1. BUSINESS (Article from WSJ)
[Very interesting article that I can speak first-hand through both restructurings and bankruptcy
filings in the automotive sector while I was at JL French Automotive Castings during the 2007-
2009 automotive recession].
For CFOs, Defaults Can Offer Valuable Lessons
Steering bankruptcies, restructurings teaches importance of focus, frank talk with lenders
When Quiznos filed for bankruptcy in 2014, its CFO drew on her experience with restructurings.
The sandwich chain emerged from court protection later the same year. ENLARGE
When Quiznos filed for bankruptcy in 2014, its CFO drew on her experience with restructurings.
The sandwich chain emerged from court protection later the same year.
By KIMBERLY S. JOHNSON
Updated Aug. 15, 2016 5:12 p.m. ET
1 COMMENTS
There’s a new bull market in corporate defaults, subjecting more CFOs to a trial by fire but also
giving them a chance to shine.
Through last week, 74 U.S. public and private companies had defaulted this year, according to
S&P Global Ratings, surpassing the number in each of the past five years, and accounting for
two-thirds of the global total. In 2009, during the financial crisis, there were 201 corporate
defaults globally by this point in the year.
Defaults, which include bankruptcy filings, can be opportunities, not only for investors who hold
senior debt, but for finance chiefs who can steer a company through the shoals of often-
complicated restructurings.
“I think it’s an excellent experience for a CFO to go through a distressed period,” said Charles
Goldstein, managing director and leader of the restructuring- and litigation-services group at
consulting firm Protiviti. “You have to drive the car. Once you drive it, you get the experience.”
Katie Scherping said she agreed to join Denver-based Quiznos as CFO in 2013 only if the
sandwich chain took the appropriate steps toward a bankruptcy filing. She had worked through a
restructuring at another company, and “completely understood the benefits of a chapter 11.”
“It’s not necessarily the worst thing. It can be liberating,” Ms. Scherping added. “That’s how I
viewed it as an outsider coming into the job.”
Explaining the process to employees, particularly how to retain vendors who aren’t first in line to
get paid, was a key lesson for Ms. Scherping.
Quiznos filed for chapter 11 bankruptcy protection in 2014 after reaching a deal to cut its debt by
more than $400 million. The company emerged from bankruptcy months later after winning
approval for its prepackaged reorganization plan. It is now owned by private-equity firms
including Oaktree Capital Management LP.

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In June, Ms. Scherping added interim chief executive to her job titles at Quiznos, but she left it a
month later, about two years after it emerged from bankruptcy.
S&P expects a further increase in defaults—which in addition to bankruptcies include missing an
interest payment, exchanging debt or undertaking another kind of restructuring.
The debt-rating company expects problems to continue in the energy and natural-resources
industries, which have accounted for 53% of world-wide defaults this year.
A long period of low rates allowed many commodities companies to borrow more. Some of
those loans are revolving credit facilities tied to the value of their commodity reserves. Declines
in fuel, ore and coal prices shrink the overall value of those in-ground reserves, and sometimes
tip a company into default.
That’s one reason why CFOs need to “anticipate and be opportunistic about” refinancing or
exchanging debt, said Diane Vazza, managing director for S&P Global Ratings’ global fixed
income research group.
The situation is more dire for companies with speculative or “junk” grade debt. “There’s not
much margin for error if there’s an unexpected problem in your business,” she said.
The learning curve for the finance chief involved in a loan default or bankruptcy filing can be
steep. “The CFO gets involved in financial covenants and reporting which can go from monthly,
to weekly, to daily,” said Mr. Goldstein.
Sometimes CFOs aren’t familiar with the kinds of information the distressed-loan side wants to
see, he said. “The lenders will look at management and decide if [the company] is equipped to
get them through,” he said. “Or they will force a restructuring person in, saying, ‘We will give
you leeway if you get on board with the consultant.’ ”
Executives can go into denial when trouble hits, Mr. Goldstein said. “Even in the good times you
have to manage carefully, understand the operations of the company and have systems and
controls in place for before you hit distress,” he said.
Having honest, upfront conversations with lenders—and other company executives—is essential,
as there can be an upside to a default or bankruptcy filing. And there’s much less of a stigma
attached to defaults and bankruptcies today than in the past.
“There’s a lot of demands on a CFO's time, so Make sure you know what the numbers are as
they come out,” said Ms. Scherping.
“If it’s an interest payment you’re about to miss, you have to know where your cash is. You can’t
let the noise get in the way as a crisis unfolds,” she added.

3. Ms. Scherping started a new job last week as CFO of Colorado-based National CineMedia Inc., a
provider of on-screen ads for movie theaters. She said she aimed to keep a positive attitude
throughout the Quiznos restructuring
“I knew what to expect,” she said. “I knew the cathartic experience it could be. I was going in
eyes wide open.”
Corrections & Amplifications:
CFO Katie Scherping left Quiznos about two years after it emerged from bankruptcy. An earlier
version of this article incorrectly stated that she left about a year afterward. Aug. 15, 2016.