Financial Times 7th October 2009 - Restructuring officer steps into limelight
The large number of companies forced to renegotiate their debts and implement rapid cost-cutting programmes has led to a surge in demand for chief restructuring officers – a board-level appointment almost unheard of during previous recessions.
The trend has gathered momentum since Bryan Marsal was appointed chief restructuring officer at Lehman Brothers last year. With more companies approaching the limits of their debt agreements, they are getting a manager to act as a bridge with lenders.
The move reflects banks’ willingness to see a company work through its problems during the downturn. Even though the chief restructuring officer acts in the best interest of the company, banks may ask for one to be appointed as a less disruptive measure than requesting a change of finance director or chief executive.
James Harley-Booth, head of private equity at Interim Partners, said: “The banks know that in almost all cases they will get a better pay-back by helping companies get back to profitability than from pushing the company into insolvency proceedings.
“But if they are going to continue lending to that company or even increase lending, they want a board- level executive in place who will deliver on the company’s side of the bargain, and that is cost-cutting and downpayment of debt.”
Examples include HSBC placing Alan Fort as chief restructuring officer at Jessops, the camera specialist; Robert East at Cattles, the troubled subprime lender; Pat O’Driscoll at EMI Music and Dan Roth, from Cerberus Capital Management, at Scottish Re, the reinsurer.
Chief restructuring officers are usually appointed to companies with turnover of £30m to £1bn. Prior to the credit crunch parts of the job may have been covered by turnround specialists. However, banks are now demanding that the work is handled at board level, with more authority and independence from chief executives.
Many chief restructuring officers are interim, short-term positions lasting three to six months, who leave when the company is back on an even keel.
The chief restructuring officer drills into a business’s cost base and borrowing levels in extreme detail. They may come up with a restructuring plan and manage discussions between stakeholders, professional advisers, staff and other interested parties.
“Banks take the view that most chief executives of companies that have been hit by the credit crunch are more than capable of running those companies under normal conditions, but what banks ask us to find is someone who has the experience of getting a company through these abnormal times,” says Mr Harley-Booth.
Headhunters say demand has been driven by the vast quantities of complex work that needs to be handled in a short period of time during the credit crunch.
The number of parties that the company is negotiating with may also be larger than during past recessions. Lending is more widely syndicated among a bigger group of banks than previously, and debt can be passed into the hands of hedge funds or distressed debt investors.
“The company can have a maze of interested parties who all need reassurance that the cost-cutting plans remain on course, that the company is performing well and that they aren’t just throwing good money after bad,” said Mr Harley-Booth.
By Gill Plimmer