EDITOR’S NOTE: This interview has been edited for length and clarity.
Q: Jeremy, thank you so much for taking the time to talk to us. Just to get started, we wanted to ask about how you became a chief restructuring officer (CRO). What did your career path look like?
A: I started on my current path as a restructuring attorney. I was a partner at Sidley Austin until September 2018, at which point I left to join Force 10 Partners and to move on to the business side of restructuring.
Q: What strikes you as the biggest difference being on the business side versus being a legal advisor?
A: The big difference here is working as a fiduciary as opposed to an advisor. The thing I appreciate most is working with management teams to develop strategic options, then implementing changes on the ground. The core of what I do as a chief restructuring officer is evaluating the inputs I receive from management and from my financial and operations teams, then using that information and my experience in business and as an attorney to make time-sensitive and high-risk decisions. Being the point at the end of the stick is very rewarding, but high stress. For example, in Watsonville Hospital, with creative thinking and a collaborative approach, we were able to keep a safety-net hospital open and save over 600 jobs.
Q: Speaking of Watsonville Hospital, one of the things that was really impressive in the case was the high level of stakeholder trust that you developed. How did you position yourself as being somebody that all these diverse groups could trust?
A: I work hard, and my team works hard, to be transparent, to be the honest broker. We strive to understand the needs of the various stakeholders and design a path forward that attempts to maximize each group’s recovery. At Watsonville, the key groups were our secured creditor and landlord, important suppliers, five different unionized bargaining units, doctors, insurance payors, and various state and local government regulators and political units. Each of them had divergent motivations. It is key to understand those interests and think creatively about how to maximize value in a way that expands the pie instead of shrinks it. Thinking about options from a place of abundance and creativity, instead of conflict and scarcity, can drive very interesting results. At Watsonville, this approach led us to support the formation of a new health care district with rescue financing from state and local governments as the buyer of the hospital.
Q: You worked really closely with California regulators and local government in getting the health care district up and running for Watsonville. Many of us have been involved in cases where there wasn’t as good of a working relationship with regulators. What do you think the role of regulators should be in this type of distressed health care case?
A: It is important to work collaboratively with as many parties as possible. That often means working closely with regulators to understand and address their concerns. That means seeing regulators as an important part of a solution and recognizing that regulators also may be gatekeepers for what kind of transactions are possible. I gravitate toward an approach of collaboration and cooperation as opposed to confrontation, because it is more productive and efficient. At its core, a regulator is concerned about the functionality and well-being of whatever industry it is regulating. With true collaboration, you can save time and energy working with your regulators to move the restructuring forward, as opposed to spending those same resources in a battle that can potentially narrow your options for a successful restructuring.
Q: Zooming out from the regulatory framework, let’s talk about the broader economic picture. What is Force 10 anticipating for the next six months?
A: I think that the volume of restructuring is going to increase. The cost of capital is rising significantly, as the risk-free rate has now gone above 4%, making riskier capital more expensive and making debt used by many hospitals more expensive. Many health care organizations, and many businesses in general, have fairly narrow net profit margins, so when the cost of capital goes up dramatically, their profitability can erode, and they cannot effectively refinance their debt. As interest rates increase and multiples rise, companies will continue to attempt to restructure their balance sheets, but the destruction of enterprise value will mean that the fulcrum credit will move up the capital stack and junior creditors will be left with very little.
Q: What is a book or article that you think everyone should read?
A: Okay — this is a little out of left field and might not be what you were expecting, but since we are talking about both health care and restructuring, I would recommend a book called Full Catastrophe Living by Jon Kabat-Zinn. He is one of the founders of secular mindfulness. I think practicing mindfulness and having the tools to be more thoughtful and less reactive is important in navigating challenging situations, including distress. Finding resources within yourself to respond to challenging situations with poise and perspective helps you navigate complex and emotional situations, like complex restructurings, with creativity and empathy. Mindfulness is a powerful tool that helps people perform at their best and deescalate situations by being less reactive. Mindfulness opens the door for people to focus on what really matters.