INSOL International: learning from failure – CEOs retell their stories

“It’s not just about the balance sheet,” the CEOs of three prominent groups that have recently undergone restructurings told INSOL International delegates in June. Providing valuable insights straight from the client’s mouth, they said that giving equal weight to a company’s culture and ensuring good communication with its employees – top and bottom – is what makes a restructuring transaction truly transformational.

Paul Keglevic, the former CEO and CFO of Texas-headquartered electric utility company Energy Future Holdings (EFH); Khathutshelo “K2” Mapasa, the CEO of South African construction conglomerate Basil Read Group; and Thomas Kgokolo, the interim CEO of state-owned airline South African Airways (SAA), shared their insider insights in a panel titled “Learning from Failure - CEOs Retell their Stories” at INSOL International’s 2022 conference on 27 June.

Pachulski Stang Ziehl & Jones partner Debra Grassgreen in San Francisco moderated the panel, in which the CEOs discussed how “culturally intelligent” communication can be extremely valuable in a restructuring and can help keep employees “intact”.

The panel told the audience that restructuring professionals need to try to step into the shoes of a business’ CEO and management and understand the pressures they face in a distress situation, because although cash is important, people are what make a business.

Keglevic, Kgokolo and Mapasa also told attendees to be aware that governments can make or break a restructuring, and urged them to try to remodel businesses in a way that gets vital stakeholders on board.

Kicking off the panel, Grassgreen said that restructuring professionals often have a “very particular lens” when they meet with new clients and advise companies or creditors, based on what’s happened in a prior case. But CEOs like Keglevic, Kgokolo and Mapasa have a completely different lens.

Troubled companies

EFH entered Chapter 11 in 2014 with US$49 billion in liabilities and emerged from bankruptcy in October 2016, after one of the biggest Chapter 11 proceedings in Delaware history.

Power prices had declined rapidly before EFH entered bankruptcy because of the proliferation of fracking – a relatively new technological process used to extract natural gas from rock formations – which caused gas prices to plummet from around US$8 in 2007 to US$2 in 2012.

US investment companies Kohlberg Kravis Roberts and TPG Capital, and Goldman Sachs’ private equity arm Goldman Sachs Capital Partners, had acquired EFH from Texas based retail electricity provider TXU Corporation in 2007 through a US$45 billion leveraged buyout – the largest leveraged buyout in history.

“In the good old days” EFH was financed through 90% debt and 10% equity, something “we’ll probably never see again”, Keglevic told delegates, admitting he was the CFO that “kept kicking the ball down field hoping that fracking wasn’t real and that prices would come back”.

When it finally became obvious prices would not rebound for a long time, the US$50 billion debt pile was “too much of a load at the new reality”, he noted.

In SAA’s case, Kgokolo said the airline had been struggling since 2012, when it started making operating losses because of competition, both internationally and domestically. Initially, the South African government provided SAA with bailouts – but by 2019 that was no longer enough.

SAA completed its restructuring in April 2021, 17 months after it began business rescue proceedings before South Africa’s Companies and Intellectual Property Commission with a US$1.3 billion debt burden.

After the business entered its rescue process in December 2019, SAA’s planes were grounded, its pilots went on strike and its cabin crew stayed at home – but the airline was still incurring costs because it had to keep key staff onboard.

Kgokolo, who joined SAA towards the end of the restructuring to bring it out of the rescue process, said what he remembers from his experience at the time was the level of intensity, because they were working 24/7 to get the airline started up again and there was a lot of media and political pressure.

“I still have scars to show for that,” he told INSOL delegates, adding that when SAA started flying again in September 2021, he “woke up in the morning with chest pains that actually drove right through to the back, and my left side was becoming numb”.

Construction company Basil Read was formed in 1952 and grew through acquisitions of various projects to become big just before the 2010 FIFA World Cup in South Africa, Mapasa explained. However, it started struggling as all other construction companies in the region did in 2010 as government infrastructure spend dried up.

Instead of cutting its capacity, Basil Read started undercutting itself in terms of pricing, Mapasa explained. The company ran out of money in 2018, entering business rescue that June with about 4.2 billion South African rand (US$250 million) in liabilities. 

He told the audience that when it entered the restructuring proceeding, he thought it would be a miracle if the company lasted a month. “I didn't even dream that four years down the line, we will still be here,” Mapasa said.


Grassgreen asked the CEOs whether they had any idea what they were getting into when their respective restructurings were opened, as all three cases were incredibly complex and driven not only by internal, but external factors.

Keglevic said the only term he could use was “shock and awe”.

He recalled the first day hearings for EFH where there was a contested petition for joint administration and he was asked, as the first day witness, “given my vast restructuring experience, which was zero”, why joint administration was appropriate for the case. “I became a much better witness by the tenth time I testified in court,” Keglevic laughed.

He said he went through the same chest pains as Kgokolo with SAA, because of stress from the Chapter 11 filing. “It's like Mike Tyson said, everybody has a plan, until you get hit,” Keglevic said.

He advised the advisers in the audience that they should explain the fluidity of the process early on and let clients know there’s going to be a “tremendous amount of ups and downs” – but that the advisers are there and can deal with it.

Keglevic said he was “tremendously impressed” with the professionalism of the people involved. “You are all killers at your core,” he said of restructuring professionals. “You are going to fight and do what’s right for your clients, but bear in mind that those in the middle are “just trying to get out”.

He also urged lawyers to recognise the human element of restructuring and the CEO’s needs: “I hate to say I was needy, and I didn't know I was – but boy was I needy.”

In SAA’s case, Kgokolo explained that by the time he walked in, business rescue practitioners had already restructured the organisation and its staff, unfortunately leaving older staff members.

He noted that young staff are essential in an airline and described the business rescue process as “brutal” for employees. Kgokolo remembered being asked by one employee at the time the airline was not flying what he would do if he was in her shoes, when she was expected to greet customers with a smile, but her salary had been cut by between 30% and 40%, and she was worried about whether she would start working soon.

“If you go to business school or do some degrees, you never get prepared for these kinds of scenarios as a CEO,” he said.

One of the best approaches for dealing with employees who are hurt, disappointed, scared and worried about their futures is to be authentic in listening to them, addressing their issues, Kgokolo added.

Meanwhile, Mapasa told delegates that Basil Read was the “guinea pig” in its industry in South Africa in going through the type of restructuring it did. The construction company expected that going through a formal restructuring process would be easier than an informal one, as its competitors had done, because you can suspend contracts – but it was not as easy as that, he said.

Once Basil Read’s rescue advisers looked into the details, they realised there were performance guarantees, effectively a type of contingent liability in its balance sheet, which Mapasa described as a “weapon of mass destruction”. He said Basil Read had about 1 billion South African rand (US$59 million) worth of those guarantees and the moment they crystalised on the construction group’s balance sheet, it would have had to go straight to liquidation.

The business rescue process afforded Basil Read an opportunity to go through some of the problematic legacy contracts it had, which an informal process would not have offered, he said.

Mapasa told the audience he wasn’t surprised that Basil Read’s business rescue had gone on for four years. He said they spent a number of months speaking with lenders before formally entering the process, trying to figure out what would be the required financial assistance to “get out of the ditch”.

The assumption was that once Basil Read entered the formal process, it would get new money in a couple of days, he pointed out, but in reality, the formal post-commencement finance came months later. And once it did enter the process, Basil Read suspended its operations and its income stopped, creating a 160-million-rand (US$9.5 million) hole from salary payments, even before the company got the new money.

“We thought [the money] was going to flow from day one to enable us to start the restructuring, so you start off on the backfoot,” Mapasa said.

The original plan was for Basil Read to come out of business rescue within a year. Mapasa said he had joked in a recent exchange with a regulator: “Can I call you when I am ready to come out of rescue, rather than you calling me?”

Government regulators

Picking up on the regulator point, Grassgreen asked Keglevic to elaborate on issues that EFH had faced from regulators.

EFH’s restructuring professionals said to go through confirmation and then get regulatory approval, he said. Confirmation was easy – but the regulators did not agree with the plan. “In retrospect, it’s the chicken and the egg argument,” he said. “Do you get regulatory approval and then go to the court and say, we’re ready to go, or will the regulators even approve anything until the court approves it,” he questioned?

Keglevic explained that EFH was the holding company of two distinct entities – a rate regulated company and a competitive generation company. Unsecured creditors on the competitive company side were going to buy the collateral pool on the regulated company side and keep the companies together because there were synergies between the two. But in “one of the most strange developments” the regulator in the State of Texas said it did not want “those Wall Street guys owning the company that serves” the customers.

Keglevic explained that in the “Main Street versus Wall Street” argument, the former was winning at the time. The sentiment against Wall Street was “tremendous”, he added.

EFH didn’t expect that and had to start all over again, finding another bidder through another plan, which was also rejected.

By the third time, the company had “got smart” and was very good at getting regulatory approval, he said.

Despite Texas having a reputation for being very open and easy with regulation as compared to California, Keglevic said in EFH’s case, it was more like California.


Picking up on Kgokolo’s arguments at the start of the panel, Greengrass said the focus on employees’ needs is vital when going through a restructuring.

Kgokolo expanded that people are important, but so is culture when carrying out a business rescue process.

When SAA was negotiating with union representatives about working conditions and salary changes, the message was never adequately transmitted to the employees, he said, so that when they were told to return to work, they said they had never agreed to the new working conditions because they were not there around the table, even if the unions were part of the engagement over a long period.

He added that the pandemic had created a problem because employees were at home and were not able to engage adequately.

Kgokolo said SAA had to go to “ground zero” to manage it employees through the business rescue.

He said there were “superstars” that were energised and loved the brand, who they could easily work with, and also not so good employees who were not interested in the new vision. One of the key strategies SAA managed to use was to use the passion of the stars to try and reignite some of the people who were not interested. They also told those not interested, “maybe you don’t belong on the bus” and “we can give you an incentive to leave us”.

Kgokolo said he’d rather pay somebody a premium to go than have someone in the system who continuously disrupts the culture and freshness of the organisation. “It’s important to refresh the employees and by doing that you start really moving into a better culture going forward,” he told the audience.

After being asked by Grassgreen if he would have done something differently in hindsight, Kgokolo said he would have engaged and spent more time with employees sooner to understand them and resolve some of their problems quicker.

At the time the pilots were on strike, they had not been paid for 12 months, he said – but through an intervention and conversation the strike was quelled and the pilots were paid. “The one thing you don't want to do is be on a plane with a pilot who has not been paid for 12 months,” Kgogolo joked.

 “You've got to have a balance,” Mapasa agreed. “There is no space in the bus for hangers on”.

Mapasa said his background was in engineering and he felt from the start that he shouldn’t be dealing with Basil Read’s balance sheet restructuring. “I'm very jealous when Paul talks about [being] the CFO,” he said. “I was never blessed with any good CFOs”.

He explained that he had to make tough decisions about the company parting ways with its entire financial department “fairly quickly”.

In all respects, he added, it’s important to communicate with the people on the frontline.

Mapasa recalled the scenario when many Basil Read employees returned from South Africa’s builder’s break – where contractors send their employees home for three to four weeks around Christmas – and the company had taken the decision to restructure and retrench everyone in most of its projects. There were 100 people waiting to see him outside of his office and he was warned not to talk to them because they were “looking for blood”. Despite that, he went out there to get the message through that the company was in financial distress.

Mapasa said he ended up talking to those employees for three and a half hours. It took so long because he had to slow down and explain what was going on.

What a CEO needs to recognise is that even if the decision has been made six months ago, your frontline employees “haven’t taken that journey with you” and “you must be available to answer those questions”, he said.

Grassgreen emphasised to the audience that you cannot ignore a company’s culture, nor replace it with the culture of a restructuring. “They have to operate side by side,” she said.


Turning to the panel, Grassgreen asked whether restructuring professionals need to bring in a “people person” to put more focus on communication and culture.

Keglevic asked the audience how a company can be valued during a restructuring process if it’s not stable and losing employees. He said communication is “a forgotten part of the process”.

Restructuring professionals have “gotten much better” about communication, he said, but if there is no dialogue and they don’t keep the trust and transparency and explain to people how it’s going to affect them “there’s no chance in heaven of stability”.

Kgokolo added that in a volatile situation such as SAA’s where there were more than five trade unions to negotiate with, it was not easy to get the ideologies together in a room and share a common vision when pressed for time.

A restructuring needs to be supplemented with a person who is culturally intelligent and can keep the employees intact, he said, because the rescue process is not “killing the company” or “only rescuing the balance sheet” but rescuing the entire business.


Taking a question from the audience, Grassgreen asked the panel what one thing restructuring professionals should avoid, where it’s seemingly “not all about the money anymore”.

Kgokolo said that, rightfully, there is often an over-emphasis on the balance sheet because the restructuring professional is trying to rescue a financial situation. But he said giving equal importance to culture, strategy and employees will go a long way in enriching the restructuring and making it more transformational, not only transactional.

“Avoid overpromising,” Keglevic said. “Under-promise and over-deliver.” Over-promising on day one is comforting, but the restructuring professional will lose a lot of his client’s confidence on day two.

Keglevic told INSOL delegates to remember that they are “the city” – they all know each other – but clients are “just passing through”. Despite CEO’s hating handholding, it’s a very personal experience for them and the more help they receive on the personal side, the better they will understand what is happening.

Mapasa explained that before business rescue was introduced in South Africa in 2008, “no one wanted to be associated with a failure that ended up in liquidation”.

When restructuring professionals come in they need everyone to play as a team, but the “financial wizards” need to recognise that there's “this shock”, he said. “You need to recognise that there's probably people who are still dealing with the stages of mourning in powerful positions and having that regard and baking it in into the plan is quite important.”

Mapasa said he wished in hindsight that he had known Basil Read’s rescue practitioners a few months beforehand.

The CEOs were asked what they would look for in restructuring professionals pitching to them now, with the hindsight of the restructurings they have gone through.

Keglevic said he would have asked “a lot more questions about the breadth” of the restructuring process required because it has a lot of different aspects to it. “You need a multifaceted law firm, financial and restructuring adviser.”

Mapasa added that it serves a good purpose for management to understand what they’re signing up to. “Advise us whether you're in the right restructuring, or you're not,” he said, adding that good restructuring advisers can enable you “to think beyond what you think you know”.

Closing the session, RSM partner and head of restructuring Graham Bushby in London, the conference co-chair said if he’d taken one personal takeaway from the panel, “it’s to make sure that the next time I get on a flight, I’ve checked the pilots have been paid first.”

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