On June 25, 2009, Spectrum Brands, parent company of Remington and Rayovac brands, announced that it would be taking the final steps toward emerging from Chapter 11 bankruptcy. The process began in February after the company negotiated a plan with its lenders and bondholders to rid itself of about $840 million in subordinated debt. The plan initially had the approval of about 70% of Spectrum's bondholders, and the company eventually gathered additional approval.
According to Carey Phelps, division VP of IR and corporate communications for Spectrum, it was a smooth process. Even though suppliers were paid and there was no disruption to consumers, keeping its constituents abreast of all that was happening from start to finish was critical.
“Reassurance of all constituents was one of our main priorities,” says Phelps. “We want to get out in front publicly and say, ‘Look what we were able to do – a better balance sheet, less debt, we still have a great business, and a growing market share.'”
Filings on the rise
One of the many symptoms of the current recession has been a spike in the number of Chapter 11 filings. However, unlike pre-recession Chapter 11 filings, many companies experiencing the reorganization process now are presented with communications options created, in large part, by more prearranged filings.
“Clearly, 2009 has seen an increase in filings,” says Michael Freitag, partner at Kekst & Co., which worked with Spectrum through its Chapter 11.
Freitag divides the current spate of Chapter 11 filings into two camps: “traditional filings where the company ran into severe financial distress” and filings where “the Chapter 11 process is being used to strategically achieve financial or business objectives.”
In cases of the latter, communications becomes an important factor for getting the company's message out to all stakeholders.
“Companies are recognizing the need to not only be more aggressive – they see an opportunity to tell their story, get out ahead of the news, and manage it – but also defensive – because they're dealing with increasingly sophisticated counterparties,” says Freitag. “Companies need to be proactive in their outreach to all audiences they care about – employees, customers, suppliers, government officials, anyone with a stake in a company.”
Brenda Adrian, head of the East Coast restructuring practice at Sitrick & Co., says that messaging points, such as “business as usual,” remain the same. But tactics should be more proactive now. She suggests that the communications process interact frequently with stakeholders, a task made easier by the more compact nature of the Chapter 11 process and the frequent hearings where progress is discussed.
“Make sure that every time you make a deadline, you put out a message point to employees and consumers, to let them know what's going on,” she says.
Andy Brimmer, partner at Joele Frank, Wilkinson Brimmer Katcher, agrees that consumer-facing companies must be aggressive in their communications. “Reassure customers that they'll still be receiving the services and products they want,” he says.
Not so negative
Spurring enhanced communications between Chapter 11 filers and their constituents is the lowered stigma placed on a filing.
“The visibility of the government's role in support of using the bankruptcy process to help restructure both Chrysler and GM drew attention to the fact that bankruptcy does not equal liquidation,” Brimmer said.
The increased number of pre-arranged filings also frees the communications team to frame the conversation and the company's message about the process.
“Because you're announcing from the get-go that you've reached agreements to reduce debt, it places the bankruptcy process in a different context,” says Brimmer. “It's a legal process to formalize the negotiations that have been reached with lenders.”
RECENT FILINGS OF CHAPTER 11
The Las Vegas-based corporation filed for bankruptcy following unsuccessful, months-long negotiating with bondholders
The amusement park chain filed Chapter 11 after its debt surpassed $2 billion
The auto supplier filed for bankruptcy protection in the US and in Canada and sought to restructure. The company's lenders agreed to $175 million in debtor-in-possession financing