds. Have systems in place designed to address government and media scrutiny. Proactively tell their story of how the aid helped American workers and boosted the U.S. economy.
- 7. .13 FTI Can Put in Place Proper Controls to Demonstrate Accountability 7 We can help demonstrate your company’s accountability to both the government and the public. We have forensic accounting experts who can advise on control design, implementation, monitoring, and evaluation of the funds and how they were leveraged. Control Design • Understanding the specific terms, conditions, requirements and restrictions imposed by grants received • Identifying, documenting and addressing our clients’ existing internal control risks and exposure • Identifying our client’s resource needs (e.g. human resource needs and IT systems) • Aligning controls with identified risks and exposure in order to strengthen and/or design an adequately effective systems of controls Control Implementation • Developing robust, specific and detailed action plans for a phased implementation of controls • Developing specific internal-control related policies and procedures, and assigning responsibilities to available resource • Establishing effective reporting mechanisms • Establishing effective safeguards to ensure that funds received are protected and segregated for their designated use only • Establishing an effective tracking system to ensure that funds are spent in accordance with governing grant documentation Control Monitoring and Evaluation • Periodic testing of effectiveness of controls and identification of control deficiencies • Periodic reporting of observations and findings to management • Remediation of control deficiencies identified
- 8. .13 FTI Can Help you Tell Your Story When Applying for Aid … 8 To help companies tell their story and avoid costly missteps, our public affairs experts can help companies anticipate the tough questions that will be asked and fashion proactive responses. It is essential that the company tell their own story, and not let it be told by detractors. Political Audit and Early Positioning • Audit a company’s public profile to identify possible political risks • Make strategic recommendations to help position the client as an attractive candidate for government aid Navigate Government Actors • Make business decisions that are informed by real- time monitoring, intelligence, and analysis of legislative and regulatory developments related to COVID-19 • Identify and assess relief options, along with contingencies and requirements • Leverage deep and longstanding relationship with key Congressional Committees and Members of Congress • Communicate to key government officials how the company is a responsible steward of the taxpayer’s dollars
- 9. .13 ...and After Government Funds are Put to Work 9 Tell the Company’s Story • Create a “factbook” that represents a wholistic narrative of company’s values, commitment to transparency and accountability, and value to society • Develop white papers and issue briefs to support core arguments and messaging • Leverage digital communication to tell the company’s story to key audiences, particularly support for employees • Continually identify examples of how the government aid is being leveraged to benefit the US economy and the American worker • Mobilize third parties to validate the company’s narrative • Engage key reporters with desk side briefings so that they understand the beneficial use of taxpayer-funded support Communicate with Investors • Recognize and articulate the challenges at hand • Detail the company’s plans to confront today’s challenges, including seeking government aid as appropriate • Help the company’s key stakeholders make informed investment decisions • Tailor a thoughtful value proposition in a rapidly changing environment • Consider proactive engagement and/or tailored events such as market update conference calls hosted by credible sell-side analysts Engage your Workforce • Recognize and articulate the challenges at hand • Communicate the company’s stabilization plan, including seeking government aid as appropriate • Develop core and tailored messages around the Company’s go-forward plan • Tailor a thoughtful value proposition in a rapidly changing environment • Consider proactive engagement and/or tailored events such as market update conference calls hosted by credible sell-side analysts
- 10. .13 Remember, Government Aid Comes with Strings Attached Many sectors, such as … … will come under heightened scrutiny, and some are already 10 Companies who accept aid from the U.S. government are opening themselves up to scrutiny by various government actors, including the Special Inspector General, the Pandemic Response Accountability Committee, the U.S. Congress, as well as media and NGOs, for their use of taxpayer funds. In fact, questions are already being raised about corporate business practices, such as CEO pay, stock buybacks, and other financial governance decisions. Airlines Fossil Fuels Healthcare Financial Services Retail Manufacturing Technology
- 11. .13 New Oversight Bodies Will Monitor Use of Funds 11 Since Congress passed the CARES Act, four new oversight bodies have been created to oversee the enormous program. ■ The Special Inspector General for Pandemic Recovery (SIGPR) SIGPR within the Department of Treasury has been authorized for 5 years, has a $25 million budget, and subpoena authority. ■ The Congressional Oversight Commission New Congressionally appointed body authorized by CARES dedicated to overseeing the implementation of the $500 billion in relief funds. The Commission will hold hearings and produce reports every 30 days regarding the effectiveness of loans, loan guarantees, and investments made through Treasury’s Exchange Stabilization Fund. The Commission, which terminates on September 30, 2025, will be comprised of a member from each party in the House and Senate, with a chairperson appointed by the Speaker of the House and Majority Leader of the Senate after consultation with other leaders. ■ The Pandemic Response Accountability Committee (PRAC) Wide purview to develop a strategic plan for comprehensive oversight across federal agencies. PRAC will have an $80 million budget and a mandate to conduct audits reviews to identify waste, fraud and abuse, and will report regularly to the public. ■ Special Committee on COVID Speaker of the House Nancy Pelosi just announced the creation of a new Committee, led by Majority Whip Jim Clyburn (D-SC), that will oversee "all aspects" of the federal response to the pandemic, including the $2 trillion stimulus bill. She specifically cited the Truman Committee, formed in 1941 to address inefficiencies and profiteering during World War II, as a guide.
- 12. .13 The Past as Prologue: TARP Oversight 12 Similar oversight mechanisms were established in association with the 2008 financial crisis and Troubled Asset Relief Program (TARP), and a review of TARP oversight is instructive for those considering applying to receive funds under CARES Act programs. Scrutiny of TARP fund recipients came in the following forms: Government Reports There were more than 70 reports issued by government entities including the TARP Congressional Oversight Panel, Special Inspector General for TARP, Government Accountability Office, Financial Stability Oversight Board, and Congressional Budget Offices. Hearings The TARP Congressional Oversight Panel held 27 hearings from December 2008 to March 2011, in addition to the hearings conducted by standing Congressional committees, including House Financial Services, House Oversight and Government Reform, Senate Banking, Senate Finance, Senate Appropriations, Senate Homeland Security and Governmental Affairs, and the bicameral Joint Economic Committee. Investigations Government investigations led to criminal convictions or civil fines for 380 defendants in TARP-related cases. These include investigations by the Special Inspector General for TARP, Justice Department, Securities and Exchange Commission, state attorneys general and other regulators.
- 13. .13 The Past is Prologue: Reputational Impact 13 Media Scrutiny The media closely monitored and reported on the spending of TARP money. Investigative journalism nonprofit ProPublica established “Eye on the Bailout,” and media organizations such as the Huffington Post, New York Times, and The Wall Street Journal all launched dedicated webpages to track TARP spending. Media outlets also criticized perceived corporate largesse of TARP recipients, even if such spending was unrelated to funds received. This included spending to entertain corporate clients at sporting events, conferences at premiere locations, and high-profile event sponsorships. Public Criticism Public criticism of TARP came from nonprofit organizations such as the Center for Economic and Policy Research, Citizens Against Government Waste, Americans for Tax Reform, and the American Enterprise Institute, as well as high profile individuals such as Harvard Law professor Elizabeth Warren. In fact, Warren rose to prominence as a TARP critic and was appointed by then Senate Majority Leader Harry Reid as the Chair of the Congressional Oversight Panel of TARP.
- 14. .13 FTI Consulting: Experts with Impact Aerospace & Defense Hospitality & Gaming Agriculture Insurance Automotive Mining & Mining Services Construction Public Sector Chemicals Real Estate Energy, Power & Products Retail & Consumer Products Environmental Technology, Media, and Telecommunications Financial Institutions Transportation Healthcare & Life Sciences Manufacturing FTI Consulting is an independent global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes. Due to our unique mix of EXPERTISE, CULTURE, BREADTH OF SERVICES and INDUSTRY EXPERIENCE, we have a tangible impact on our clients’ most complex opportunities and challenges. Industry Experience A Culture That Delivers § Practical in our communication and approach to outcomes § Judicious in complex, multi-party situations § Collaborative with clients and colleagues § Professional in our commitment to work with the highest caliber 5,550+ Employees 550+ SMDs $4.1B Market Cap.(1) 82 Cities 27 Countries Advisor to 96 of the world’s top 100 law firms 53 of Fortune Global 100 corporations are clients Advisor to 8 of the world’s top 10 bank holding companies (1) Number of total share outstanding as of February 17, 2020, times the closing share price of February 25, 2020 America’s Best Management Consulting Firms Forbes (2016 - 2019) Global Turnaround Consulting Firm of the Year M&A Atlas Awards (2018 - 2019) Top Intellectual Property Litigation Consulting Services Provider ALM Media Properties (2016 – 2019) Corporate Counsel: Top Service Provider in the Legal Industry ALM Media Properties (2016 – 2019) Global Strategy Consulting Firm of the Year M&A Atlas Awards (2019) #1 Crisis Management Firm The Deal (2017 – 2018) 14
- 15. Comprehensive Services FTI Consulting is unmatched in the breadth of expertise we bring to bear on our clients’ behalf. 15 Financial We partner and advise with management teams, boards of directors, creditors, investors and lenders across the valuation creation life cycle to manage cash flow, liquidity forecasts, accounting and financial reporting, activist shareholders and financial communication needs. Our teams take an industry first approach, bringing veteran practitioners and former industry executives to bear on the most complex commercial challenges and opportunities facing companies today. Operational We help clients across the corporate life cycle overcome operational impediments and navigate the complexities of doing business in disrupted industries. Working with executive management, boards of directors and investors, we provide the objectivity, data-driven analytics and hands-on solutions and develop and implement plans of action that deliver sustained results. Reputational We help clients use their communications assets to protect, enhance and develop their business interests with key constituencies. Our experienced professionals can help clients manage crises, navigate market disruptions, articulate their brand, stake a competitive position and preserve their permission to operate. Legal We provide independent dispute advisory, expert testimony, international arbitration, investigative, data governance, e-discovery and forensic accounting services to the global business and legal community. Our experience in high stakes litigation and complex financial investigations enables us to get to an appropriately scaled response quickly. Political & Regulatory FTI Consulting and its subsidiary, Compass Lexecon, work with clients to ensure that relevant regulations are economically sound, assess whether regulatory and compliance obligations are being met, perform public policy studies, implement robust systems and controls, protect their businesses from risks associated with political change and provide confidence to all key stakeholders that their business is well- controlled. Our clients span from individual companies to trade associations to governmental agencies in many jurisdictions around the globe. Transactional Our definitive expertise across the deal life cycle and diverse industries enables us to maximize outcomes for our clients in acquisitions, IPOs, divestitures, integrations, carve-outs and capital markets activities. We advise corporate and financial clients and their advisors and regulators to structure, conduct due diligence, integrate, value and communicate all the while responding to a broad range of commercial demands. In addition, Compass Lexecon, an FTI Consulting subsidiary, works with private parties and government agencies to evaluate the likely effects of proposed mergers and acquisitions on prices, costs and competition.
- 16. Experts with Impact™ For additional information, please contact: Jackson Dunn, Washington, D.C. jackson.dunn@fticonsulting.com Myron Marlin, Washington, D.C. myron.marlin@fticonsulting.com Kristina Moore, Washington, D.C. kristina.moore@fticonsulting.com