nization plan before the bankruptcy and then you file. You’re
in and out of bankruptcy in 30 to 90 days. Accompanying the
rise of pre-packs and pre-negotiated plans in the U.S. is the
Restructuring Support Agreement — the RSA, which supports
a speedy resolution in bankruptcy court. But in the haste to
get things done through an RSA, sometimes companies retain
more debt than they should and that can have a deleterious
effect down the line. In addition, it’s important to note that
RSAs are largely capital markets fixes and generally do not
address fundamental business issues that precipitated the
company’s distress in the first place.
So the U.S. models are not always ideal, in other words?
Right. There’s still a need for traditional advisory and
interim management roles in bankruptcy as well as formal
insolvency appointments to advise the debtors and their
stakeholders and help ameliorate operational deficiencies to
put the company on the path towards emergence. More time
is needed in bankruptcy and insolvency proceedings if you
really want to rehabilitate a company and give it a fighting
chance to be competitive and effectuate needed operational
changes. The recidivism problem of Chapter 11 reorganizations also needs to be acknowledged, with academic studies
showing that approximately 20% to 30% of companies that
emerge from Chapter 11 need to file again within a few years.
What’s your vision for the restructuring profession over
the medium term? Do you think it will contract?
We see an increasing number of competitive firms fighting
for the same deals in the U.S., particularly when it comes
to standard financial advisory services to companies and
creditors. The uptick in restructurings since 2014 has given
rise to new advisory firms, mostly small shops. Despite the
increased competition, there is still room for growth. That’s
true in Australia as well. For example, there’s need in specialized services such as interim management as well as in industries I mentioned earlier. Certainly, based on the F TI vantage
point and what we hear in the market, there are a limited set
of professionals that can serve the large, public company with
a global presence where you need a chief restructuring officer
a CEO or a CFO and other interim support.
Finally, any advice for young professionals in the industry?
Build your knowledge in a particular area or industry so
that you can be sought for your domain expertise. But you
also want to be able to pivot — be an industry specialist who
can move from restructuring to non-restructuring depending
on market cycles. I always tell people to think of the Greek
letter pi: It’s wide on top with two stems that go down. You
need to be wide enough with the ability to do a lot of things
well, with an area or two of depth, or expertise. abfj
This Q&A originally appeared in the FTI Journal and is reprinted
with permission from F TI Consulting.
tax, the tax revenue from which is needed to offset much of
the tax revenue lost from proposed lower corporate tax rates.
How do you think these proposed policies will play out?
It’s unclear at the moment. Despite widespread support
for tax reform generally within the U.S. corporate sector,
these disparate outcomes by industry have caused the issue
to become highly politicized. Retailers in particular have
been lobbying hard against the border adjustment tax, and
President Trump has yet to indicate exactly where he stands
on it. But without it, corporate tax reform could be imperiled unless Congress is willing to tolerate meaningfully larger
budget deficits, which is unlikely.
Given the wide range of industries, do you see a greater
need for specialization these days?
Very much so. I would say that the more complex
industries are the ones where we see the greatest need for
specialization. Telecom in the early 2000s was one of the first
where specialization was critical, and I believe healthcare is
another. Those industries speak their own language, and it’s
very difficult to do restructuring if you don’t understand the
technology and the complexity of issues. Energy is another —
we had nearly 70 restructuring assignments last year globally.
I don’t think anybody else came close. We also believe you
need to be an expert in agriculture, mining, retail, real estate
and chemicals as well to win those assignments.
While formal insolvency appointments remain a
cornerstone in Australia, the country is gradually
adopting options common to the U.S. What can you tell
us about the U.S. system?
Chapter 11 is generally viewed as a debtor-sympathetic
system that favors the rehabilitation of the debtor in contrast
to many other insolvency regimes around the world where
creditors’ rights and remedies are paramount. The automatic
stay feature of Chapter 11 is often cited as primary evidence
of such a view. Consequently, Chapter 11 is rightly seen as
encouraging reorganization when it’s feasible, with reliable
statistics on larger Chapter 11 filings since 1981 indicating
that approximately 71% of these cases resulted in a reorganization outcome (62%) or the acquisition of the debtor (9%)
while only 29% resulted in the liquidation of the debtor. 1
That’s a fairly impressive track record.
In recent years we are seeing a shift from bank lending
to non-traditional financing sources in the U.S. with hedge
funds and Collateralized Loan Obligations (CLO) among
those leading groups. Because of that, we are seeing more
out-of-court exchange offers from distressed companies. S&P
data tells us that nearly one-third of its debt default events
in each of the last two years were the result of a distressed
Another trend is the prevalence of prepackaged bankruptcy
filings, or pre-packs, where you negotiate and vote on a reorga-
1 Altman, Edward (2014). The Role of Distressed Debt Markets, Hedge Funds and Recent
Trends in Bankruptcy on the Outcomes of Chapter 11 Reorganizations, p. 26-27