⚡️Notice of Appearance⚡️ - Gregory Segall, Chairman and CEO of Versa Capital Management LLC

 
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This week we welcome a notice of appearance from Gregory Segall, the Chairman and CEO of Versa Capital Management LLC.

PETITION: Everyone is talking about "too much money chasing too few deals." Can you enlighten us a bit as to your experience looking to acquire or invest in middle to lower middle market companies (in or out of bankruptcy)?  

Can safely say the conventional ‘distress cycle’ has been hyper-extended by the combination of low interest rates, multiplying sources of non-bank lending sources and economic strength. We track the outcome of all deals we do not buy and our number one competitors at the moment are either “liquidated” (i.e., too sick to save) or “refinanced” (i.e., found someone who let them kick can down road...again). But at the end of the day, the cycle has been delayed, not denied, so our mantra remains “Distress 2020!” (unless it’s 2021...)

PETITION: Given how disruptive technology has become and how quickly "change" appears to be occurring, how do you evaluate management teams and scrutinize their projections today? Have you changed any methodologies from, say, 10 years ago?

I see two layers to the question, one being the effects on a business of technology and how that impacts projection reliability, and then management competency in making projections. On the former, most everyone’s crystal ball has been off both in identifying where technology may be applied to or disrupt a given business’s expectations. On the latter, the quality of management projections, whether 13 week cash flows or 5 year valuation models, is usually a function of how long a given companies business cycle is (ie fast food has pretty good short term insight but pretty foggy about 1 or 2 years out, vs. building locomotives usually cannot do much about short term but can have pretty good visibility over the medium-longer term given the procurement cycle). Sprinkle all this with the question of management’s competency and command of the business, both from the forest and the trees, and that will tell you something about projection reliability.

PETITION: Versa owns Avenue Stores since its 2012 bankruptcy. The company once had 500 stores and now, according to its website, it has 262. What lessons have you guys applied to that business and what continued evolution is in store? Where do you see retail in 5 years? 10 years?  

When we acquired Avenue its store base was immediately pared to about 300, and over the last few years the company has been letting leases roll off where stores are less productive; fortunately Avenue has always had a strong and sizable eComm/direct business (~33%) so the store roll off gets offset by ecomm growth, and going forward where possible a retailer like Avenue can operate in a much smaller footprint (ie 3,000 sqft instead of 5-6,000) and therefore more profitably so they are executing that shift wherever they can. Retail will continue to transition for years to come, and it is somewhat helpful that landlords are starting to become more realistic about the need to make accommodations or lose tenants.  “Retail” has always been a rough neighborhood; I expect it always will be whether 5 years or 10 years out, will just be a new set of challenges.

PETITION: The bankruptcy business has changed considerably in the years you've been in the space. What is the biggest issue you see today with the bankruptcy process and what's your remedy to solve it?  

Aside from the bankruptcy code looking like the tax code in terms of all the “special interests” getting their fingers in the pie going back to the BAPCPA amendments, there used to be a much greater emphasis on seeing debtors reorganize. I won’t be the first to observe that most mid-market debtors “can’t afford to go bankrupt” given the cost and other pressures including timing and all the parties who keep trying to elevate their priority resulting in rapid administrative insolvency. Since “high costs” are certainly a difficult issue but almost impractical to reduce to a fixable sound bite here, If I had to choose one or two remedies it would be getting rid of or extending the shortened deadlines for lease assumption or rejection, as well as reducing the number and kind of pre-petition creditors that can elevate their claim priority.

PETITION: In addition to a lot of accomplished, senior folks like yourself, we have a great number of junior professionals and students that read PETITION. What is your advice for them? What is the best book you've read that's helped guide your career?

When starting out early in your career, don’t every view any task as being beneath you - add value by being seen as a go-to resource, make yourself like fly paper and things will stick to you, increasing your role and experiences in your organization. As for a book (or four), gIven how often it is cited It seems almost passe to reference Sun Tzu, but it is a great book on strategy and tactics; also recommend “How to Win Friends and Influence People” by Dale Carnegie, another classic - success in this business, or really in any, is often all about working with people. Regardless of your politics, “Rumsfeld’s Rules” is also a terrific summary of common sense management techniques from a guy who has had enormous public and private sector experiences. And finally from the standpoint of bankruptcy, I highly recommend “Feast for Lawyers” by Sol Stein - if you can find it, a great if slightly dated primer on the reorganization process, and a great read - more like a novel though based on true stories.

PETITION: Thanks, Greg.

⚡️Notice of Appearance - Ross Waetzman, Director at Gavin/Solmonese⚡️

This week we welcome a “Notice of Appearance” by Ross Waetzman, a Director in the Corporate Recovery group of Gavin/Solmonese.

PETITION: In the most recent Gavin/Solmonese newsletter, "The Next Chapter," you provide a solid macroeconomic summary in your "2019 Outlook." You conclude, "...the U.S. benefited from strong growth in 2018 that could continue into 2019. However, threats to growth far outweigh potential for simulative surprises. In short, prudent corporations in or nearing distress should undertake corrective action soon, while opportunity still permits." To what degree does the tweet below — particularly combined with the recent disappointing February job numbers — affect your 2019 outlook, if at all? 

In the words of Douglas Adams, “Don’t Panic!” one month of data—particularly erratic data—does not make a trend. Yes, nonfarm payrolls grew 89% fewer jobs than expected.  This could very well be just a “fluky” result. Since the end of the government shutdown, there have been a number of recent economic surprises (see the Citigroup Economic Surprise Index). This could simply reflect government agencies challenged to catch-up following a historically long shutdown. If true, expect data revisions in upcoming months to smooth out “fluky” reports.

Flukes aside, there are some interesting takeaways to glean from the labor market. In January, U.S. job vacancies hit an all-time high. Curiously, Europe is also facing labor shortages despite an economy that is slowing more rapidly than in the US, notably in the UK and Germany. This suggests that baby boomers are retiring faster than millennials are entering the market.  Further pressures come from the February jobs report, which showed that wages grew at their fastest pace since April 2009. 

Continued wage increases could lead to higher consumer purchases, a harbinger for inflation, and ultimately Fed rate hikes. How likely is this scenario? 

On March 20, the Fed said it would not raise rates anytime soon. They lowered guidance for GDP growth and inflation while raising their guidance for unemployment.  The following day (and for the first time since 2007), the Treasury yield curve fully inverted, a widely recognized signal for a recession.  The market, through Fed Fund futures, is reflecting a zero probability for a rate hike in 2019 with a 31% probability for a rate cut.

This sets up an interesting dynamic. Economic data is signaling high inflation but the Fed and markets are anticipating lower GDP growth. Periods of sluggish growth coupled with high inflation lead to stagflation, a serious economic condition that historically has challenged central bankers.

Academic theory aside, the message to distressed debtors remains the same: reach out to your advisors and take corrective action asap. The reasons for an end to the recent boom cycle is secondary to the fact that the sands of easy credit are quickly slipping through the hourglass.

PETITION: What kinds of corrective actions have you found yourself recommending to clients lately? What, if anything, are you hearing from clients (or just generally in the marketplace) that you weren't hearing just 12 months ago?

The middle market appears to be relatively unchanged during the last year. We are hearing more general chatter about when the next recession might start. In cases where we are selling a client’s assets, we have seen prospective investors express more concern about how our client’s assets will perform in declining economic conditions.  Our job has been to kick the tires harder during due diligence and to be more proactive in supporting rationale for upside projections.  In some cases, that means helping our clients understand they may need to temper aggressive forecasts.

PETITION: What is the biggest inefficiency in the restructuring process? If you had the opportunity to lobby to change one thing, what would that be and why? 

Professional fees are easily a huge disadvantage to the bankruptcy process, which many would argue is an inefficiency.  However, the professionals are largely present for good reasons and are working to help their clients.

Larger debtors are often able to absorb these costs and still emerge from bankruptcy.  The challenge for smaller debtors can be much more formidable. These firms may have similar professional needs but have less cash or profitability to cover their costs. The result is after budgeting for debtor professionals, a creditors committee may find they have less than adequate funds to pay for their professionals.  Certainly lenders have little desire to amply fund a potential adverse party.

There is no easy solution to this issue. The debtor has the greatest need for professionals, yet there has to be a balance. In many cases, unsecured creditors could posture that the debtor only is able to pay its professionals because unsecured creditors have not yet been paid.  Fundamentally, this creates a systemic problem – by making chapter 11 too costly for the smaller end of the middle market, these companies delay seeking relief so long that many options for recovery are foreclosed upon by the passage of time. The system needs to be more accessible to smaller companies, and the only way to accomplish that is through procedural and structural changes.

PETITION: One of the great things about PETITION is that we have the senior-most professionals at certain firms that read us AND we have a lot of law and business school students that read us. Thinking about the latter, what is one book that you've read that's helped you become a better professional? Thanks for participating. 

Without question it’s been Sun Tzu’s The Art of War. While there are many comparisons of how TAOW can be applied to business, there are similar comparisons to medicine which I find very applicable to the distressed space. 

Being the first boots on the ground of a distressed company is akin to being an emergency room doctor (not to diminish the tremendous credentials required by actual medical professionals).  From the outset, professionals need to question if they can make a difference or if the patient is too far gone (TAOW: Move not unless you see an advantage; use not your troops unless there is something to be gained). We next read vital signals of our patients through financial reports and analyses (TAOW: know your enemy).  Often plagued by a host of problems, we triage to address the most critical issues first (TAOW: ponder and deliberate before you make a move).

The parallels go on but really cement the similarities between human and corporate health. The very positive takeaway is that corporations, like humans, are wired to survive and will fight tenaciously to do so.  It’s in this context that we as turnaround professionals can feel truly blessed to work in this field where we support those fighting, in many cases, the battles of—and for—their lives.

PETITION Note: The Art of War is becoming a recommendation of choice from the various members of our community who’ve made a Notice of Appearance. While there’s a social commentary there, we will, for once, just leave it alone. 😉

⚡️Notice of Appearance: Lance Gurley, Managing Director at Stephens Inc.⚡️


For those who are new to us, our “Notice of Appearance” feature provides an opportunity for a professional in the field of restructuring to provide us all with some perspective about the markets generally, the industry, and professionalism. This week, we dialogued with Lance Gurley, a Managing Director on Stephens’ restructuring and special situations team.


PETITION: There has been a surprising increase in recent distressed activity in the oil and gas space. News abounds about professional retentions in E&P and companies correlated to oil and gas are filing for bankruptcy (i.e., most recently, PHI Inc.). What is this attributable to and what differences do you expect to see in the next go-around of oil and gas restructurings vs. the 2014-2017 period? What more should have been done in that first wave to ensure these companies didn't ultimately end up in (or back in, as the case may be) into bankruptcy court? Or was this just a failed option play on oil prices? 

The return of restructuring work in the energy sector is, broadly speaking, tied to companies that either (a) harbored denial about the need to restructure when the market turned a few years ago, or (b) restructured poorly the first time. In the first category, a lot of bondholders have learned to be comfortable with coupon clipping as they see Boards/CEOs continue to burn their furniture hoping for a recovery on the other side and preserved equity value. These companies tend to fall somewhere between hope as a strategy and outright recalcitrance.  Neither are great ways to run an enterprise with funded debt. But it’s difficult to get a board to understand that when their continued role depends on them not understanding it. In the second category, some companies restructured around a more aggressive (drilling dependent) business plan than some industry professionals saw as reasonable at the time, and never really fixed their strategy. They are more representative of the real issue in the market: many of these companies (and their new owners) had an imperfect understanding of what the market would reward in this new normal pricing environment — that cash flow is king. Just ask the average ‘back a management team’ PE investor how offloading that development play is going. Not a great time to be selling a development acreage in the supposed “core” of a new resource play.

PETITION: You're based in Texas. A significant amount of healthcare action has taken place down there. What do you make of all of the filings we're seeing in the continuing care retirement community and other specialty healthcare provider segments (e.g., behavioral health, etc.)?

Bad business models, frankly. The SQLC/Seniority filings were a great example of that: I’ve never been a fan of healthcare models that require elderly patients to, um, “move out”, in order to make way for a new dues paying member. The financial viability of the CCRC companies and the wellbeing of their patients/tenants seem to be in conflict. I’m not a healthcare professional, but playing real estate roulette with geriatric care in the balance is not an endeavor I could see working well for anyone involved (save for perhaps healthcare professionals?).

PETITION: Your firm is a middle-market oriented investment bank. What are some things you're seeing that are specific to the middle market space that give you the sense that distressed activity might pick up there? Or, alternatively, do you see a system awash with capital sparing the middle market from some needed fixes? 

The middle market as we define it — $250mm to $2.5bn — seems to be turning towards malaise. More and more of the equities my research colleagues cover are trading under half of their 52-week highs; my capital markets colleagues are hearing major accounts talk of less and less deals in the market, etc. Does that mean we should all batten down the hatches for a bankruptcy bonanza? That would be wishful thinking.

Practically, that means we are using restructuring technology to solve issues a long way from the courthouse. We are seeing a deluge of liability management work, nipping and tucking balance sheets to fight for another day. Some companies will recover and some will not, but until we have a meaningful catalyst (Interest rates? Recession? Vaping finally being declared bad for your health?), it’s unlikely to be the distressed wave we experienced in the last cycle. 

PETITION: We received a lot of feedback to our note in "Sears = Drama Queen. PLCE = Future Seer" wherein we noted "most of the retail chapter 22s we’ve seen have come about specifically because the restructuring were not, particularly, holistic. Similarly, we’ll see what happens in the oil and gas space: in many instances there, financial advisors weren’t even retained and in some where financial advisors were retained, the retention was for bankruptcy reporting purposes only." Where do you come out in this debate? In your view, have chapter 11 filings over the last few years accomplished all that they could in a holistic way or have they left issues lingering that should have been resolved?

I agree that many restructurings have not been as holistic as they could’ve been. Bankers and lawyers are driving deals with an intense focus on the balance sheet, and that’s healthy, but that’s left fundamental problems unsolved in many instances. Ch. 11 is a tool that can be transformative if it’s allowed to be but creditors and management teams are loathe to take their medicine on strategy when they are already justifying significant impairments to the balance sheet (especially if those strategy shifts result in further losses). That said, it’s tremendously challenging to enact change through Ch. 11 on the fly and without significant pre-planning — it’s not only too expensive, it’s too risky (like my grandfather used to say, “don’t try to clean a wood-chipper if it’s plugged in.”). If a debtor needs to reject a contract in order to implement a strategy shift, the debtor and plan support parties would be wise to put that in motion long before finding themselves past the bright line of a petition date.

At some point however, restructuring professionals have to rely on management teams that get MIPs to run companies well actually running companies well.

PETITION: Finally, for our younger readers, what book have you read that has guided you most in your career? 

The books that have “guided” me are all boring, so I’ll answer perhaps what has been most influential. Someone gave me a copy of “Barbarians at the Gate” when I was an undergrad and it opened up this crazy world we work in to me. I’d highly recommend it. But I tell young people coming to work for us to read Andrew Ross Sorkin’s “Too Big to Fail.” The financial crisis was so meaningful to so many of us, I can’t imagine starting a career that interacts with the markets and not appreciating it fully.

⚡️Notice of Appearance: Sabrina Fox, Executive Advisor to the European Leveraged Finance Alliance⚡️

This week we welcome an appearance from Sabrina Fox, a leveraged finance attorney and high yield bond covenant analyst with over 15 years of experience in the European leveraged finance market. She currently acts as Executive Advisor to the European Leveraged Finance Alliance (ELFA), a trade body comprised of investors in European bonds and loans formed to support the resilience of the market through increased engagement, disclosure, and transparency.

PETITION: Dun & Bradstreet was a recent test for the capital markets. What were the results there and what do they portend for capital markets activity going forward?

There are three important lessons to take away from Dun & Bradstreet.

One: Sponsors are thinking tactically about managing their investments through a down cycle. They want to maintain flexibility to access dividend capacity and reshuffle the capital structure, especially when the issuer is heading into stressed territory. The covenants for Dun & Bradstreet’s bonds and loans maintain significant documentary flexibility (including, in the bonds, access to dividend capacity even if the issuer is in default) despite pushback from investors, and the new owners were willing to pay up for it. That’s telling.

Two: Law firm restructuring advisors are talking to the capital markets guys. This means that the capital markets guys are amending and adding provisions to covenants in the primary that will foreclose potential arguments by bondholders about aggressive uses of covenants down the line. This will make it easier for issuers to (for example) use Unrestricted Subsidiaries to benefit equity and other junior stakeholders to the detriment of bondholders if things get choppy. In Dun & Bradstreet, this played out through a broader definition of what constitutes a “Similar Business” (expanding potential capacity for investments in Unrestricted Subsidiaries), and the inclusion of language that makes it crystal clear that recent shenanigans playing out in the retail sector (and the courts) is contractually permitted, essentially ripping a page out of the bondholder playbook.

Three: Covenant flexibility has become an element of arbitrage by borrowers, increasing the competitive pressure between financial instruments that is fueling the race to the bottom in covenant erosion. Large LBOs are often financed with a mix of bonds and loans, and if an issuer can get covenant flexibility in a loan that it’s struggling with in a bond, it may decide to upsize the loan, making it easier to push through covenant flexibility in the bond – or vice versa. The rise of the private debt market only increases sponsors’ arbitrage opportunities.

PETITION: High-yield investors suffer from a collective action problem and issuers take advantage of the information dislocation, too much money chasing too few deals, and FOMO to squeeze investors, flex pricing down and weaken/eliminate covenants. What can investors do better to combat these efforts and level the playing field? 

Stay smart and engage effectively.

Covenants are a lot more complicated than they were a decade ago, and advisors to borrowers have months to prep deal terms that investors get only a few days to review. Investors who stay abreast of new covenant loopholes and focus on potentially problematic flexibility are best placed to weather challenging markets.

And as the markets become more challenging, the ability for investors to engage effectively is more important than ever. Investors need a forum to speak with a single voice – which is one reason that the European Leveraged Finance Alliance came into existence earlier this year. ELFA is an independent buyside trade association focused on improving disclosure, increasing transparency, and encouraging engagement between market participants in the European leveraged finance market. As Executive Advisor to the group, I’m working hard to guide the development of ELFA for the benefit all who access the capital markets, from individuals investing money so they can retire comfortably or send their kids to college, to companies seeking to access capital, and everyone in between.

PETITION: There has been a lot of talk lately about leveraged loans. But private lending through BDCs (public and private) and other direct lending vehicles is exploding. Is this an area fraught with danger and what are the ramifications?

Absolutely. This growing source of capital gives sponsors one more way to divide and conquer to get more flexible terms. The industry is largely unregulated, opaque, with redemption structures that vary widely from fund to fund, creating unpredictable risks of potential runs. As with so many elements of the financial markets, the best way to address the risks is first to understand them, and the Alternative Credit Counsel (ACC), an organization sitting under the Alternative Investment Management Association (AIMA) are doing excellent work to focus the debate about financial stability in the private debt market. If regulation is the answer, these groups are helping to gather information that would facilitate the formulation of a sensible regulatory approach to the issues.

PETITION: What are the biggest issues confronting the European market that US investors don't have to deal with currently? What are one or two things that investors haven't been as focused on as they should be? 

Europe is a far more fragmented market than the U.S. There are more banks and law firms competing for business, creating intense competition. These competitive pressures are one of the factors driving covenant erosion, as advisors seek to differentiate themselves through documentary innovations as a way of gaining market share. If one law firm or bank won’t give a sponsor the terms they want, they can go to the next in line – and there’s a long line of institutions vying for business.

PETITION: What is the best book you've read that's helped guide you in your career? 

It’s not a book, but the ABA Model Negotiated Covenants and Related Definitions holds pride of place in my bookshelf. Covenants have strayed far from those humble beginnings, so it’s important to remember the guiding principles reflected in that document.

PETITION: What question should we be asking that we haven't?

You guys are clearly great at what you do, because I can’t think of one!

Aw shucks. 😍

😎Notice of Appearance: Sean Cannon, Director at GLC Advisors & Co.😎

For those who are new to us, our “Notice of Appearance” feature provides an opportunity for a professional in the field of restructuring to provide us all with some perspective about the markets generally, the industry, and professionalism. This week, we dialogued with Sean Cannon, a Director at GLC Advisors & Co.

PETITION: Your shop does a lot of creditor-side representations. What can you tell us about cooperation agreements and how are those shaping restructuring negotiation dynamics? 

We’ve seen that in appropriate situations, cooperation agreements can be an extremely powerful tool to combat coercive transactions launched by companies. In those instances, it is imperative that creditors present a united front and cooperation agreements are one way to formalize that unity.  There are certainly challenges to negotiating effective cooperation agreements – the devil is always in the details, and understanding precisely what parties are agreeing to cooperate on, the voting provisions, the term and what can trigger a termination is critical. However, as we saw in iHeart, it is possible for creditors (bonds and term loans) across multiple tranches of debt to align interests via a cooperation agreement in an extremely effective way despite differences in maturities and collateral.

PETITION: There were a significant amount of "Chapter 22s" in 2018 and it looks like 2019 may take it to another level (e.g., Payless, Gymboree, Southcross, Vanguard). What do you attribute these repeat filings to and how can they be avoided in the future? 

It’s industry-specific to an extent, so I’ll pick on everyone’s favorite: retail.  The sector is going through a massive paradigm shift and to an extent many investors are still guessing what a successful retailer looks like in 2019 and beyond. For the Chapter 22s, the first time around there was of course a view that the underlying businesses were viable. In some cases that assumption is simply proving to be untrue and the businesses models have failed. I also think investors mis-priced both value (real estate, intellectual property, customer loyalty programs, etc.) as well as risk (trade credit, consumer behavior, etc.). While views on the future of retail will undoubtedly evolve, I believe we’ll continue to see brick-and-mortar retailers struggle to reimagine themselves for the future.

PETITION: What is your assessment of the distressed opportunity set in 2019 and what is one thing that you think people aren't focusing on that they should be? 

I’m continuing to spend time on the retail and consumer sector, and also on healthcare, specifically acute care providers.  The healthcare cycle is tricky to predict given its dependence on public policy, but the fundamentals are extremely challenged and we believe a breaking point is inevitable.

I also think the muni space is interesting.  Investors have gradually started to pay more attention in the wake of Jefferson County, Detroit, Puerto Rico and others, but there is a massive amount of debt outstanding and many issuers in difficult financial condition.  The public pension deficit alone in the U.S. is frightening – there something like $1.6 trillion of unfunded pension liabilities at the state level alone. Couple that with historically weak credit documents and poor reporting, and I think we could see a wave of municipal restructurings.

PETITION Note: To your point, take a look at the Sacramento California school district.

PETITION: What is the best book that you've read that's helped guide you in your career? 

Tough question.  I read a lot of different stuff, but I’ll say that most of what I read is not directly related to my career. Sure, I’ve checked off all the “required reading” for finance and restructuring, but I’ve always viewed reading as a way to diversify my knowledge beyond my career and personal experiences (important, if for no other reason than to not be the most boring person at a cocktail party). I like historical nonfiction – I recently finished Battle Cry of Freedom, probably the most comprehensive book on the American Civil War, and also Once is Enough, a true story about a couple who attempted to sail a small boat around Cape Horn in the 1950s. Like I said, lots of different stuff.

PETITION: What is the best advice that you’ve been given in your career?

One of my first bosses said, “Whatever pre-conceived notions you have of what your job is supposed to be, or what you signed up for, forget about them.  If you show up to work thinking about how you can be helpful, whether to clients, peers, bosses, etc. – it doesn’t matter – if you show up each day with that attitude, you’ll be successful at whatever you do”

🤓Notice of Appearance: Ted Gavin, Managing Director & Founding Partner of Gavin/Solmonese🤓

For those who are new to us, our “Notice of Appearance” feature provides an opportunity for a professional in the field of restructuring to provide us all with some perspective about the markets generally, the industry, and professionalism. This week, we dialogued with Ted Gavin, Managing Director & Founding Partner at Gavin/Solmonese.

PETITION: There are a number of chapter 22s on the horizon. We've been poking fun at the "successful retail chapter 11" designation but, really, it is tragic and the process is failing. What do you think this is attributable to and what can be done by all involved -- lawyers, advisors, bankers, investors -- to avoid them in the future? 

These are all unforced errors born of greed disguised as impatience in the form of short timelines that are driven by the immovable post of restrictive budgets. All of these chapter 22s have the common trait of having used the first filing to strip off debt, but the efforts to actually fix the underlying company were either insufficient (in some cases) or outright absent. If the company couldn’t meet its operating nut, stripping off some debt just gets you back to the same place eventually. If you’re not taking the time provided by the bankruptcy to fix the damn company, you’re just spending money for what will, in all likelihood, turn out to be a broken investment.

PETITION: The Creditors' Committee pitch process is becoming an inside game. UCC Lawyers are hiding behind UCC FAs and company-side FAs are sharing advance peaks with UCC FAs to give them a first-mover advantage. What gives? 

A lot of this can be blamed on Lawyers’ Rule of Professional Conduct 7.3 (the prohibition against solicitation) and how it hasn’t scaled to deal with modern practice. The other issue is the inconsistency in practice within the U.S. Trustee Program – not only from Region to Region, but from office to office and, in some cases, from staff attorney to staff attorney. What is commonplace in one jurisdiction is impossible to accomplish in another because of this. Are there lawyers with undisclosed pecuniary interests tied to FA firms? Of course there are. Do some FAs shill for law firms while acting as attorney-in-fact for creditors without disclosing some other financial interest in the outcome of that efforts? Of course they do. So do lawyers. It happens. It’s indefensible.

Want it to stop? Change Rule 7.3 so it reflects the committee organization process or form all committees by mail and do away with the “in the room” beauty contests so proxies are no longer necessary and having a hand-holder in the room to move the process in the way they want becomes a moot exercise. Easier said than done, but still doable if the practice decides to get serious about it.

PETITION: There seems to be new independent director candidates popping up every day. Is this good, bad, or neutral? 

It depends. When an independent director is really independent and is there to oversee the process with unfettered autonomy and no fear of reprisals, it’s fine – good, even. When the independent director’s future business depends on finding that nothing untoward happened, and the same individual keeps getting dropped in by the same law firm, it’s a problem. Independent directors should be viewed the same way we view expert witnesses – if you keep showing up for the same law firm, you’re not independent.

PETITION: Restructuring advisory shops seem to be proliferating. What can a financial advisor do in today's crowded market place to separate herself/himself from the crowd?

Be easy to work with. Be about the work. Be proactive. Be generous with your experiences and knowledge. Make your referrals look like effing geniuses for having referred you. Know more than the next shop and be able to do something with it that gives your side an edge. There’s a reason I went to law school, and it wasn’t the scintillating debate and the excitement of reading the Blue Book.

PETITION: What book has helped prepare you to be the best professional you can be? 

Hue 1968 by Mark Bowden. It’s an incredibly compelling analysis of prolifically bad decision-making that became the turning point of America’s involvement in Vietnam. It’s a walk-through, from the ground, of the event that changed our national dialog about our purpose in the war and, when it was over, America would never again fully trust its leaders.

😎Notice of Appearance: J. Scott Victor, Managing Director at SSG Advisors LLC😎

This week we welcome a Notice of Appearance by J. Scott Victor, a Managing Director at SSG Capital Advisors LLC, a boutique investment bank based in Philadelphia. We edited the dialogue lightly for content and length. Enjoy.

PETITION: You've carved out a niche in the middle market. What is your assessment of distress in the middle market today and what may we expect in that area in the next 6-9 months?

There is always distress in the middle market.  Regardless of the macroeconomic environment there are universal constants: undercapitalization, too much debt, poor management decisions, sales declines, lack of margin control, excessive expense structure.  I could go on and on – all resulting in a steady stream of distressed middle market companies.

From multi-generational family-owned or single owner and operator businesses with inadequate systems and not enough equity capital to PE portfolio companies leveraged to the hilt with debt to VC-backed and public bleeders that have been startups for a decade or more burning through tens to hundreds of millions to failed rollups, the distressed middle market has it all including real industry-specific Disruption.  These beloved underperformers are in every industry and every region of the country and while they aren’t generally big enough names to warrant coverage in Petition, they provide an abundance of work for middle market professionals.

Nothing will change in the next 6-9 months.  There is an incredible amount of debt capital from an ever increasing number of lenders – bank and non-bank ABLs and cash flow lenders, BDCs, commercial finance companies, factors, equipment and real estate lenders.  The better underperformers will continue to be refinanced out of their existing bank lenders and live to sink or swim next year.  The rest can expect §363 sales, Article 9’s, ABCs, receiverships, or straight-up liquidation.  It’s economic Darwinism at work.

PETITION: What is one thing that most needs changing in order for middle market clients to get the most they can out of an in-court bankruptcy proceeding? 

Don’t get me started on this one!  Chapter 11 is too expensive and lower middle market companies can’t afford it.  More importantly, the lenders for the smaller borrowers don’t want to pay for it.  Thus the rise of Article 9’s, ABCs and state court receiverships being utilized for smaller transactions.  Almost every one of my Chapter 11 cases has two sets of counsel, a financial advisor, an investment banker, and a claims agent and that’s just for the debtor.  Factor in two sets of counsel and a financial advisor for the creditors committee and another two sets of counsel and financial advisor for the lender(s) and that’s before any other professionals such as real estate advisors, special counsel, liquidators and independent board members. And, don’t forget the new UST fee schedule!  The fee burden on debtors is often why there’s rarely ever a meaningful distribution to unsecured creditors.  I know I’m preaching to the Petition choir, but Chapter 11 just costs too much.

PETITION Note: See #1 above if you skipped the end.

PETITION: We've written a lot recently about the decline in L. Brands' Victoria's Secret ($LB) line and the rise of direct-to-consumer and celebrity-backed (i.e., Rihanna) brands. You did the Peekay Acquisition LLC bankruptcy. What lessons did you learn there that may apply to L Brands and other legacy lingerie brands that are currently under attack? 

I learned that sexual health and well-being is a very good thing!  Peekay was too small to be public and had way too much debt resulting from a poorly-implemented roll-up strategy.  Victoria’s Secret has numerous issues including deteriorating product quality resulting from revolving manufacturing facilities around the world and an underwhelming yet distracting customer store experience that a huge marketing spend can’t fix.  Insta-friendly celebrity brands, including lingerie and cosmetics are trending, but their sustainability is ultimately tied to quality, buying experience and the celebrity quotient.

PETITION: What is the best piece of advice that you’ve been given in your career?

My first legal mentor told me that practicing lawyers will make a good living, but never be rich.  My second legal mentor told me to become an investment banker.  My investment banking mentor told me to dress well and to drink heavily.  I take advice well.

PETITION: What is the best book you’ve read that’s helped guide you in your career?

Two books:  The 1st edition of Peter and Wendy by J.M. Barrie – the opening line “All children, except one, grow up.”  I say no more.

Hostile Witness by William Lashner.  Bill was a colleague at my first law firm in the mid-80’s and the son of my legal mentor.  He left the firm to become a writer.  I am Victor Carl.

😎Notice of Appearance: Evan Hengel, Managing Director of Berkeley Research Group😎

This week we welcome a Notice of Appearance by Evan Hengel, a Managing Director in the sunny Los Angeles office of Berkeley Research Group LLC. We edited the dialogue lightly for content and length. Enjoy.

PETITION: You're located in the entertainment capital of the world. What is your assessment of distress in TMT today? What may we expect in the next 6-9 months?

Looking at the local LA entertainment scene (to address the broader TMT market would require more space), further studio consolidation (e.g. Disney/21st Century Fox) could put the next tier of industry participants in a tough position, as they’ve already struggled to adapt to a theatrical release schedule that is organized around fewer tentpoles. That said, with the number of new expensive series (I hesitate to call it TV) being green lit, concerns of a “content bubble” in the near term are probably overblown, as the appetite for that content appears to remain insatiable, even if it’s shifting from theaters to the home. The more interesting story may be the role of tax incentives in the geography of movie/TV production. Other states are obviously hungry for a piece of the industry (hello, Georgia and Louisiana), and foreign countries have not been shy either (a 32% tax rebate may have played a role in the decision to shoot The Last Jedi in Ireland, for example). The recent renewal of California’s own tax credit program will help slow the exodus of work, but there’s no denying the trend toward industry decentralization.

PETITION: Unbeknownst to many, LA has one of the top tech ecosystems in the country now. We write a lot about "#BustedTech" in PETITION. As an operational advisor, what is one piece of advice you'd give early stage startups to ensure that they're setting themselves up for operational success down the road? 

I’d advise early stage founders to do everything possible to keep more cash than you think you need. As we also see on the other side of disruption, horrific business decisions are often made not out of incompetence, but rather due to a lack of liquidity/options. Trying to negotiate bridge financing between rounds is tough to do when the people on the other side of the table know you’re low on alternatives, and it’s near impossible to make the right long-term strategic decisions/investments when you’re worried about making payroll next week. Also, hire people who are good at what you aren’t. A spitting image of yourself may grab your attention (we’re all prone to vanity) but won’t add new skills to your company.

PETITION: Your firm tends to do a lot in retail. What is one thing that retail management teams continue to get wrong despite all of the hyper-focus on the area today? 

One thing we often still see is a failure to amend merchandising plans to reflect realistic expectations of traffic and conversion. The effect of the resulting glut of inventory is both immediate and long term…margins deteriorating as excess goods are then shoved through discount channels, which in turn hurts the long-term perception of the brand in consumers’ eyes (nobody wants to see their prized $750 jacket being sold at an off-price retailer next week for 60 percent less). Committing to a lean purchasing plan is difficult, as it often requires you to admit that tough times loom ahead, but the risk of not doing so is immense. Being realistic about demand (and the brick-and-mortar footprint needed to meet that demand) will be a key differentiating factor in who will survive the current period of disruption intact. Those who can hold back meaningful allocations of certain products at the distribution center to assess where it should be deployed at maximum margin get bonus points for reducing discount-dependency to clear inventory, but the road to get there has a lot of potholes.

PETITION: What is the best book you’ve read that’s helped guide you in your career?

Reading The Lords of Strategy by Walter Kiechel gave me a helpful sense of history regarding the consulting world. It’s easy to step in to this field and think of it as relatively static, but when you go back in time, it’s actually changed fairly quickly relative to other professional disciplines. The types of work that consultants were engaged in during a given decade are often unrecognizable when compared to the decade prior. Shining that light on restructuring advisory specifically (a fairly minor subset of the larger community), becoming an expert at 13-week cash forecasts and lease rejection analyses may keep you around in the immediate future, but long-term success will be enjoyed by those who push boundaries and identify what executive teams and stakeholders really want from their advisors that they aren’t already getting (and may not even know that they want yet).

😎Notice of Appearance: Darren Klein, Partner at Davis Polk & Wardwell LLP😎

This week we welcome a Notice of Appearance by Darren Klein, a Partner in the restructuring group at Davis Polk & Wardwell LLP. We edited the dialogue lightly for content and length. Enjoy.

Your firm, Davis Polk, appears to do a lot of international restructuring work. With turmoil in emerging markets lately, what are some things that distressed investors should be focused on? A previous commentator highlighted US-denominated debt in a strong dollar environment... 

I would highlight the recent retreat from globalism and the increase in nationalism happening around the world. Knock-on effects of a trade war with China will show up in many other countries. Take South Korea as an example. There has been plenty of press coverage asserting that South Korea would be one of the big losers in a trade war as a large supplier of products to China that then get exported to the US. Less well covered is that rising nationalism in China may continue to put independent downward pressure on South Korean businesses operating in China. The combination could create a tipping point for at-risk companies.  

More generally, increasing nationalism could hurt the value of foreign IP in countries where consumers associate that IP with “disfavored” countries. Distressed investors relying on foreign IP of US companies to sell at high valuations beware.

Dovetailing off of the previous question, what is one notable trend that you expect to see in Q4 of this year that not enough people are talking about? What about the beginning of 2019? 

I don’t know about Q4 or the beginning of 2019, but not enough people are talking about batteries. Every year, computers get smaller and faster. Every year, Amazon can deliver more products almost instantaneously. Yet every year, my smartphone battery gets worse. Five years ago, my phone could go several days between charges, now my new phone doesn’t even make it a full day. The lack of disruption in the battery industry is troubling. Whichever company figures out how to disrupt the battery industry is going to chase Apple and Amazon to a trillion dollar market cap. 

In fact, I think this could make an interesting regular coverage piece in Petition.  You are great at spotting disruption in an industry.  I especially enjoy your retail coverage showing the story is more complicated than an “Amazon effect.”  But you are missing an opportunity to showcase the disturbing lack of disruption over time in certain industries. Where is my my battery 2.0?

PETITION Response: Perhaps you had one of those faulty Apple batteries? Did you get it swapped out? In any event, yes, batteries are a big deal. Tesla’s valuation is a testament to that. Do you value it as a car company or as a battery company? The stock market seems to be stuck in a perpetual catatonic state of confusion on the subject.

What is the best piece of advice that you’ve been given in your career?

When I was a junior associate, a mentor told me that the most precious asset a lawyer possesses is his or her reputation. It is very true advice, especially in our small restructuring community. A reputation takes a career to build and can be squandered in a moment.  

What is the best book you’ve read that’s helped guide you in your career?

Oh, the Places You’ll Go!” by Dr. Seuss.  The book has a deep message. Life will not always go the way you would like, but you should never give up.  You should keep working hard and focus on controlling the things within your control.  The genius of Dr. Seuss is that he delivers an important message in a way that my young children can understand and want to hear again (and again . . . and again).  If only more lawyers could draft that way!

😎Notice of Appearance: Navin Nagrani, Executive Vice President and Principal at Hilco Real Estate.😎

This week we welcome a Notice of Appearance by Navin Nagrani - Executive Vice President and Principal at Hilco Real Estate.

PETITION: What is the best piece of advice that you’ve been given in your career?

NN: Seek out the trifecta! Pursue a career path that perfectly aligns with your passion, capabilities and ability to do well from a financial perspective. 

Along the way -be honest and authentic with yourself and others.

PETITION: What is the best book you’ve read that’s helped guide you in your career?

NN: The 7 Habits of Highly Effective People

This book contains very simple but powerful lessons that can be applied to both personal and professional development every single day.  It’s a book that I read early in my career and has served me well on countless occasions.    

PETITION: What is one notable trend you expect to see in the second half of ’18 or first quarter of '19 that not enough people are talking about?

NN: I spend a decent amount of time in the restaurant industry dealing with all sorts of real estate issues centered on restructurings, acquisitions, financings, etc.  It’s no secret that there has been a tremendous amount of distress/chaos in the casual dining arena which will certainly continue. One trend I’m starting to see are real cracks in the quick service (fast food) industry which should create opportunities for players in the restructuring/financing community over the next twelve months.     

PETITION: What is one longer-term disruptive trend that scares you?

NN: Changes in consumer behavior as it relates to how and where they shop and eat are creating numerous challenges to the way real estate is supposed to traditionally function.  If you are a retailer or a restaurant operator – how do you successfully navigate and modify your business model and associated real estate strategy based on these ongoing changes?

PETITION: On the flip side -- as a restructuring professional -- that excites you?

NN: For sure - with those challenges, come opportunities to assist in the repositioning of that real estate via our advisory group or potentially deploy capital.

PETITION: Outside of real estate – what area of the financial markets are you paying close attention to?

NN: Based on some recent calls I’ve been getting from workout professionals - there are a handful of BDCs (Business Development Companies) and other non-bank lending groups that have some real loan issues in their portfolio. In many cases – there were aggressive, covenant friendly loans made to private equity sponsors to support  an acquisition or recapitalization. The business underlying these loans faced some sort of hiccup or head-wind that has now resulted in an overleveraged situation where the equity sponsor is pretty much out of the money and doesn’t necessarily want to put new money in.  In this setting – there is a lack of liquidity and options available to fund the ongoing working capital and operations of the business.  With interest rates going up – this trend should likely increase and create numerous opportunities for the restructuring community.

Notice of Appearance: Gabriel MacConnaill, Partner at Sidley Austin LLP

This week we welcome a Notice of Appearance by Gabriel MacConaill, a partner in Sidley Austin LLP’s sunny Los Angeles office.

PETITION: What is the best piece of advice that you’ve been given in your career?

GM: Serious: “Observe successful people you admire and adopt the traits you can authentically inhabit.” Somewhat tongue in cheek: “Don’t **** it up.”

PETITION: What is the best book you’ve read that’s helped guide you in your career?

GM: Lawyering skills: The Curmudgeon’s Guide to Practicing Law by Mark Herrmann (especially recommended for younger lawyers). Substantive knowledge: Collier (I know, I’m a nerd).

PETITION: What is one notable trend you expect to see in the second half of ’18 or first quarter of '19 that not enough people are talking about?

GM: Increasing European impact on U.S. restructuring. Many public companies took advantage of tax advantaged structures since the last cycle (lots of double Irish with a Dutch sandwich etc.). In addition, international debt investing structures mean that there is a European bond overhang on more U.S.-based/U.S.-focused companies than the last time we ramped up. American professionals should be aware of potential solutions and leverage points available, particularly the flexibility of schemes of arrangement provided by our friends in the United Kingdom, and the framework for cooperation across European jurisdictions in the European regulation on insolvency proceedings.

PETITION: What is one longer-term disruptive trend that scares you?

GM: Kids aren’t watching traditional sports anymore. What am I going to do in my meager free time when those business models fail? Personal fears about professional hockey collapsing aside, higher education is something like one-sixth of the U.S. economy, mostly funded or guaranteed by you and me (taxpayers). What is going to happen if (when?) there is a mass default on student loans? We want distress, not destruction.

PETITION: On the flip side -- as a restructuring professional -- that excites you?

GM: Short-term memories in the financial sector (e.g. cov-lite loans account for the largest share of the leveraged loan market ever).

PETITION: What is the biggest threat to the bankruptcy system?

GM: Inflexibility. Whether by statutory fiat, or judicial decision, rigid rules work against the success of our system. See my answer above, some of the rest of the world is catching up; this is a competition and we should work purposefully to ensure the United States remains the restructuring destination of choice.

Notice of Appearance: Ted Stenger, Managing Director at AlixPartners LLC

This week PETITION welcomes a Notice of Appearance by Ted Stenger, Managing Director of AlixPartners LLC.

PETITION: What is the best piece of advice that you’ve been given in your career?

TS: I’ve been doing this for over 35 years and have received a lot of advice. Sifting through the years the advice, what sticks out the most was the line, “Successful people are prepared to be lucky.” There is an enormous amount of wisdom packed into those seven words, starting with the word “prepared.”

PETITION: What is the best book you’ve read that’s helped guide you in your career?

TS: I am not a fan of business books as I think they are largely written by people who simply re-package common sense and put a fancy name on it, like ‘transformative leadership.’ Having said that, early in my career I read Getting to Yes: Negotiating Agreement Without Giving In” by Roger Fisher and William L. Ury, which, as a young professional, I found very instructive as it focused, in part, on what motivates people on personal and emotive levels in negotiations.

PETITION: What is one notable trend you expect to see in the second half of ‘18 that not enough people are talking about?

TS: The bankruptcy and restructuring process has become very costly, especially in light of the fact that so many Chapter 11s today are almost exclusively focused only on the debt stack with little attention paid to fixing the operations of a debtor which often requires more time although it is where enterprise value is created. The profession needs to get more efficient, demonstrate better case management skills and therefore drive up the value equation. A soon-to-become-classic line from the 2017 movie, “Molly’s Game” sums it up. After Molly’s father, a psychologist, delivers very deep and meaningful insights to her, he says, “It is amazing what you can can accomplish in three minutes when you are not billing by the hour.” Nuff said.

PETITION: What is the most under-appreciated service restructuring professionals can provide a distressed client?

TS: Helping management redefine success, both for the organization and, perhaps just as importantly, at the personal level for the company leader. While restructurings and bankruptcies don’t have the “taint” of 30 years ago, they are still for most individuals and organizations seen, initially at least, as a failure. Many if not most clients have not been through real corporate trauma. There is fear and shame permeating the organization and its leadership. Restructuring professionals sometimes don’t fully appreciate this as we have already “seen the movie” many times. Therefore, helping re-define success as early in the process as possible can be a key element of a successful reorganization.

PETITION What is the biggest disservice that restructuring professionals are doing to clients? Don’t pull any punches.

TS: Clients need to understand what will happen in the beginning, middle and end of the restructuring, and understand it from several vantage points. Restructuring pros sometimes fall short on that front. The most obvious one is what is the legal and court process. Second, is fully explaining what the likely obstacles to a deal and what should be expected as to the behaviors of various constituents. Third, what are the implications to operations, employees and customers and how and when can they be addressed? All these are sometimes not done well by restructuring professionals, resulting in less efficient and effective restructurings. Or, in some instances, these things are done once, but not repeated enough. Or, in other situations, the professionals cannot explain all three, as they haven’t done their own homework and simply aren’t knowledgeable enough.

PETITION NOTE: Yikes. Sure sounds like clients are getting a ton of bang for that $1,750/hour buck.

Notice of Appearance: Jeremy VanEtten, Director at Gavin/Solmonese

This week PETITION welcomes a notice of appearance by Jeremy VanEtten, Director in the New York office of Gavin/Solmonese.

PETITION: What is the best advice you’ve gotten in your career?

Jeremy: Listen before you speak. Many times when people first meet me they think I’m quiet, reserved, and even shy. They couldn’t be more wrong. Early on in my career, I learned it's infinitely more important to understand what the other person is saying before formulating a response -- especially if there's conflict involved. Having a thoughtful response can go a long way towards building mutual understanding.

PETITION: What is the best book you’ve read that’s helped guide your career?

Jeremy: Who Moved my Cheese by Spencer Johnson.  When I’m in a rut, approaching a decision, or seeing change on the horizon, a quick visit with this book greatly helps frame my perspective.  The concepts in this book led to my two career changes including entering the restructuring industry. Understanding that I am solely responsible for my personal and professional success, and that I’m not owed anything from anyone is the key here. Get to a point where no one — or no set of circumstances — can take away your cheese.

PETITION: What is one notable trend you’re seeing in ‘18 that not enough people are talking about?

Jeremy: Deal flow seems to be getting more and more consolidated making it harder for mid-level, thirty-something, restructuring professionals to figure out the best way to land new engagements and cases. Many of us have been told: "Start by doing good work, network, attend industry conferences, volunteer, etc.... and it will all come together." But should those of us under forty rethink this formula? Do we need to finally understand personal branding and how to promote ourselves? Should we be expanding the list of organizations we actively participate in beyond the restructuring community? Do we really understand what the decision makers are looking for? All good questions when our industry is evolving. 

PETITION NOTE: Jeremy is the most “junior” person we’ve had in this NOA section and provides some on-point perspective. Thanks, Jeremy.

Many people are concerned about the dearth of deal flow and the concentration of (the limited) deal flow among a few select power players. Jeremy is correct: nobody owes you anything: you need to go out and make your own opportunities. What can you do — given the realities of the industry today — to win new business? What are realistic assumptions given your platform, your methods, and your teammates? What differentiates you from the rest of the pack? There are plenty of people networking and providing solid service. What other edge do you have? Aside from what your platform provides: what investments are you making in your own career? Who have you gotten in your corner to support you? All good questions.

Notice of Appearance: Larry Perkins, CEO and Founder of SierraConstellation Partners

PETITION: What is the best piece of advice that you’ve been given in your career?

LP: Making a quick and good decision with bad information is much better than a slow and perfect decision with perfect information.  In our business sometimes its better to make a pretty good quick decision rather than waiting too long and the decision being made for us.  This was taught to me by one of my mentors 15 years ago and has stuck with me.

PETITION: What is the best book you’ve read that’s helped guide you in your career?

LP: As cliché as it may sound, both Fountainhead and Atlas Shrugged by Ayn Rand have had a huge impact on my life. I think the focus on independence, objective thinking, and having a philosophical spine (regardless of whether you agree with it) have turned me into a better practitioner and leader. I also think there is a big emphasis on non-conformist thinking which is, in my opinion, the essence of creative thinking and solution making.

PETITION: What is one notable trend you expect to see in the second half of ‘18 that not enough people are talking about?

LP: More of the same. I think people are expecting things to change, but I don’t see it.  There is a lot of talk about a restructuring bubble building, maturities rising, a new real estate bubble, and other themes like this that I’ve heard throughout my career. I’d expect that things will basically stay as they are right now until something absurd or otherwise totally unexpected comes and punches us all in the mouth.

PETITION NOTE: This is a fair point. Everyone gets in the business of prognosticating but the last several cycles started due to wholly unforeseeable exogenous events.

PETITION: What is the most under-appreciated service restructuring professionals can provide a distressed client?

LP: Emotional support of clients and principals. We work primarily with middle market companies — including family-owned businesses. Compassion and empathy are underrated skill sets. We could callously conclude “this is just business,” but, ultimately, we’re dealing with emotional beings caught in an insanely stressful situation. People find themselves retaining us because something bad usually happened, and its very rare that those bad decisions that led to our retention were intentional or otherwise nefarious. I go into situations without preconceived judgement and with the objective of understanding a situation rather than rashly concluding that a person is dumb or unsophisticated. It’s rarely the case that someone is those things, and it’s dangerous as a practitioner to assume so.   

PETITION: What is the biggest disservice that restructuring professionals are doing to clients?

LP: Restructuring — particularly formal restructurings — have devolved into a very litigious, expensive, and inefficient way to work out complex situations. A big part of this is the e-mail “thuggery” that is prevalent in these situations: it is more focused on getting a “gotcha” rather than a solution. If people really were trying to get to the right answer, I’d expect that there would be a whole lot more phone calls and face-to-face meetings, rather than 30 person CC lists and 27 versions of documents. If we take the approach that we’re trying to solve the problem, park aside the anger and posturing that comes with the process, and try to work towards a solution knowing that everyone is being impacted, we’ll collectively provide more value to our clients.