Bankruptcy consultants have their hands full
The ongoing oil bust has left the energy sector deeply wounded, but business is booming for Bryan Gas ton, who joined Houston-based energy consulting firm Opportune a year ago.
Gas ton isa managing director focused on corporate restructuring—mostly bankruptcies—in the oil and gas sector.
About 230 North American energy companies have filed for bankruptcy since the beginning of 2015, and nearly half of them are based out of Texas, according to a count by Dallas law firm Haynes &Boone.
Q: How much has your niche in the energy sector changed of late?
A: There wasn’t a lot going on for a restructuring professional here in Houston from 2005 up until about two years ago. That’s changed a lot. A lot of firms have opened offices here. There’s a lot more restructuring talent based here now than ever. It’s been a whirlwind.
Q: Is a bust ideal for you or is something in between preferred?
A: It’s fortunate for a restructuring professional when an industry downturn this significant occurs. There’s just been a lot of work. This business can be so lumpy. It’s feast or famine. You want some level of distress, but you want a mix. If you have companies in trouble, capital is still going to be part of the solution. But you don’t want it to be so easily accessible and so inexpensive that there’s really never a need to have a restructuring professional come in and really deal with fundamental problems.
Q: What kinds of problems?
A: A lot of these things just get intensified during a downturn. Sloppy may be a loose term. Maybe a lack of discipline is a better way to put it. I think you’re able to, in good times, kind of mask that inefficiency. You can’t deal with it when you’re in a distressed situation. You have too much pressure from your lenders; they won’t advance you new money. Then you’re upside down very quickly.
Q: You handled the recent bankruptcy and total assets sale to Spain-based Tubos Reunidos. How did that process go?
A: I think the drop in their topline revenue was so fast, so steep, I think they were probably surprised by how much more aggressive the steps that I recommended they needed to take were. They felt they had done all the right things. They had people on payroll to use the equipment and fill orders if they did come in the door. But someone had got to fund that cash burn. The question is, does someone have the stomach to fund that loss? Thankfully, the lender was rational and saw that.
Q: How did it play out?
A: We were outside of bankruptcy court for several months, and we used that time to run a sale process. The main goal in that time was to identify a stalking-horse bidder who’s done their due diligence and signed an agreement that’s fully negotiated. The goal is to go into court and bid this up, and that’s exactly what happened. It was through Chapter 11. Vallourec was the stalking-horse buyer. An auction ensured and, ultimately, the winning bidder was Tubos Reunidos.
Q: Is it more common for companies to emerge from bankruptcy or be sold for parts?
A: You still see those that emerge. Largely the same company that went in remains intact but is recapitalized and restructured internally and then emerges. The ownership may look a little bit different, often does. But those are less common. The process is expensive and the plan typically takes longer. With a sale transaction, the process is more efficient, and you’re in and out of court quicker.
Q: What’s it like for rankand-file workers when the company is filing for bankruptcy?
A: There’s a high degree of stress. You can see that; you can feel it. As bad as a situation might be where a company is in bankruptcy or laying off people in large numbers, the people who remain still have few options. You don’t see a significant number of people leave on their own — they may want to or they’d like to — but there’s so few opportunities in the rest of the market. But there’s potential life after this process. There’s new money that funds payroll and funds a process, with a goal of keeping the business as intact as possible.
Q: Why is that?
A: Chapter 11 by definition is reorganization. A lot of other countries don’t have a similar process. They are less willing to let a business rehabilitate. The U.S. is more unique in that regard. Is there a business to save? Can it be restructured? If so, is that a better alternative —even if the creditors take a 50 percent discount on what they were owed — to getting nothing at all? New money is injected into the process. You’re actually a better credit risk, ironically, while you’re in Chapter 11 than before you file.
Q: Why are companies so loath to use the word bankruptcy?
A: I think it goes back to perception. There’s a message companies are probably trying to send to the market, ‘We’re here, and we’re going to be here.’ There’s an element of that negative connotation of failure. This market seems very different. Given how extensive it is and how many companies are in trouble because of the severity of the downturn, companies are a little more receptive to have the conversation today than they have in the past.