 Tom Faust |
Bankruptcy filings and other restructurings are communications events that can be planned if the communications team is brought into the process in a timely fashion. To better grasp the difference, we can look at a number of elements that characterize such communications, whether the process involves reorganizing a company’s balance sheet outside of court or formally through a Chapter 11 filing. These factors are critical to understand in order to develop an effective, approach to managing the related communications process.
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Unlike a crisis situation where a distinct event occurs that can change communication priorities in an instant, the road to a restructuring is typically a long and winding one. It can take months from when a company is starting to have financial problems — declining sales, ballooning debt, missed quarterly revenue or earnings projections — and when it becomes apparent that the company does not have the capital necessary to fund operations and/or meet obligations to creditors. In addition, proposals between the different parties involved are often negotiated over for months before even the framework of a solution can be developed.
Every creditor payment deadline looms large and brings with it the possibility of the company’s management and lenders applying a long- or short-term fix for the company’s balance sheet. This can be a bridge loan or forbearance agreement that gives the company a lifeline of several weeks or several months.
If an interest payment is missed, the stakes will only get higher. That’s when the chance that news about the company’s struggles going public increases. For companies involved in restructuring their debt, this news generally comes through the form of changes in a company’s credit rating. Ratings agencies will announce it to their clients and sometimes issue press releases. That’s when the business media will start making inquiries and writing articles about the company in question.
For any organization involved in a financial restructuring, it is absolutely imperative to understand the flow of the process that takes place behind closed doors, as well as the triggers that cause it to become public.
One of the most defining characteristics of a financial restructuring process is the uncertainty surrounding it. In a classic crisis situation, quick and decisive communication is needed to offset the immediate damage to a company’s reputation. The way forward and the endgame in a corporate turnaround are far from certain.
When a restructuring process takes place there will be different defined paths of potential resolution. As different avenues for resolving financial issues are explored, each scenario is in constant flux and that, in turn, means there needs to be communications plans for any of a variety of outcomes that need to be in place to ensure the process is properly managed.
One day it may look as though a company’s current owner will invest additional capital to shore up its balance sheet. The next day the owner may have a change of heart and the business’ board of directors and management team may start preparing to file for bankruptcy because the owner and lenders couldn’t reach an agreement on terms
This can make the decision of when and what to communicate internally and externally a tough one, and the communications team cannot get married to one response. For example, if the situation appears to be on its way to a positive resolution, you don’t want to communicate too early when the outcome is not settled. However, if the rumor mill starts up, you may need to leverage the progress to assuage concerns.
In a crisis, there are usually clear lines drawn around who the “injured party” is and the company’s relative position. In a restructuring, the company may not be on any “side” of the discussion, but caught in-between numerous parties.
The complexities in arriving at a restructuring agreement though, can almost always be traced back to the multiple stakeholders involved. There are typically unsecured creditors, general unsecured creditors, secured creditors and equity security holders. On occasion, there may be other outside parties that may want to invest in a troubled company’s debt ahead of its filing.
These stakeholders have competing agendas throughout the process, and more than one could end up with greater control of the company once the process has been completed. For this reason, management will be sensitive about what is said and when.
In any case, the company’s communications team must remain focused on effective communications to the company’s key audiences: customers, suppliers and employees throughout the process. They are the only stakeholders of concern until there is a resolution as the financial incentives can undergo significant change, so that today’s ally can be tomorrow’s antagonist.
What also contrasts a restructuring from a crisis is that — believe it or not — it’s actually good news. In a true crisis, a negative event is central to the situation. A restructuring, however, is correctly seen as a needed and positive action to right the ship. With the right communications plan in place, the short-term damage to a company’s reputation can be minimized and the long-term reputation can even be enhanced.
In most restructurings, employees are well aware — on some level — that the company is challenged. When vendors start calling about missed payments, people start to observe a lack of inventory, or the flow of work noticeably slows, unspoken anxieties can begin to surface. What employees — and other audiences — most crave is clarity and resolution.
While bankruptcy and restructuring the company’s debt will be reduced, invoices will be paid and employees will get their paychecks. Having a well-thought-out plan in advance is critical to reaping the full benefit of communicating this first, important step to the company improving performance and resuming its path to success.
While the characteristics above are shared by all restructurings, we have found there is no single communications playbook to follow. The good news is that, unlike a crisis situation, there is ample time to plan around different potential outcomes. The greater challenge is deciding when and how to implement those plans, and often comes down to the experience and judgment of the communications professionals involved.
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Tom Faust is a Managing Director at Stanton Public Relations & Marketing.
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