Dive Brief:

• Federal stimulus measures will provide some liquidity help for healthy retailers reeling from the COVID-19 pandemic but not for highly leveraged and distressed retailers, according to a Monday report from Moody's emailed to Retail Dive.
• That leaves private equity to "determine the fate of many distressed retailers," analysts said in the report.
• Retailers generally will be looking to cut costs as closures and other disruptions wrought by the COVID-19 pandemic eat into profits. As the Moody's analysts note, retailers are already making moves to free up cash, including suspending shareholder dividends, shaving rent payments, furloughing employees and cutting management pay.

Dive Insight:

The stimulus packages passed by the federal government to backstop an economy in free fall could provide some relief for the retail world, which has gone through an unprecedented disruption. 

Moody's analysts point out that tax changes in the CARES act could benefit large retailers, which gives them leeway to account for net operating losses, extends capital spending expensing and offers less restrictive rules on interest deductions. Meanwhile, a massive lending program through the Federal Reserve could provide relief as well for companies up to a certain size. 

Politico reported late last month that the Federal Reserve's program might not reach some major retailers under duress, such Gap Inc. and Macy's, because their credit ratings were too low to qualify — and they have gotten lower from downgrades amid the market turmoil sparked by the virus.

Earlier in April, National Retail Federation CEO Matthew Shay praised the U.S. Treasury and the Fed's measures to provide liquidity to small and mid-sized retailers, but asked for more help for big businesses. In a letter to Congress, the NRF asked for an expansion of tax credit and deferral programs to include larger businesses, and for smaller retailers with multiple locations to be included in the Paycheck Protection Program (PPP), among several other requests. 

As for distressed retailers, without much government cash available, many of them will feel further liquidity and financial strains. Many of those retailers were already constricted and at risk under the leverage from private equity buyouts.

Without bailout funds, private equity owners "will have to decide whether or not to inject capital into their retail portfolio companies in the form of additional equity or debt like instruments," Moody's analysts said. Those retailers could also amend credit agreements, buy back discounted debt or pay-in-kind interest (such as by paying interest with equity or new securities instead of cash).

Many observers think the most fragile and weak players — those with heavy debt loads, flagging market share, weak e-commerce operations and so forth — will simply shutter because of the pandemic and existing shifts in retail accelerated by the pandemic. Coresight Research estimates that bankruptcies and liquidations will increase this year, and 15,000 stores could permanently close — a sharp acceleration from 2019's record 9,500-plus closures.

One private equity-owned retailer, Neiman Marcus — long burdened by debt — has missed an interest payment on its bonds and is reportedly prepping for bankruptcy. Many more could follow.