In this video, Partner Roderick Carmody and Director Haley Varner discuss helping CFOs navigate the restructuring and bankruptcy process.
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RODERICK CARMODY: Hi, I'm Roderick Carmody, and today's topic is: The CFO at the helm before, during and after a bankruptcy.
I'm joined today by Haley Varner, a Director at CrossCountry who specializes in helping CFOs navigate the restructuring and bankruptcy process.
HALEY VARNER: Hey. How is it going?
RODERICK CARMODY: Doing well. I appreciate the nautical humor in your title, and I hope that social distancing hasn't impacted your time on the water up in Annapolis.
Haley, you've got a great experience to discuss today's topic, and I was wondering if you wouldn't mind sharing some of your bankruptcy and restructuring experience before joining CrossCountry?
HALEY VARNER: Sure. So, my background is in the restructuring and turnaround space. I was with Alvarez and Marsal, which is a leading turnaround firm, for about seven years in the U.S. and Europe, and my work with them was largely in the last cycle of distress.
So I've kind of seen this movie before and looking forward to working with CrossCountry to employ the tools that I have in my toolbox in this environment.
RODERICK CARMODY: Excellent. Thanks, Haley. First question: If a CFO thinks their organization might be headed into a distressed situation, what are some of the things that they should start thinking about sooner rather than later?
HALEY VARNER: Well, first and foremost, Roderick, it's adopting a cash-oriented mindset. So, putting cash at the heart of their decision making. And they do this by creating, in as much detail as possible, a 13-week cash flow forecast.
And there is a connotation around this tool. It is funny that it's like the nail in the coffin and it's only used when a company is at a certain level of distress and bankruptcy is imminent, but that's just not true. This is a great tool for planning not only in distress, but in a stabilized environment because it provides insights around both operational and capital liquidity levers that are available to CFOs and leadership teams to make cash decisions and manage cash.
Once you have that tool in place, CFOs are able to step back and incorporate it into a broader scenario planning and scenario analysis, looking at the business as a whole.
And then once you have that, CFOs are able to now have insights and develop responses around that and go to their management team and board of directors and other stakeholders with more material conversations and come up with an action plan in distress.
RODERICK CARMODY: And Haley, as you mentioned, it has been a long time since we've been through the trough of an economic cycle. And as a result, most CFOs have not lived through a bankruptcy before. But what does life look like for CFO during a bankruptcy?
HALEY VARNER: So, Roderick, I often wake up in a cold sweat having had the nightmare of being a CFO in a bankruptcy or restructuring event. It's hard, and it's hard because they're doing more with less.
So in addition to their usual stakeholders, CFOs now have all of these additional third parties coming onto the scene - whether it's investment banks or the CRO's, Chief Restructuring Officers in their teams, attorneys, creditor committees, in addition to board of directors, leadership and their usual lender conversations. And then they're responding to these demands, often with fewer resources, because of the attrition that's often associated with distress.
And so, I don't envy them. I have a lot of sympathy for the CFO in these situations, given how they're trying to manage this increased pressure.
RODERICK CARMODY: What mistakes have you seen CFOs make?
HALEY VARNER: I would say reacting versus responding. So what I mean by that is reacting defensively and taking defensive action in an attempt to try to just stay afloat day to day, versus taking the time to develop some holistic strategies and be more strategic about their actions.
Now, going back to what I just mentioned, I don't blame them for that reactionary response because they don't have the time and resources to do the exercise of developing that holistic and strategic view. And this is where I actually see a potential partnership with CrossCountry or others to step in and provide additional arms and legs and some support to provide relief for the CFO.
And a mistake I often see made is the CFO not raising their hand soon enough to ask for that help.
RODERICK CARMODY: That's great, Haley. Thanks. And then last, people often forget that the bankruptcy process does ultimately end. And how should CFOs think about the backside of bankruptcy and emerging stronger?
HALEY VARNER: Emerging stronger, absolutely. So, most companies do emerge from chapter 11, over 70 percent have confirmed business plans for going forward. So like they say, “Don't let a good crisis go to waste,” this is a huge opportunity for companies to just press the reset button and resize and right size their capital stacks.
And just to go back to the sailing analogy earlier, coming out of the storm, you've shaken loose a lot of things that probably needed to be addressed to begin with. So, it's an opportunity to really just start on a clean slate and move forward in a better way going forward given the new post-COVID environment.
RODERICK CARMODY: Great. Well, Haley, thank you so much for your time today. I really enjoyed the conversation and thanks to everybody for tuning in.