Preserving Optionality and Value in Distress

What early signs of distress should companies be looking out for, and what actions can they take to preserve their available options and the company’s value?

In a recent panel discussion for Expert Webcast, “Preserving Optionality and Value in Distress,” Harold Israel joined co-panelists Hon. Melanie Cyganowski of Otterbourg, Jay Goffman of Smith Goffman, Cynthia Romano of FTI Consulting, and Boris Steffen of Province to discuss how companies can carefully navigate these distress scenarios.

The conversation touched on the various operational and financial restructuring options available in and out of court, capital availability, assessing business fundamentals, the role of transparent communication with lenders, and other key issues. Watch the full discussion here.

For the past 25 years, the economy has not experienced a prolonged recession. What explains this phenomenon?

• While macro data gives a picture of a strong economy, cracks are beginning to appear. This will impact different sectors in different ways.
• How to know when a company is in trouble, from financial indicators to other signs that could indicate distress, such as delayed payments, deferred investment in the business, and potential mismanagement of the business.
• Under what circumstances refinancing can be a valid option for a distressed company, and why timing is the most important factor.
• Using a medical analogy to understand the “health” of companies, one should consider whether the problem is like a temporary injury or more like a chronic illness, and choose the appropriate “treatment.”
• Why company owners or boards sometimes need to take a hard look at the business itself to get a clear picture of what’s working, what’s not, and what needs to change in order to get the business on more solid footing.
• Why companies should disclose distress to their lenders as early as possible, rather than concealing it until late in the game.
• How to correctly diagnose the problem in the business that has led to its current situation, whether it has to do with people, processes, systems, complexity, or another issue.
• The options for financial restructuring, including divesting problem liabilities, creating special-purpose entities, and other structures, and the risks they can create.
• Bankruptcy is expensive, it is important to consider out-of-court options such as assignments for the benefit of creditors (ABC), friendly foreclosures, consensual receivership, and other approaches.

For a review of fundamental bankruptcy and restructuring topics, read this overview of a panel discussion that featured this group of experts in July.

Facing questions around a distressed business? Reach out to Harold Israel or another member of LP’s Financial Services & Restructuring Group.