Frank P. Turner, Turnaround Expert: 2022 Trends and the Covid-19 Pandemic
Frank P. Turner is a turnaround expert with more than three decades of experience in commercial and investment banking. He is the managing partner at Interpeak Consulting, a New Jersey-based firm that provides turnaround services to small and medium-sized companies. In this interview, Frank shares his insights on the 2022 trends in his industry and how he believes the Covid-19 pandemic has made companies rethink their businesses.
Turner loves using anecdotes to explain his points. In a recent Zoom interview I had with him, he talked about Las Vegas’s buffet businesses to illustrate his point that many companies in 2022 will face a solvency crisis, not just a liquidity one.
Before the Covid-19 pandemic, he noted, there were about 30 buffet-style restaurants in Las Vegas. That number has now dropped to five.
“What a lot of these casinos and hotels realize is that those things always lose money,” he said, explaining that the pandemic made the casinos rethink their priorities.
“You have a pandemic that forced everyone to close. And then you get to reevaluate your business and then make real assessments of what’s needed and what’s not. So, in some ways, the pandemic created some opportunities that were pretty unique for businesses to rethink their business,” he added.
Over the past two years, many businesses borrowed heavily to stay afloat during the lockdowns. This has led to an increase in corporate debt levels, even with the PPP loan forgiveness, which could cause a solvency crisis down the road, Turner said.
“The liquidity will eventually dry up, the money that was available gets finally used; there’s going to be a question whether the business is really viable and therefore solvent,” he said.
Turner expects that in 2022 access to capital will continue for companies that managed to raise money during the pandemic even though the debt levels are high and interest rates are low.
“It may be more expensive, just because base rates will be higher,” he said, adding that the prevalent view among investors is that risk is not adequately priced in the market. Turner believes this risk/return tradeoff will seek a balance.
In respect to investors seeking higher returns, Turner cautioned on the various structured vehicles created to synthetically create yield. “People who are investing in these structures aren’t necessarily getting compensated for the risk they believe they are taking. But we’ve kind of seen this before, where you start yield chasing,, and depending on the structure of the fund, the yield never develops.” he said.
“I think, if anything, maybe 2022 could be a year, where maybe the profile between risk and return starts heading back to a more traditional normal state. It’s not going to happen overnight. It will happen over many quarters, but maybe the high watermark will have been reached sometime in 2022. And then people will start evaluating their investments and whether they’re getting compensated appropriately,” he added.
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By Lou Sokolovskiy, Founder & CEO at Opus Connect