Over the past several years I have seen an increasing number of large cross-border restructurings involving complicated global supply chains. With the latest disruption around the impact of tariffs I expect this to continue. There are many key attributes to a successful cross-border restructuring. Over the years I've come to recognize that the most important attributes start with the letter C.
Welcome to the Five Cs. Some are commonly known, while the value of others may not be as widely recognized. Increasing the impact of each can extend the runway to negotiate a restructuring transaction and provide the highest level of value for all stakeholders.
- Cash
- Communication
- Calm
- Credibility
- Consistency
Cash:
No surprise here. I grew up as one of 11 children in a family where the sole breadwinner was a lifelong public servant. Practicing frugality is something my parents trained me to do from an early age. Insufficient cash has been a key challenge in nearly every restructuring situation where I've been involved.
Managing cash effectively in a cross-border restructuring requires creativity and a deep understanding of the art of the possible. Some countries have restrictive requirements regarding international cash transfers, limiting a company's ability to ensure that cash is efficiently spread across locations.
Developing an early and reliable view of which entities are generating cash – and which are not – is important. Restructuring a U.S.-based media company, I worked closely with the tax, legal and accounting teams to develop a detailed plan to release cash trapped in foreign entities. This added critical time to continue negotiations with creditors on a viable path forward.
Communication:
People tend to think selfishly in a crisis rather than as members of a broader group of stakeholders, and this is exacerbated in a global restructuring. Different regulatory and business cultures can create misunderstandings and unrealistic expectations.
I recall one management team that decided to severely restrict the information shared with the foreign lenders. Accustomed to receiving more information in distressed situations, the lenders incorrectly assumed the company was not in dire straits. They were badly wrong, and the reality left them shocked and upset.
Increasing communication with all stakeholders – including management, employees, customers, suppliers and lenders – allows them to understand the situation and the impact they face. Not all information will be provided to every party but there are commonsense rules to follow that will improve trust.
Calm:
Distressed companies undergoing a restructuring are often chaotic environments and stress levels are high. Management is often asked to operate in unaccustomed ways in an environment where it is losing control.
Being able to remain calm while looking for practical solutions brings a sense of confidence in securing a successful outcome. The CFO and treasurer of one client described in an animated fashion at our first meeting the challenges they faced. They told me that they didn't have enough liquidity to make payroll the following week.
We spent several hours calmly working through various options and developed an urgent plan to improve liquidity over the next several days. By the end of the meeting, we all felt a sense of purpose and the fear of failure had dissipated. Within 48 hours the company had more than enough liquidity to cover payroll.
Credibility:
Reliable information and projections are typically in short supply in distressed situations. Stakeholders have lost trust in the existing management team's ability to hit their forecasts.
I was involved in a merger of two global telecom companies, and a key executive at one was disqualified because of perceived involvement in a regulatory investigation. AlixPartners was asked to fill the role on an interim basis. We developed financial projections and initiated processes to provide the board and lenders with regular updates on the company's ability to meet projected performance levels.
Rebuilding trust is essential to establishing an environment where all parties can move forward. Be truthful about the challenges and set achievable targets. Avoid the temptation to be too conservative and push hard to hit the forecast. Stakeholders will be more open to discussing a path forward when they have confidence about where the company is heading.
Consistency:
Restructuring situations often have significant swings in fortune from hour-to-hour and day-to-day. Those living through the ups and downs of the daily "fire drills" face the temptation to say too much – or too little. It's better to maintain a steady and consistent reporting cadence that allows stakeholders to remain engaged without feeling the full impact of the daily swings.
I was involved in a restructuring of a global shipping company. Its European lenders were concerned they hadn't received a consistent message about the company's situation. We instituted regular reporting and set expectations regarding the type of information and its timing, as well as the projected performance. We delivered the reporting and were able to show the company's ability to meet its targeted levels. The company was able to engage with lenders on agreeing to amend and extend the existing debt.
I try to make sure I remember these Five Cs as I guide clients through the restructuring process. Give them a try and see if they help you as well.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
