When New York restructuring boutique Masson & Co. got a call two weeks ago from a food company on the brink of insolvency, it was almost too late. After months of falling sales and mounting debt, the company fired its chief financial officer, and the new CFO, not expecting a bankruptcy, was thinking of hightailing it.
But Hugh Rovit, the Masson partner who is advising this client, convinced the new CFO to stay the course, telling him that CFOs who have restructuring experience are much more valuable than those who have none. "We sold him on this concept," says Rovit. "We were able to convince him with the enticement that he would be a bankruptcy guru."
With restructurings and bankruptcies still a staple in corporate America, knowing how to detect trouble early, and taking the right steps to avert it-even if it means going through bankruptcy-is a valuable skill that more and more chief executives are coming to view as an asset, not a liability. Provided, of course, that no lawbreaking or shenanigans are involved.
"I usually advise people that going through a financial restructuring is an opportunity to get an education in something that many people don't have a lot of smarts in," says Charles Masson, the founding partner of Masson and former head of financial restructuring at Salomon Brothers Inc. (long since merged into Citigroup). "Rather than thinking of it as a black mark on your resume, you should think of it as adding skills to your resume that will make you more marketable, more valuable and more sought after."
Such experience also makes one a good detective who not only spots problems early on, but is also not afraid to communicate them to management, the Masson executives claim. "When we are called in, it is almost always much later than we should have been called in," says Masson's Rovit. "Late in the process, your options are more limited, and the cost of the options is higher."
Bob Boglioli, chief operating officer of Royce Hosiery LLC, which makes socks under the Dockers and other name brands, knows all about the value of early detection. As a result, he insists that his executives have turnaround experience. Such seasoned hands are highly skilled at a host of tasks, including managing cash and detecting such early warning signs as rising inventories, Boglioli explains. He makes it a point to tell recruiters that he wants to interview candidates who went through a downturn and a turnaround.
"The recruiters are surprised," says Boglioli. "They are quizzical, and have the look of Why? Why do you want somebody who had a problem or a failure?'" But he sticks to his guns and hires executives who have been through a downturn, including Royce Hosiery's current CFO, who was hired four years ago.
Boglioli has personal experience in the matter. After he and his partner, CEO Steve Lowenthal, bought the company in a leveraged buyout in 1986 (the two worked for Gold Toe before that), things began to decline. During the economic slump of 1989-1990, they struggled to pay their 150 mill workers. Westinghouse Credit Corp., its main lender, was itself going through a host of issues and was not very flexible on the debt. Things looked grim.
The two executives took steps familiar to restructurers, including cutting expenses, negotiating with suppliers, and selling off inventory to raise cash even at reduced prices. Then they began to focus on growth, and in 1991 they bought the license to the Dockers' brand from Levi Strauss & Co. "Dockers was the hottest name at the time," Boglioli says. "The opportunity for growth enabled us to restructure the capital structure. We sold off some equity to private investors, and with that we were able to get working capital from banks."
The factories began to work at full capacity, margins and profits began to improve, and eventually the business grew to today's $65 million in annual sales from the $10 million a year in sales the year they bought it. There are still rough spots, Boglioli admits, but he says the two partners learned from the bad times and put in place a monitoring system that tracks key aspects of the business daily, weekly and monthly, enabling the partners to act early.
Some CFOs feature their restructuring experience prominently in their job searches. Will Seippel, CFO of AirGate PCS Inc., is now on his fifth restructuring-and doesn't mind letting people know it. Seippel got his first taste of restructuring by accident when he started to work for International Harvester years ago when that company was in decline. He wasn't at all intimidated when he joined AirGate in October 2002, despite its stock being delisted and trading on the OTC Bulletin Board. (It trades at around $1.70.) In fact, he says he welcomes problems.
Over the years, he has developed skills as a sharp cash detective. As such, Seippel began probing into AirGate's books, and the money that was flowing between AirGate and its parent, Sprint PCS Group. Eventually, Seippel realized that Sprint owed AirGate some $11 million.
"Will understands financial systems and cash management and the process of how cash flows from the customer to the company," says Ben Duster, a partner at Masson who is advising AirGate on its restructuring. "When he began to analyze that loop at AirGate, Will raised the questions that led to the refund."
AirGate's restructuring plan includes stabilizing and managing the operations to ensure there is enough cash to run the business, implementing a measured growth strategy and working out various issues with Sprint. Its plan involves exchanging $300 million in 13.5% notes for $160 million in new 9 3/8% notes and approximately 56% of the common stock.
"We've gone from a company that bled cash profusely to a company that generates lots of cash," says Seippel.