When we negotiate with banks and other creditors on a client’s behalf, it is with the company's overarching business goals, concerns, and priorities in mind. The aim of these negotiations – or workouts – is to reduce debt or extend payment terms so the company can service its obligations going forward. Often called an "out-of-court restructuring," a workout is designed to get a company the relief it needs without resorting to the more complex, formal, and expensive Chapter 11 process.

 

Workouts are rarely simple, but many are straightforward, involving a single primary lender, where the company hires an experienced restructuring lawyer to run the negotiations, allowing management to remain focused on running the business. The best time to talk with a restructuring attorney is when management realizes that cash flow will not support the current debt load or that refinancing existing loans will be problematic. But the typical catalyst is receiving notification that a company's bank has moved its loans to "Special Assets," aka the collection/workout department. As discussed in Surviving Special Assets, no business should attempt to navigate Special Assets without guidance from an experienced restructuring attorney.   

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In just about every workout, it is the credible threat of Chapter 11, overt or implied, and the lender's likely outcome in that scenario, that motivates them to negotiate. Put another way, a successful workout takes place "in the shadow" of Chapter 11. That's the reason we talk about Chapter 11 even though the goal is to avoid it, and that's why it's crucial a company hires a highly skilled Chapter 11 attorney to run its workout.