Lawyers are not always the most flexible bunch. Upsetting the status quo, especially if it means less certainty - and potentially fewer billable hours - can be a hard sell. So when the bright, eager, 28 year-old Jay Goffman had an idea that might revolutionize the process of restructuring law, let's just say he met some resistance." Lawyers are taught to follow precedent, to follow the rules, do what's already been done before," says Goffman. "That was never my approach. I always thought our job was to create solutions and if they're new and different, so much the better.”
The idea was prepackaged bankruptcies, which cut a distressed company’s time in court down from five, six or even more years to often just a month or two. Nowadays, that has even been reduced to a day or two. The basic concept was to do the negotiating on the front end, find common ground and hammer out agreements between the parties, and only then present the solution to a bankruptcy court which could bind holdouts.
"The idea was to get companies back on their feet, back quickly working at what really matters to them: their business," says Goffman. For any lawyers worried that would mean less billable work for them, Goffman's luminous career stands as proof that smart disrupters will always be valued. He spent 36 years as a practicing attorney, with the last 24 at Skadden where he was the longtime Global Head of the Corporate Restructuring Department. During that time, he worked on some of the biggest, most complex and most innovative headline-grabbing restructurings of the past few decades.
Goffman, now Client Chairman at Teneo, knew he had a good idea on his hands as a young associate, and wasn’t put off by wary partners. He held fast to the prepack vision, and as his practice and seniority grew, he was finally in a position to implement it.
Memorex Telex was a computer peripherals company famous for its iconic ads of Ella Fitzgerald singing into a cassette recording, breaking glass with the high notes both live and in the playback, ending with the slogan, “It is live, or is it Memorex?” They were founded in Silicon Valley in 1961, grew to be a major international business, and went private in a late 80s LBO by raising a load of Drexel junk bonds.
By 1991, the company needed to restructure, but as Goffman explains, “it had 10 different layers of Drexel junk bonds and Drexel had just filed for Chapter 11. As a result, an out of court exchange offer was virtually impossible. But it also had businesses all over the world, so it would have liquidated if it went the traditional bankruptcy route.”
Goffman at the time was the sole bankruptcy lawyer at O’Sullivan Graev and Karabell – a position that worked to his advantage, since he didn’t have to convince any long-established bankruptcy partners to take the leap with prepacks.
He just had to convince the company, which happened to be one of the firm’s biggest client at the time.
“I remember explaining this option to the CFO and CEO, and they said, ‘We don’t like Chapter 11.’ I said, 'This isn’t a traditional Chapter 11 case. This is different.' ‘Well give us an example,’ they responded. And I said, ‘There are no examples, but I know it can work.’”
In the beginning almost everyone in his field told him, “‘It’s impossible,’” recalls Goffman. But the company was out of options, so they put their trust in Goffman. He pulled it off, getting the company in and out of Chapter 11 in just 32 days. After that, everyone said, “‘Well of course prepacks work.’”
The lightbulb moment
Goffman's career path and innate cross-section of skills were helpful in leading him to this ground-breaking idea. Backing up to undergrad, he was encouraged to be a doctor by his family, and at first he liked that idea. "I wanted to do something of value in the world," he says. He also wanted to challenge himself, so he created his own major, the hardest one he could think of: chemical psychobiology within an emphasis in neurochemistry.
He did well in school, but there was one hitch: He just didn’t enjoy the science that much. Meanwhile, he loved conversations with friends about economics, finance, business and the law. So he pivoted to law school. After graduating, he took his first job at a relatively small New York firm, Burns, Summit, Rovins and Feldesman. During the start of his rotation in the bankruptcy group, the senior associate in the group left the firm and Goffman was quickly promoted.
He had never taken a course in bankruptcy law, but was keen for the opportunity. He started reading up on it and quickly found that it was a perfect fit. "It was a combination of business and corporate law, finance and economics, creativity, and a little bit of litigation. Sometimes you get fortunate in life: Restructuring encompassed all the things that I liked and was good at," he says. "More than that, I really liked the idea of restructuring businesses and saving companies and saving jobs. It felt like I was doing something important, something good.”
Goffman's first restructuring case was for Saxon Industries, which had filed for Chapter 11 in 1982 following allegations of fraud that created unwanted headlines, SEC investigations and a slew of lawsuits. They had brought on William Scharffenberger as CEO to turn the company around. Goffman, just a second year associate, led large parts of the case, working closely with Scharffenberger and the rest of the management team on what was at the time one of the largest restructurings in U.S. history.
It also played to his strengths as a numbers guys: “This particular case required some mathematical formulas to make it all work from a tax standpoint. I was good at that,” says Goffman.
Scharffenberger told Goffman later that he had been considering moving the case to a new law firm until Goffman got involved. He was so impressed with and grateful for Goffman’s work that, once the case was wrapped, he took him out to lunch and said, “I want to get you to a better firm.”
With a recommendation from Scharffenberger, Goffman interviewed and took a position at Weil, where he worked under the legendary bankruptcy attorney Harvey Miller. After a few years, Scharffenberger took Goffman out for lunch again and said, “‘There’s an interesting opportunity at Bear Stearns. They’re building a practice that trades distressed debt and I think you have the unique skill sets needed for that business.’” While distressed investing is a huge business today, in 1986 only a few people were doing this type of work. But it sounded interesting, so Goffman took the job.
Sitting on the trading floor at Bear Stearns, Goffman was tasked with analyzing distressed companies: figuring out which companies could be reorganized, where the value ran out, which was the fulcrum security (a term which had not yet been defined), how much debt the company could really afford, how much debt needed to be converted to equity, and how much new equity needed to be injected. It usually took him a couple days to figure out what a company’s balance sheets should look like. And it struck him: “If I can do this in just a couple days, why in the world are companies spending years to hammer out these deals in court?”
This stint as a distressed debt analyst/trader also gave him a perspective on the time value of money, a vantage point that might have evaded some less business-minded lawyers: He saw how, if people were buying debt at 70 and he could get them 80 cents on the dollar in six months time, that’s going to provide a better return than getting 90 cents in three years. Therefore people should have an incentive to do quick, smart business deals.
In addition to the early job opportunities and his keen eye for numbers and business, Goffman’s big idea was also developing at a key moment in time, just after a major change in bankruptcy regulation. In 1978, the bankruptcy laws that had been in place since the Great Depression were updated by the Bankruptcy Reform Act.
“The new Bankruptcy Code changed the way restructurings were going to be done,” says Goffman. “It left management in control of businesses that went into Chapter 11, and it created a different framework for getting companies reorganized. Since the law was brand new, we were all figuring it out at the same time. You could be bold and innovative. It was a great time to be a young restructuring lawyer.”
Still, the stigma around filing for bankruptcy meant that companies were hesitant to file, which meant they often waited until the eleventh hour, when they were really running out of money, to talk to a restructuring specialist. Holding on to the way things were traditionally done, the bankruptcy lawyer would then take a retainer and start paperwork, filing for Chapter 11 and preparing for years in court, slowly reorganizing the business and litigating claims and motions.
“It didn’t make sense to me,” says Goffman. “I knew there had to be a better way to save businesses and the jobs that went with them.”
Keeping bluebirds on buses
Eventually, Goffman left Bear Stearns and went back to Weil for a few years, where he started properly formulating the concept of a prepackaged bankruptcy. As with many new ideas, the idea from this 20-something associate met resistance at the stalwart firm, but he held on to it until moving to a smaller firm again, O'Sullivan Graev and Karabell where he was finally able to put it to use.
"I think it stems from confidence in my own ability and a sincere desire to do something of significance in the world," says Goffman of his fortitude in hanging on to this revolutionary idea despite the opposition in his field. "I believed I could do it. I believed it was the right thing. And I've always thought if you do the right thing, everything will eventually work out."
After proving his big idea with the Memorex Telex restructuring and quickly making a name for himself in the industry, it was only a matter of time before Skadden came knocking.
It made complete sense that this business-oriented restructuring lawyer would find his home at Skadden, one of the most business-oriented law firms in the world. He also appreciated how "the culture at Skadden was a very team-oriented approach. Everybody was pulling together, working for the benefit of the client and knowing that if you did that and worked together, it would benefit the firm, and you could enjoy your career." Goffman spent the next 24 years there.
One of his most memorable cases at Skadden involved a yellow school bus and a bluebird. Founded in 1932, the iconic yellow school bus manufacturer, Blue Bird Body Co., was a company that grew alongside generations of Americans after World War II, with the proliferation of centralized schools (replacing one-room school houses), the broad sprawl to the suburbs and the education of the Baby Boomers. The big yellow school buses became an emblem of American values, tying prosperity and industry to family and good morals.
But by early 2006, the company was in trouble: They had an urgent need for new funding, and discussions with Volvo about an acquisition fell apart at the last second. The company needed their lender group to step in, but the group couldn't reach the required unanimous agreement.
Because of the nature of Blue Bird’s business, including the various government contracts and single-source suppliers, a traditional Chapter 11 case wasn’t viable. The company shut down for several weeks and was facing imminent liquidation.
The company was virtually on death’s doorstep and almost everyone had given up. But the CEO was a friend that Goffman had previously helped through another prepack. “When he called, I immediately flew down. I said to the banks, ‘We’re not going to let this company liquidate. Instead, we are going to reorganize this company in a one-day prepack,’” recalls Goffman. “You could literally hear the banks laughing on the other end of the phone. And I said, ‘You can laugh guys, but meet at my office tomorrow morning, Saturday morning at 9am.’”
They spent Saturday negotiating the entire deal. They documented it on Sunday, sent it out to the banks to vote on Monday, got the ballots back on Tuesday, and filed on Wednesday. On that Thursday Goffman asked the court to have an emergency hearing the next day without any first day motions, just to confirm the plan so the company could emerge immediately from Chapter 11. “I think the judge thought I was kidding.”
"We reorganized this business start to finish in seven days, including one day in bankruptcy, 32 hours, even with an objecting party," says Goffman. "It was completely unprecedented and most people said it was impossible. I walked out of court that day feeling better about myself and what we were doing than I think I had in many, many years."
No wonder: He took an iconic company that was facing extinction, and saved it. All the employees kept their jobs, and the company is still going strong to this day. The case remained the record-holder for the fastest reorganization in Chapter 11 history for many years. And the bird keeps riding.
About a decade ago, Goffman made further refinements to his own ground-breaking prepack model with a Polish company called CEDC, Central European Distribution Corps. CEDC was the largest manufacturer and distributor of vodka and spirits in Eastern Europe. It was headquartered in Poland. Goffman restructured CEDC with his signature prepack, in 30 days. In the prepack, the business ended up being acquired by a Russian businessman, Roustam Tariko, who later merged it with some of his other businesses.
With the Russian economy beginning a period of stagnation in 2014 and the ruble getting devalued, the company was in need of a further restructuring. As is typical with Goffman, he had built a solid friendship with Tariko during the acquisition process which continued to endure. (Goffman, who forms long-lasting friendships with most of his clients, quips, "I'm the luckiest guy in the world: Every day I get up, I talk to my friends on the phone and get paid for it.")
So, Tariko naturally turned to Goffman when he was in need of another restructuring. Goffman went through the process of negotiating a restructuring and preparing a U.S. prepack for the company, now known as Roust. But there was a hitch.
“While walking on a beach and discussing strategy, he said to me, ‘Look, I love everything you’re doing. I believe in you and the deal looks good, but I can’t have this in Chapter 11, even for 30 days. The Polish and Russian authorities will take actions.’”
Goffman is nothing if not solution oriented. He said he had an idea and then designed an even more efficient prepack based upon a technique he had used 20 years earlier that got the company in and out in six days, which became the new standard template.
But when you ask Goffman about his favorite client relationship of all time, he immediately talks about Evergreen International Aviation. Goffman first started representing Evergreen in early 1991 when he was still an associate. Evergreen flew most of the wide body cargo missions of the U.S. Military into the “Hot Zones.” “They carried the beans, bullets and bombs,” says Goffman. His first job was to recover Evergreen’s aircraft from Pan Am at the beginning of the first Gulf War and just after Pan Am filed for Chapter 11. He was so successful that he and the owner of Evergreen, the iconic Del Smith, developed a filial relationship where Goffman did all the significant legal work for Evergreen for the next 25 years until Smith’s death. “Del and I used to talk almost everyday. We became best friends. We vacationed together and spend some holidays together. He usually called me at 6am to start the day. He believed in me and together we did deals all over the world. He was a great man and it was great fun.”
When asked about his greatest moment, Goffman speaks of the 1997 out of court tender offer restructuring he did for Evergreen. “The Pan Am Chapter 11 case had cost Evergreen about $1B,” says Goffman. “Our restructuring saved the company and allowed Del to keep 100 percent of the equity. Almost every expert said that was impossible. When we pulled it off, we celebrated at the annual Paris Aviation show.” A few months later, on the day Smith flew to the Conquistador meeting of all airline executives, the Wall Street Journal had a front page article detailing the restructuring with a caricature of Smith and Goffman flying an Evergreen plane to victory. Goffman mused, “All the airline CEO’s read the article on the way to the meeting. Del was the hero of the Conquistador meeting that year. It does not get any better than that.”
In his current role as Client Chairman of the Financial Advisory Business at Teneo, Goffman works with a global team to consult with CEOs on a cross-spectrum of solutions to support their businesses. In addition to restructuring, he advises on M&A, business strategy, communications and political risk. If all that seems outside the realm of a bankruptcy lawyer, you haven’t met Jay Goffman.
“Most lawyers think their job is to tell the clients the law,” says Goffman. “If they wanted that, they would have gone to law school. They run a business, and they’ve got a problem. They need you to use all your skills – legal, financial, business – and your creativity to come up with a solution. Either that, or they have an idea on how to make money and they want your help in figuring out the right way to do it. Those are the only two things you have to worry about.”
“If you bring solutions to you clients, you truly care about them and you’re responsive, they’ll keep calling you forever, because they know they can trust you.”
With current geopolitical events, including rampant inflation, rising interest rates, reduced liquidity, a budding oil crisis from the Russian war in Ukraine and supply chain aftershocks from the pandemic, clients will have plenty of reasons to have Goffman on speed-dial. “I believe there is a high likelihood of a global recession,” in the coming years, says Goffman, and “there’s a high likelihood that the next three, four or five years are going to be very restructuring oriented. It is just a fact of life.” Fortunately, Goffman, now in his mid 60s and showing no signs of slowing down, will be there to guide them.