| Five Key Steps to Success | | | | - Identify and focus on core competencies and |
| Not all restructuring efforts are created equal. When | | | | operations and develop a plan to dispose of the |
| a financially troubled company recognizes that | | | | non-core or unprofitable business units; |
| dramatic change is required to ensure survival, a clear | | | | |
| focus on these five elements will lead to a successful | | | | - Develop an ideal restructuring blueprint that assesses |
| restructuring effort. | | | | the company’s debt capacity under worst case |
| By the time a company finds itself in trouble, several | | | | operating conditions, which establishes new, sustainable |
| avoidable missteps have occurred that effectively | | | | credit parameters that ensure future operating viability. |
| paralyze the company and jeopardize its survival. | | | | |
| Fortunately, many of these effects turn out to be | | | | Once progress has been made on these five key |
| reversible; provided, of course, that a solid restructuring | | | | steps, it’s time to focus on implementation. Again, |
| plan is developed and employed in a decisive | | | | communication plays the key role when attempting to |
| manner. | | | | persuade stakeholders on the wisdom and viability of |
| A case in point is the typical high growth company that | | | | the restructuring plan. Management and its financial |
| rapidly expands based on success in its core | | | | advisor need to convey their vision to constituents and |
| competency. Many of these businesses seek | | | | provide a plausible pathway for recovery and future |
| growth through acquisition, both horizontally and | | | | growth. Often, though, implementing the plan involves |
| vertically, and in doing so begin to tread on unfamiliar | | | | more than simply creating and communicating it. The |
| ground—growing too large, too fast until a change in | | | | plan’s viability is usually dependent upon an infusion |
| the economic cycle or industry reduces volume, sales | | | | of fresh capital. A bridge loan or debtor-in-possession |
| wane, and margins decline resulting in operating losses | | | | (DIP) financing (in the case of a Chapter 11) is often |
| and negative cash flow. Soon, thereafter, cash | | | | required to successfully move from concept to |
| resources dissipate, suppliers get stretched, bank | | | | reality. In this case, it is critical to identify collateral |
| covenants are violated and the company moves | | | | early and be able demonstrate how other creditors will |
| dangerously close to defaulting on its loans. | | | | benefit from the new priority borrowing. |
| 1. It is critical at that point for the financial advisor to | | | | As the company stabilizes, exits non-core operations, |
| communicate with management and the Board that | | | | re-establishes and grows its core business, exchanges |
| drastic, immediate action is required to ensure the | | | | debt for equity under a plan--ultimately returning to |
| company's existence. What the company needs | | | | solvency and creating new value--it is important to |
| most is a crisis management plan that addresses five | | | | draw on the skills of a talented financial restructuring |
| key steps that, if properly implemented, will provide the | | | | advisor who possesses a combination of experience |
| best opportunity for a successful turnaround. | | | | and restructuring knowledge, which will prove critical to |
| | | | | the success of the process. After the restructuring is |
| - Immediately develop a realistic cash budget that is | | | | complete, the Board may find it advantageous to hire |
| updated on a timely basis and that accurately | | | | new management to take the reins and guide the |
| forecasts the company’s cash position and needs | | | | redesigned company forward according to its new |
| at all times; | | | | business plan. |
| | | | | In the final analysis, the value of a restructuring advisor |
| - Communicate, Communicate, Communicate – | | | | is measured from the perspective of the various |
| Open a dialog with all of the company’s | | | | stakeholders--customers, employees, creditors and |
| constituencies and stakeholders to instill confidence in | | | | shareholders—many of whom will directly benefit |
| the restructuring effort; | | | | from a revitalized company that is economically sound |
| | | | | and operationally viable, which will be most attainable |
| - Identify operating expenses that can be eliminated | | | | by focusing on the five key steps to success identified |
| and/or materially reduced; | | | | above. |
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