Even in filing for bankruptcy, you should question your advisors

For the uninitiated, Chapter 11, as succinctly explained by Investopedia, is “a type of bankruptcy that reorganises a struggling company’s debts to allow it to stay open and become solvent”.

Not just numbers

The Chapter 11 process began on 5 July 2022 for SAS. Andrén recalled sitting in a “war room” set-up on the morning of the filing with “an army of advisors”. His job was to call the firm’s most important financial stakeholders to inform them of the filing. Turns out, restructuring isn’t just about the numbers, but also about relationship management.

“You have a lot of relationships that you  value that are important for the business, that you will still need following a restructuring,” he says. “You have to be mindful that there are people on the other side, sitting with this, who have provided you with various financial products and will have to bear some of the  restructuring burden as well.”

Against the grain

Operationally, some of the strategies that had to be taken felt counterintuitive. Chapter 11 requires differentition between pre-petition claims and post-petition claims – invoices were not to be paid in full; some had to be partially paid, while others were not to be paid at all. This meant that payments could no longer be automated, but had to be examined individually.  “We spent a lot of time making manual payments on behalf of the entire organsation – manual payments that we had been trying to automate away,” Andrén reveals.

Debtor-in-possession (DIP) financing under Chapter 11 is a feature that gives creditors who provide these loans priority over creditors of the company’s other existing debts. Putting this in place added a new level of reporting requirement to the restructuring process – the fact that Chapter 11 is a very public procedure only exacerbated the issue. Cashflow forecasting became a weekly affair.

Two aspects where the firm tried to maintain a sense of normalcy was FX hedging and cash management. It achieved this by putting in place first day motions, which are a set of approvals that allows the filing firm to “carry on without having to go to the court every time”.

A new page

After being in Chapter 11 for 26 months, SAS made it out on the other side alive – or more aptly, still airborne. For Andrén, the focus is now on reestablishing the firm with a healthier balance sheet and better credit metrics than before.

He shares a few lessons with the audience: “Stick as much as you can to the processes that you have in place. Build off of those processes. Don’t go out and try to create new ones.”

It might also be beneficial to consider the necessity of every stage of the process – even if it might seem daunting to question a legal proceeding that most treasuers would, ideally, never have to experience in their career. “Everything is new to you, so you listen to your advisors because they’ve done it before,” Andrén commiserates.

“But before you know it, you will end up in many processes that are set up with many expensive people… And the clock is ticking. So question your advisors – do you need to do everything? Try to find a right balance in that.”

Speakers:
Erik Andren, Group Treasurer, SAS – Scandinavian Airlines
Philip Grist, Head of Large/Mid Corporate FX Sales, SEB

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