A few years ago, Jampole Communications provided communications counsel to support the Chapter 11 filing of a retail company that had stores in several contiguous states. Although this company, which has asked to remain unnamed, had strong operations, it was saddled with substantial bond debt. After discussions with major bondholders, the company decided to restructure the debt by filing for Chapter 11 bankruptcy. The restructuring would leave the bondholders as the major stockholders in the company.
The company and its legal counsel were reasonably comfortable that most bondholders would agree to the restructuring plan it had developed. But to achieve a timely exit from Chapter 11, the company faced these critical communications challenges:
- Convince customers that it would keep operating and that the shelves would remain fully stocked
- Convince vendors that supply it with products that they would not be left with large unpaid invoices
- Convince employees that the Chapter 11 would have little impact on their jobs because the company would keep operating and paying their wages and benefits
- Influence the news media to report company news with a positive spin.
The central strategy of the plan was to tell key audiences that the negotiations with major bondholders represented a virtual guarantee that the company would exit Chapter 11 as a stronger company. After consultation with the attorneys and investment bankers, we decided to use the term “pre-negotiated Chapter 11” to communicate that there was overwhelming agreement among bondholders and that the Chapter 11 filing was a formality.
On the basis of this strategy, we developed an aggressive public relations program focused on the major audiences. With the help of company management, attorneys and investment bankers, we developed these basic messages:
- Company operations are strong, and the company will thrive once it has rid itself of most of its debt.
- The fastest and simplest way to implement the “pre-negotiated” agreement with the bondholders is to enter Chapter 11.
- All vendors that continue customary trade terms will be paid in full.
- Entering Chapter 11 will have no impact on employees and will not lead to layoffs.
- The stores will continue to be fully stocked and open for business.
We treated the Chapter 11 in four stages:
Stage One: Getting into financial difficulties
A full three months before the company entered Chapter 11, we began telling target markets that the company was evaluating the possibility of a financial reorganization. We repeated our basic messages using a variety of communications vehicles:
- News releases
- Letters to employees and vendors
- Meetings with vendors
- Frequent interviews with the news media
Stage Two: Entering Chapter 11
Because we shared so much information so early on, neither national nor local news media gave the actual Chapter 11 announcement widespread coverage. All articles gave prominence to the messages we wanted to communicate about the company’s future.
Keeping our target audiences committed to the company during the restructuring process was made challenging by the fact that before and during Chapter 11 the company closed a number of stores. Rumors were rampant about store closings in many markets. To fight these rumors, we changed long-time corporate policy not to discuss rumors of store closings. For the vast majority of stores that we knew would not close, we vehemently denied all rumors. By openly communicating about non-closures, we maintained the loyalty of customers in areas where the company intended to keep doing business.
Stage Three: Submitting the Reorganization Plan
Once the company had submitted its reorganization plan, we went into reactive mode, making the company available to the news media, but releasing no additional information beyond the contents of the plan.
Stage Four: Reestablishing the company’s reputation
Upon exiting from Chapter 11, we immediately began an aggressive communications program in every community served by the company. Consumers have responded positively to the campaign. In the first full year after exiting Chapter 11, same-store sales increased and profitability improved.
By implementing a four-stage communications plan we minimized the negative damage from publicity about the Chapter 11 and gained the commitment of key constituencies to the continued operation of the company. There is no substitute for an improved financial structure, strong operations and more effective merchandising, all of which the company has implemented since its debt restructuring. Because the company launched an effective communications program before, during and after Chapter 11, key audiences found the company’s efforts credible, which contributed substantially to the company’s ultimate turnaround.