C Street’s Jon Henes: Insights into Corporate Communications in Restructuring

Welcome to the Rear Work Primary Review where we cover the latest developments in high yield, distress, and bankruptcy and feature discussions on issues affecting distress at leverage finance, direct lending, high yield bonds, high yield municipal's covenants, private credit and middle market companies. I'm David Zupkiss. This week's senior reporter Jeff Burrow speaks with John Hennesse, CEO of Seastreet Advisory Group on the Royal Corporate Communication Firms Play in the Restructuring World. Seastreet's expansion, managing communications for liability management transactions, and AI innovations in the space. And as always, we bring you our weekly summary of interesting developments in the restructuring world as well as a preview of what's on tap for next week. It's Monday, June 10th. Welcome to the Rear Work Primary Review. My name is Jeff Burrow's and this day we're talking with John Hennesse, CEO of Seastreet Advisory, about corporate communications and the growth of Seastreet over the past three years. Welcome, John. Thank you so much, Jeff. I appreciate being on and I want to say I'm a huge fan of Rear Work both in all the information that we can clean, but also the way you guys write your stories. You're always interested in getting all the facts out there as opposed to just gotchas. So I appreciate that very much. I appreciate the kind of words. You actually spoke of this before. I think the last time you spoke with us was in January of last year, but the restructuring world and I'm sure Seastreet's changed quite a bit since then. I just wanted, you know, one if you could touch on how it's changed and where you see the firm evolving two next. Sure. Yeah, and I think last time I spoke with Rear was January of 23, I think. It was about crypto and we were in kind of that crypto, you know, we're all the everything crypto all the time. You know, at that point in time, we had really just started to get our legs under us. We had seven employees at the time. We had got, we were working with Celsius. We were working with BlockFi. We had a few other companies that were out there since that time, you know, as of today we're 30 people. So we've had big growth. We've been working on everything from liability management transactions to big large chapter 11 cases to everything in between. And our focus has been on continuing to grow out that restructuring special situations expertise. So what we've done is we've combined strategic communications professionals with restructuring lawyers who are now communication professionals where we think that just provides a differentiated service that from us where we have people who literally lived in the trenches on restructuring deals. We have people who understand the dynamics and the players involved. We understand not just what's happening but what's going to happen next so we can provide that real, true high level advice. And then on top of it we also coordinate with all the other professionals that are in each situation to make sure that all of the messaging is consistent, is strong and there's never a gap in between what one group of people at a company may be saying is opposed to another. So we've had a lot of luck with that. We have an amazing, amazing team that we've built out of people who are just dedicated to the best client service who I think have now done more restructuring than anyone else in the business. We've had over 50 engagements since January of 23 and we continue to work really hard to just do the best work for our clients. Yeah, I feel like it's every day that I see you guys have hired someone new and they're doing a more unique part of the restructuring landscape than before. So congrats on the growth, congrats on the additions you see and the future avenues that have been going to touch on live building management stuff. Next, that's super interesting. But do you see any other avenues in particular that you all try to grow into? Sure, no, no, we do. We're very thoughtful on how we're growing the business and clearly our corporate businesses in special situations. When you get involved in special situations and I want to come back to one thing in a moment, you other issues arise. You can have a crisis that arises. You can have an acquisition or a purchase that's going to arise. So as we've been working through all the special situations, we've also been gaining deep experience and we have a team members that have joined us with that experience in crisis and issues management in M&A. So those are logical next steps for us. And in fact, of those more than 50 engagements that we had, six, seven of them were pure crisis, not what I would call restructuring special situations. So we're looking at that. And then as we build those areas out as well, we're also going to be looking to expand into other areas. But we're not a one-stop shop for kind of everything that everybody needs. Based on the team that we've put together in our experience, our collective experience, we're really in there for the situations that need that high level, high touch, sophisticated advice that understand the dynamics of these situations that can work well with the other professionals. And support the internal teams, we're really building that out. And I think building it out in a very different way. One other thing, not to continue to talk. I look at it from when I came over from Kirkland. When Kirkland and Ellis jumps into a situation, you embed yourself with the company. You understand the situation incredibly well. You're there to support the internal team. But you're also one of the reasons you're getting hired is to provide that experience and that expertise. That's what we have. So as we set out to start the company in special situations, what I looked at was the landscape and said, when a company gets into some sort of financial distress and it needs to work through it, it goes out in hires, lawyers, bankers, and financial advisors that have that in-depth experience. But on the communication side, you didn't really have a firm that was out there that truly had that in-depth on the ground, living, breathing, and everyday experience. And that's what we set up. So now when a company gets into that financial distress, it also has a strategic comes from to go to that has the experience to go along with the other professionals. So coming back to your question, we're looking to build that out, or I shouldn't even say, I mean, we are already building that out and getting traction on the crisis and M&A front to build into other areas as well that need that real high level sophisticated advice. Awesome. I mean, the growth is obviously happening, but the core product that's not situations has been hot this past year since you've talked last talked to us, especially the world reliability management exercises and transactions. I mean, these have been staples of their structure in the world for the past several years, but really feel like in the past years, it's heated up in several situations that I know I'm sure C Street's been involved and I know Reargette they're reporting on that have added complexity to reporting and how to manage the transactions. And running from the comms perspective of things, I imagine a liability management transaction is more complex than our ads and new complexity than a typical chapter, love and filing, and maybe the restructuring process is old. If you could just touch on some of the complexities of managing these liability management exercises. Yeah. So liability management transactions, obviously there's a wide range of what liability transactions means. There's all different types, there's aggressive uptears and other situations, there's collective variety deals. So there's lots of different types of deals and it is complex. And it's complex because on the legal side, the lawyers are looking at these documents to see what they can do and what they can't do or what can be interpreted one way or another. If they're aggressive, you have to anticipate that there's going to be litigation around it. It's more of a parrhora of deal, there you may be focused more on how is the media actually portraying it and making sure the media is getting it right. So there's a lot that goes into it. We started a dedicated liability management practice and our view was we were seeing so many of these deals, they are so complex, they are so different. And if you haven't been involved with them actually doing the transactions, it's very hard to take that complicated complex transaction and translate it into a digestible piece of information. And we thought that we would be uniquely situated to do that. We added Whitney Focalberg from Kirkland, she was a partner of Kirkland, who I had worked with a lot when I was there who came to join us and is really just enhanced our team so much and is taken on the lead with Luke Wolff on the liability management transactions and they do other things as well. but that is their specialty. And what we've seen is two different situations. One is private companies, the other with public companies. With private companies, a lot of it is around explaining to private equity funds, LPs, what is going on. A lot of it is talking to the media and explaining things. We actually had a situation with ReOrg, which went really well at the end of the day on go2.com, because I think the initial thought at ReOrg was, this is kind of like all these other coercive deals that are out there. But after we sat and talked and explained the situation, it was, this is not actually coercive. This is actually very fair. We were able to explain why were there different differentiations and discounts? What was the deal really doing? How was it really going to help? And so that and that press getting out there in a telling the full story and the real story is incredibly helpful to the company. On the public company side, you have the additional communication need with respect to your shareholders and with the equity analysts and making sure they understand it, because obviously they're not living in that liability management transaction world. So it is really complex. They're all different. They're fun and exciting deals to be involved in. And we really think we've carved out a niche there that there's just no one else in the marketplace that has the experience in these liability management transactions to truly add real value and communicating about them. - Yeah, and from everything that we see, they're not going away any time soon and the market seems to be receptive in some degree to even to non-pro-rata exercises at times, just to help these companies write size of the capital structures, so asking a dedicated team and everything. - It's interesting. I've been doing this for a really, really long time. I've been in the restructuring world in earnest, I would say. So since I graduated from law school in 1996, so almost 30 years. And there's always, there's kind of an evolution, right? So when I first got involved in the restructuring world, you had the big banks that they didn't want to own any companies. They just wanted to work out their loans and you would have a creditors committee that would be involved, but it wasn't really that aggressive for the most part. And the debt are really kind of controlled the entire situation. And that evolved into having all these distressed hedge funds that were playing in the loan-owned world, right? Where they were seeing these companies that were good companies with bad balance sheets and that they could buy in and it'd discount, they could own it. Now with the whole direct lending and the CLOs, it's a different dynamic. And so there is that opportunity for these liability management transactions. And when you think about it, a lot of these, they're really looking ahead, right? They don't have a maturity until 26, 27, maybe 28, but they're already looking ahead at how does the company get more runway, how does the company get more liquidity? How does the company reduce debt out of court in these liability management transactions? And how are they closing some of the wide open documents that allow companies to do the kind of whatever they want? And so it's this mutually beneficial world that we're starting to see with companies really looking ahead on their capital structures. I think at the same time, you're always gonna have companies that will need chapter 11 based on either changes in industry or just way too much debt where you can't figure out a real liability management transaction or an upcoming maturity that was just too soon. But we are, as always, seeing different innovations and different dynamics in the restructure world. - Right, and I remember reporting on some liable management transactions, some double dips, the technology that's at hand for professionals to implement is at least in my time reporting on the industries that have been, never been larger. And I'm sure it makes your job major, and I don't think it's my job for interesting. I want to touch on one thing I had, which is also looking forward, calm space broadly, but also sea streets specifically, where are you seeing some developments in being able to best help your clients and help the folks that you work with, manage communications, and then there's all these new technologies that are impacting all of us such as AI, how are you seeing that make its way to the calm space and improve some of the processes that you all implement? - So I'll take them one at a time. On the calm space, and I say this to clients or prospective clients, when a company is doing well, communication obviously is really important. You want to position your company in the right way, but the communications are usually about you're growing more employees, you have a new product. Earnings are up, something good is happening. So it's pretty much cruise control, everybody's happy, and you're trying to just build and build value. When a company gets into some sort of distress, and that can be anything from going concern qualification or needing to, you know, your financials, you can't get them out in time, you know, it can be lots of different things, a change in the market that impacts your business. Then every stakeholder starts to ask questions, right? And they're hard questions, right? Employees will ask, what does that mean for us and our jobs or how do I communicate with the stakeholders, the customers or vendors that I'm talking to? You know, customers, should they stay with the company or not stay with the company? Perspective customers are, they're shying away. Vendors made tight in terms, the media is like all over, trying to break stories. So all of a sudden you have this world that isn't what companies are used to. And so we see that, that's the opportunity that we saw, which is it's so important to have a strategic plan for communications in place when that starts to happen. And it's having that foundation to build on as the company moves forward, whichever direction it starts to move, right? Because it could move into a liability management transaction that'll get done well. It could go downhill faster. But we want to avoid as much as you can, all the difficulties. And if you have a real plan in place and understand the process and are working with the other professionals, you can really help preserve if not even maximize value. And I used to see a lot of the time when I was a lawyer, just the failure of companies to communicate well. And as a result, all of a sudden, they have a liquidity issue because vendors start to get nervous. There's not a good communication plan with them. They tighten liquidity company says, oh, we thought we had six months of liquidity. Now we have two. That's a really tough place to be in. So coming in and really understanding that and helping, I think, is what we see in every aspect. And I'll say this is because I talked about crisis, M&A, those types of situations. It's really not that different, right? A crisis obviously can be a true existential threat to a company. And so getting in there, learning quickly, getting a plan together and then building on it, one, to deal with that initial crisis. But then second, to make sure you have a preparedness plan in place to deal with crises that may come up in the future. M&A, right? That's an exciting time because you're doing a transaction. We still have a lot of questions from customers, employees, everybody else, so understanding it. So we look at those transactions all kind of very similar and jumping in to really help provide not just a-- it's not about a rate of pressure release, it's not about just talking to the press. It's an overall strategic plan just like you would have in any other aspect of your business. With respect to new technologies, obviously, AI is the talk of the town and the talk of the day, and probably going to be the talk of the day for a long time. And we are already seeing what can be really big benefits to AI. We see it internally, but also with clients. And I believe the world is changing in this area really fast. And I know that's not like a eureka or such a smart thing to say, is everybody thinks it. But I think it's going to have big changes in the strategic communication/PR space. For instance, I think, for drafting documents, right? Things that would take people, especially the younger people, a while to put together, get it into drafts, to then get up to senior people to review. That's going to take a lot less time. I would think we're talking like a 90% reduction and how long it's going to take to get a press release or a Q&A or another document together. Because even now, if you just go and use chat, GPT, and you throw in a bunch of notes and say, here's a press release. Here are examples of six press releases we've just done. We wanted in this voice, here's the notes, right? In here are the names. It'll spit out something that would have taken somebody 20, 30 minutes to do that is spit out in two minutes. And that you can now be working on. And so what we're doing internally is with our processes that we do on the human level, we're now combining those with AI. And what we're finding is just huge efficiencies for our business. which is huge, efficient for our clients. It also frees up a lot of time to do what clients really truly are paying for and should be paying for, which is that high level strategic and sophisticated advice that they need, as opposed to paying for a lot of the work of just putting documents together. And so what I think we're gonna see is, I think we're gonna see clients demanding changes in how PR firms and strategic communications firms charge. I think they're gonna go away from hourly billing and they're gonna be pushing for either some sort of hybrid billing or just purely a monthly billing rate that everybody gets comfortable with. And I think one of the advantages that we have is by starting, you know, over the last two and a half years, we already, the vast majority of our clients and we work with, we do on a monthly billing rate. And that is a dynamic billing rate because it's a dynamic relationship and it's a relationship that we really wanna be partners. So we're always talking to our clients, we're always looking at what's happening, is the scope increasing or decreasing because with that there should be a change in what we're getting paid. That's only fair to the client, it's only fair to us. And I think that as AI develops even more, and I think this is in the next six months, not the next six years, I think clients are gonna say, I don't wanna pay for having an analyst sit down and do, the first draft of a repressible lease. I can probably put that into GPT and send you something. What I wanna pay for is getting those press releases, getting those other documents, getting those media plans, getting all the stuff that you prepare perfect for us with that high level thinking. I wanna get you on the phone to help us think through how we're gonna be talking to our suppliers and our employees. I want you to help us train our internal people to do that. I want the support because there's so much going on where you're helping with that. That's what I'm paying for. That's the value I'm paying for. So I think it's gonna be a much different value proposition that clients are looking at. And I think we are again, uniquely positioned to do that because we're already on it. I will say this, I get this a lot from people who will say to me that are in our business, it seems like you're leaving a lot of money on the table. And I could give, I won't do it now 'cause I won't call out situations but we definitely have clients because we'll keep hours just internally. And we've seen what those hours, what we would have made billing by the hour and what we actually are making billing in our way. And almost always, there's a very big discrepancy. And so people will ask me, well, why would you ever do that? And my answer is always the same, which is we're not in this for the short term, we're in this for the long term. It's all about providing the best service to our clients. To do that, we need to be able to put the people in place that the clients need, we need to do the work that's necessary. We never want clients to be looking at, well, how many hours are you spending or how many people are you putting on something? Because if we do that amazing work, what's gonna happen is we're just gonna get more and more of it because clients and new clients are gonna say, C Street's gonna be our true partner in this. And that is going to provide them with the best service they could get and it allows us to continue to grow. So that was a long-winded answer. - No, no, you see even with the money on the stall on tape, we seem to be doing great and growing. So you didn't something right? - Where we have, I will say this. And I was just saying this to somebody this morning, one of our team members was asking me about business development and how it worked and how we'd grown. And I said, there's kind of, I'll call it two stages, I usually say three, but the first stage was just begging and pleading, right? It was going to everybody that I knew and just saying, please give us something, give us the opportunity, let us show you what we can do. And then what I say is the second stage is referrals, right? So people we work with that say, we wanna refer something to you or people that are hearing about us. And that's all about our team, right? That is very little to do with me and everything to do with the members of our team. Those 30 people who every day are providing such amazing service to clients who are working so well with the other professionals. That's what gets clients to either come back or first time clients to hire you. That amazing work. And so what I tell our team all the time is, it's going above and beyond for clients. We have an expectation here of people being great. Our expectation is not people being good or good enough. It's to be great. And with that, there's a big burden because, if you're not doing something great, you're gonna hear about it. And we tell people when we're interviewing, you know, if you wanna be great, come here. If you wanna be good, you can go someplace else. - Well listen, John, we can talk about this forever. I can talk about live, I mean, it manages us forever. But I really do appreciate you joined the podcast, Wendy, your thoughts and for everybody listening, we'll have another episode next week. Thanks. - Great, thank you so much, Jeff. (upbeat music) We're in court coverage this week. We take a look at Hornblower and Kaiser Gypsum. Also, the SEC suffers a setback in regulating private funds. And the latest in a David R. Jones scandal out of the Southern District of Texas. Last Friday, Judge Marvin Isger issued a memorandum opinion in order to confirming the Hornblower debtors pre-arranged plan of reorganization, overruling the sole remaining objection of our Gnonturance company. Detters and the Shreddy provider have been a loggerhead over the payment of priority customer refund claims. Against two of the debtors for domestic cruises, canceled the priority of the petition date. In a major blow to the US Securities and Exchange Commission's regulatory agenda under SEC Chair Gary Gensler, a three-judge panel of the US Court of Appeals to the Fifth Circuit vacated in its entirety of the agency's 2023 final rule to impose sweeping new regulations on the $26 trillion private funds industry. The panel issued a unanimous decision on June 5th, holding the SEC exceeded its statutory authority in adopting the regulations, saying that no part of it could stand. The Fifth Circuit rejects the SEC's argument that the Dodd-Frank Act of 2010 expanded the Commission's rulemaking authority to cover private fund advisors and notes the private funds, which are only available to highly sophisticated investors, had historically been understood not to present the same dangers to the public market. The US Supreme Court issued a unanimous opinion on June 6th in truck insurance exchange petitioner versus Kaiser Gypsum, reversing a decision from the US Court of Appeals in the Fourth Circuit, holding that an insurer with financial responsibility for bankruptcy claim is not a party of interest. The opinion holds that an insurer with financial responsibility for bankruptcy claims is a party of interest under Section 1109, be of the bankruptcy code that may raise and may appear and be heard on any issue in a chapter-loving case. An insurer with financial responsibility for a bankruptcy claim, the opinion states, is, quote, "sufficiently concerned with or affected by the proceedings to be a party of interest with the ability to object to a reorganization plan." After hearing oral argument on June 6th, US District Judge Leah Moses reserved judgment on motions to dismiss former McDermott shareholder Michael Van Dielin's Riko suit over former Judge David R Jones' undisclosed relationship with Elizabeth Freeman. Judge Moses took under advisement the motions to dismiss from all four defendants, Jones, Freeman, and law firms Kirkland Ellis and Jackson Walker, and Kirkland's motion for sanctions against Van Dielin and his counsel. However, the judge said it was clear that Jones should have disqualified himself from the McDermott bankruptcy proceedings from day one because of his relationship with Freeman. Hertz, Zaeo, group holdings, all T-C-USA and Explorer ran out this week's crop of near-term restructuring and refinancing. An ad hoc group of Hertz, unsecured bondholders is mobilizing with advisors after Hertz posted a significant decline in first quarter 2024 earnings. In late April, Hertz disclosed first quarter 2024 adjusted corporate EBDA of negative $567 million compared to $237 million reported for the same period a year earlier. The company attributed the decline in adjusted EBDA to a $588 million increase in vehicle depreciation compared to the first quarter of 2023, of which $195 million related to electric vehicles had helped for sale. Hertz says it has commenced broad fleet refresh during the quarter and has revenue and cost initiatives in place to enhance its future profitability. We published an analysis last week of Zaeo groups' ability to issue asset-back securities and tap into a growing trend of fiber-based communications providers, such as MetroNet, Frontier Communications, and Summit IG. The analysis also compared Zaeo's financial trends with aggregated financials of other fiber-tell communications providers with information provided by fundamentals by ReerG. To access the full analysis, please reach out to ReerG representative. All T-C USA's likely to face cash flow challenges in 2024 and 2025 according to an analysis published by ReerG as an environment with low level of housing move seems to be placing pressure on net broadband subscriber growth while the company's pay television business continues to slowly degrade. ReerG calculated free cash flow was $30 million in 2023, which appears at risk of turning slightly negative in 2020. 2024 after the company's recent bond issuance that will raise cash interest expense. Explore is negotiating a transaction to give existing lenders take back paper and equity as part of the company's installancy proceeding in Canada. On June 3rd, the Canadian court entered a preliminary stay in favor, which sought a state to protect it from satellite providers potentially cutting services. Popred stories as we concluded academic roundup 2023-2024 with the Harvard Law School Bank of Sea Roundtable. Court opinion review, secrecy in Genesis Global Hawaii Fire Victims Reject statutory compensation fund, Invesco puts the parade of wonderful on the record in Robert Shaw, independent fiduciaries in Appgate and the fiduciary duty dilemma in yellow. Litigation coverage, Letinhall Capital presses for TRO against 777 partners, the senior creditor Acap exercises undue influence over 777 restructuring advisor B. Riley. And now here's Kate Thomas from New York with the Week ahead. Welcome to the Week ahead. My name is Kate Thomas and here are a few court hearing highlights from the upcoming week. A longer schedule of hearings can be found under America's Week ahead on the Rear website. Things kick off on Monday with the thrasio debtors contested confirmation hearing. The debtors recently reached a plan settlement agreement with the official committee of Unsehered creditors over the split of litigation proceeds under the pre-arranged plan. However, the company's co-founder and former co-CEO Joshua Silverstein, one of the litigation targets, and the U.S. trustee have objected to the plan, citing its overly broad releases. On Tuesday, the NVJ Corp debtors will be in court for approval of their disclosure statement, which provides for planned solicitation only to holders of 2028 senior secured notes, the participants and the debtors 2023 up-tier exchange transaction. The debtors face an objection from the official committee of Unsehered creditors, which says the plan should be solicited to all unsehered claims. The UCC is seeking derivative standing to pursue claims related to the up-tiered transaction, and says that if those claims are successful, the consent of unsehered creditors will be necessary for planned confirmation. Then on Thursday, the accord of therapeutic setters will seek disclosure statement approval over objections from the official committee of unsehered creditors and the U.S. trustee. According to the objectors, the disclosure statement contains insufficient and misleading information regarding the plan releases. Last up on Friday, the NVJ debtors make a case to Judge Brian Kenny to reconsider his recent ruling denying their retention of Vincent and Elkins as General bankruptcy counsel. Judge Kenny found that the firm's concurrent representation of an NVJ equity holder Riverstone and unrelated matters creates an actual conflict of interest. Under the debtors' restructuring support agreement, Riverstone would retain 5% of reorganized equity. The judge found that Vincent and Elkins cannot be expected to negotiate a plan that contravenes the interests of a $14 million client, and that such a core function of bankruptcy counsel cannot be delegated to Conflicts Council. That's it for now. For more on the week ahead, check out America's Week ahead on the Rear website and have a great week. Thank you again for tuning in to the Rear Primary Review and our weekly review. Find all our podcasts on the rear.com webinars and podcast page as well as Spotify, iTunes, SoundCloud and Amazon. Take care and see you all next week.