CROs Adapt to Limits on On-Site Presence

Partner, David Tiffany walks us through how CROs adapt to limits on on-site presence in the most recent installment of the Turnaround Management Association‘s Journal of Corporate Renewal.

Can a chief restructuring officer (CRO) continue to be an effective and efficient resource for lenders in this new normal environment? The short answer is “absolutely.” But the longer answer is complicated.

Workouts of lenders’ distressed credits aren’t going away, and in fact, they most likely will increase to levels not seen in many of the recent downturn cycles. The ramp-up for workouts in the middle market has not been as rapid as it has been for some of the mega sectors that have been getting so much attention, such as oil and gas and retail. But as CARES Act funding runs out and with no clear end to the pandemic and economic downturn in sight, many see the next wave of workouts and restructurings on the horizon. As a result, lenders will rely on the services of CROs more than ever.

The key value propositions for a CRO, from a lender’s perspective, have not changed since before the pandemic. A CRO serves not only as the lender’s on-site eyes and ears at the credit but also as an officer of the business. Although CROs often work side by side with other C-level individuals during engagements, they generally report to the board and possess unique executive powers within the credit’s corporate structure that afford them the capacity to be much more proactive and effective in protecting the lender’s interests. As a result, a CRO is considered one of a lender’s most trusted and valuable resources in a workout scenario.

One aspect of the role that has changed since the pandemic began is that it has become much more difficult for a CRO to be on-site to assert in-person influence due to the imposition of pandemic-related travel restrictions. However, this limitation has also introduced new opportunities to bring value in other ways that were not as heavily utilized pre-pandemic, such as transitioning to a larger remote workforce. Having a workforce heavily weighted toward working remotely can create significant overhead cost-cutting opportunities. A largely remote workforce creates risks, such as reduced productivity and idea sharing, but teleconferencing tools like Zoom and FaceTime make it possible to meaningfully imitate the face-to-face experience, although not to replace it.

Read full article here.