CRG Newsletter

Hot topics and trends in corporate restructuring

The Deloitte CRG Newsletter addresses the current state and outlook for the CRG practice, including recent engagements, announcements, case studies, and upcoming events.


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CRG December: A year in perspective

A year ago we wrote that it was difficult to tell whether the economy was recovering or still struggling–as 2014 draws to a close, it would seem that we are indeed returning to growth mode, with gross domestic product growth at 3.9% for the third quarter and a combined 4.25% through the six months ended September 30. Less clear is whether the sudden drop in oil prices will on balance help or hurt.

Consumers may have more in their pocket to spend, but on the other hand much of our recent economic growth has been driven by the energy sector. Regardless, whatever salutary impact lower energy costs do have on total consumer spending, recent Bureau of Labor Statistics (BLS) data suggests the retail, restaurants, apparel/textiles, and other consumer-oriented sectors may not see as much of a boost as we might presume. The steady upward march of healthcare costs and other necessities over the last several years is crowding out discretionary spending.

According to analysis of BLS data by the Wall Street Journal, for the middle class–defined as having annual income between $18,000 and $95,000 before taxes, i.e., the “middle 60%” by income–not only have incomes stagnated, growing less than half a percent between 2007 and 2013, versus inflation of 12% over the period, total healthcare spending is up 24%. Insurance premiums alone are up a shocking (or not) 42%. Groceries, rent, education, and especially digital connectivity (cell phones, cable/satellite TV, internet access) are up significantly as well. With total spending only up 2.3% over the period, the math seems clear–non-essentials remain under pressure despite growth in the larger economy. It may cost less to fill up at the pump, but those savings may already be spoken for. Furthermore, keep in mind that this data pre-dates the Affordable Care Act (ACA), which will likely drive healthcare spending higher as more households obtain health insurance. The newly enrolled may have to cut spending back elsewhere as they pay insurance premiums for the first time.

In our practice, energy-related engagements are of course increasing, particularly in Exploration & Production and Oilfield Services & Equipment, but we are also hearing rumblings in the retail and consumer sectors, and expect to see more activity there in the coming year. Even healthcare providers are seeking our assistance as the implementation of ACA disrupts the “normal” flow of reimbursements and minimum wage hikes in various jurisdictions create cost pressure.

Wherever our work takes us over the next year, to the oil patch, the shopping mall, or somewhere else, and whether involving complex restructurings or targeted performance improvement, we look forward to a busy 2015, and thank all of you who have supported our practice in 2014 and in years past. Deloitte CRG wishes you and yours the Happiest of Holidays and a prosperous New Year.

Become a leader of change: Managing through your company's liquidity crisis

Rudy Morando and Sugi Hadiwijaya, both senior managers with Deloitte CRG, give insight into managing a distressed company in a liquidity crisis. Accepting the challenge and becoming a leader for change are important steps towards company rehabilitation. Rudy and Sugi discuss how having the right mindset and tools to address the challenge can be the difference between a successful recovery and a failed business.

New chapter for innovative retailer

After a disappointing holiday season, Brookstone fell into default with their senior lender and was close to default on their second lien bond debt. The specialty retailer was under enormous pressure to resolve their balance sheet challenges immediately. While the company's first lien lender seemed comfortably secured by assets, it was unclear how other creditors would fare if the situation worsened. As a result, the lenders turned up the heat on the company to sell itself very fast, a process that most likely would have reduced recoveries even further. Instead, by working quickly, Deloitte CRG bought time for Brookstone's investment banker to execute on a sale process in a reasonable time frame to a strategic buyer, avoiding a 'fire sale' and yielding a far better outcome for all parties. Not only did the senior lender get paid in full, the second lien bondholder's recovery is significantly higher than originally anticipated, the company and brand will continue intact with few, if any, projected store closures, and the vendors will be largely uncompromised.

Working closely with management, the Deloitte CRG team first put together a credible weekly financial picture that reassured the senior secured lender there was sufficient time to run an expedited sale process. The investment banker, with Deloitte CRG's close support, signed up a stalking horse bidder for a plan of reorganization. Deloitte CRG, along with Brookstone's investment banker and bankruptcy counsel, then assisted Brookstone management through negotiations over a pre-arranged bankruptcy filing and developed a Plan contemplating a stock sale through an auction process that yielded an Enterprise Value of approximately $173 million (17x FY 2013 EBITDA). The successful sale process not only rescued the company, it saved over 3,000 jobs.

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Scott Avila

Principal | Deloitte CRG


William Snyder

Principal | National Leader | Deloitte CRG


Louis E. Robichaux IV

Principal | Deloitte CRG

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