Financial distress in the hospitality industry during the Covid-19 disaster

We implement the stress test methodology of the banking industry in conjunction with a Logit model of bankruptcy with parameters estimated with data from the Great Recession (2008?2013) to predict which firms would face financial distress among Spanish hospitality firms during 2020 due to the Covid-19 disaster. The predictions from both methods rely on the last accounting data available and on the expected revenue drop for 2020. Both methods coincide to predict that 25% of these firms will face a financial distress situation if revenues drop 60%. This forecast raises up to 32% of firms if revenues drop 80%. Financial distress will affect mainly small firms. Most of the firms in financial distress will face solvency problems, with total assets being insufficient to pay all debts.

Automated summary

The study utilizes historical data and a model to predict financial distress among Spanish hospitality firms in 2020, showing that 25% would face crisis if revenue drops by 60%, increasing to 32% with an 80% drop. Small firms are mainly affected, with most facing solvency issues.