The Nature of Restructuring

Restructuring business is all about timing, information flow, and negotiation, according to panelists at the Turnaround and Restructuring Conference January 18 at the Chicago Cultural Center. The Turnaround & Restructuring Group sponsored the conference. The panel was moderated by Kevin Haggard, vice president, Miller Buckfire.

Much depends on how long an ailing company can survive. Restructuring focuses on “what the end game is for the company,” said Ted Stenger, managing director, AlixPartners.

Those in charge of restructuring must be clear about delegating responsibility.

“One of the worst things you can do is not be very specific about who the management team is and who’s going to do what,” Stenger said.

Another initial issue, said Durc Savini, ’97, managing director, Miller Buckfire, is whether or not a “stable business plan” exists. It is preferable to restructure without having to go through the Chapter 11 process, he said.

Samuel Star, senior managing director, FTI Consulting, said, “The fun part of the job for me is negotiating face-to-face rather than going to a court and letting a judge decide.”

If it does look like the company is headed for court, said Daniel Nicolaievsky, director, UBS, “it is very important to make sure the company has the right liquidity” to go through the Chapter 11 process.

“Valuation is a function of time,” Nicolaievsky said. A host of creditors with varying motivations can be involved, panelists said, including more frequently nowadays, distressed debt buyers investing for a return.

“Every creditor has his own agenda,” Nicolaievsky said. “They want maximum recovery. They try to push for a high valuation” but a quick valuation may not offer the best position in the long run.

And a quick bankruptcy isn’t always the right thing for the company, either, Savini said.

Stenger said there is an art to finding the best time to name an equity committee. Sometimes it is better to wait, despite pressure to appoint one right away, he said.

A first step is to “establish an information flow right up front,” Star said, “and try to narrow the level of distrust” among the parties.

While investors may be concerned about returns, unions may be concerned about company survival. “At the beginning, it can be a lot of horse trading,” Star said. “You really have to pick your battles.”

A first step is to “agree on the facts,” he said. “Everything’s negotiation.”

Part-time student Frank Sorensen said he had gotten a better sense of how the market has changed. In the world of capital structure, you have “a progressively moving target.”

“Depending on which traunch you own (within the structure) the court has major play in how you wind up,” Sorensen said.

He said he also was interested in the impact of hedge funds on distressed credits and “the timing of their returns and how they’re not necessarily suited towards the best interest of normal creditors.” Conflict may arise among the different parties, even though “at the end of the day they really want the same thing, but have different timelines,” he said.

- Mary Sue Penn