Case Studies  >  Prepackaged Bankruptcy

Guiding A Multi-Billion Dollar Company Through Bankruptcy

Proactive Outreach Keeps Audiences Informed, Helps Ensure Smooth Emergence from Prepackaged Reorganization Plan in Less Than 60 Days

A multi-billion-dollar global holding company headquartered on the East Coast faced a daunting task: File a prepackaged bankruptcy plan and emerge from the process with minimal impairment to the holding company and its subsidiaries.

Background and Situation Analysis

Severely impacted by a global recession, this company, which was heavily leveraged, would soon be unable to service a portion of the interest on debt held by a variety of bondholders. After carefully evaluating its options, the board decided to file a prepackaged plan of reorganization…a move that would require the Company to reach out to four classes of bondholders, renegotiate more than $2 billion in debt, and ultimately exchange a portion of its debt for equity.

Restructuring the Company’s financial position was critical to the success of the enterprise. If bondholders could not agree with the proposed reorganization, the Company would likely have entered into a protracted bankruptcy, a move that could have crippled its business and threatened its existence. Timing - what to say, to whom, and when - was critical in solidifying bondholder support, retaining customers and key employees, and maintaining vendor/supplier relationships.

While its shares were not traded on a public exchange, the debt traded in a normal fashion, thus intensifying the scrutiny of the bankruptcy process. Before any action was publicly announced, Nicolazzo & Associates (N&A) was retained by the Company’s outside legal counsel and became a key member of the team responsible for communicating the Company’s business strategy in the weeks and months ahead.

The communications challenge unfolded almost immediately, when the Company was advised it was obligated to announce it had retained financial and legal advisors to evaluate its financial structure. What loomed ahead was an intense period, during which our client would be called on to communicate a series of activities to employees, its affiliate operations, customers, vendors, suppliers, and a host of other individuals who interacted with the enterprise.

The Plan

Teaming with senior executives at the Company, along with outside financial advisors and lawyers chosen for the assignment, N&A developed a plan and strategy that would guide communications through eight public announcements and dozens of exchanges between the Company, its affiliates and customers throughout North America. Prior to each planned communications initiative, N&A conferred with the treasurer, inside and outside legal counsel, and other senior managers to develop key messages, discuss positioning, and draft necessary documents.

Prior to actually filing its prepackaged bankruptcy, the Company announced:

1. It had entered into lockup agreements with a majority of its bondholders.
2. It had begun a solicitation of votes from its creditors that would span 30 days.
3. It had secured a commitment for a quarter-billion-dollar asset-based revolving credit facility.
4. It had received the necessary votes accepting its voluntary petition for reorganization under Chapter 11.

In each case, N&A developed a strategy and prepared a comprehensive set of communications materials for distribution to all key constituencies, the timing of which was synchronized with court filings in the Delaware bankruptcy court. When the Company was ready to file for bankruptcy, N&A developed another set of communications materials that were mailed overnight to more than 45,000 points. In this particular situation, it was critical that the letters be in the hands of the recipients before notification was sent by the bankruptcy court. N&A met every deadline.

Additionally, N&A worked with management at corporate headquarters and subsidiary companies to help craft customized letters and memos to parties that expressed particular interest in the bankruptcy process. In many cases, these documents were personalized to reflect the ongoing business relationship between the individual company and its customers.

In subsequent announcements, the Company stated it had received approval from the court on first-day motions, one of which gave the Company permission to pay employees, trade creditor balances, honor all customer programs, and use cash on hand for general business operations. N&A also helped the Company announce it had secured an asset-based line of credit in excess of $200 million.

After only 59 days, the court approved the reorganization plan and the Company announced it had emerged from bankruptcy. As was the case when the Company filed, N&A orchestrated a second mailing to more than 45,000 points - employee homes, customer sites, vendors, and suppliers.

The Results

• News media coverage in the financial and trade press was concise and straightforward. No employees, customers, or suppliers publicly commented on the bankruptcy.
• Ongoing strategy meetings and discussions ensured that the Company adhered to its key messages and delivered crisp, tactical, and consistent communications.
• The Company was not only successful in the “court of law,” but also in the “court of public opinion.”
• There was no major loss of key executives, customers, business partners, suppliers, or vendors.
• All key audiences, from high-level executives to rank-and-file employees, heard from management before news stories appeared or rumors circulated on the street.
• Disruption to Company operations was minimal.
• Customers received products on time and were fully warrantied.

The Final Chapter

In record time, the Company reorganized and eliminated more than $1 billion in debt. There was no loss of business, senior management remained in place, and everyone was paid on time. The success of the prepackaged plan improved the Company’s liquidity, solidified its position and brand name, and strengthened it for future growth.