What Is Debt Restructuring?
Debt restructuring is a process used by companies, individuals, and even countries to avoid the risk of defaulting on their existing debts, such as by negotiating lower interest rates. Debt restructuring provides a less expensive alternative to bankruptcy when a debtor is in financial turmoil, and it can work to the benefit of both borrower and lender.
Debt restructuring for companies
Businesses have a number of tools at their disposal for restructuring their debts. One is a debt-for-equity swap. This occurs when creditors agree to cancel a portion, or all, of a company's outstanding debts in exchange for equity (part ownership) in the business. The swap is usually a preferred option when both the outstanding debt and the company's assets are significant and forcing the business to cease operations would be counterproductive. The creditors would rather take control of the distressed company, if that's necessary, as an ongoing concern.
A company seeking to restructure its debt might also renegotiate with its bondholders to agree that a portion of the outstanding interest payments will be written off or a portion of the balance will not be repaid.
A company will often issue callable bonds to protect itself from a situation in which it can't make its interest payments. A bond with a callable feature can be redeemed early by the issuer in times of decreasing interest rates. This allows the issuer to restructure debt in the future because the existing debt can be replaced with new debt at a lower interest rate.
Our favorite is to recapitalize their balance sheet by lumping all of a companies paid off equipment and other assets into an asset backed secured loan or revolving line of credit and using that additional capital to negotiate deep discounts from creditors holding higher cost debt.
(the amount qualified for in most cases is a percentage of the auction value of assets that van be liquidated and are marketable)
Debt restructuring is a process used by companies, individuals, and even countries to avoid the risk of defaulting on their existing debts, such as by negotiating lower interest rates. Debt restructuring provides a less expensive alternative to bankruptcy when a debtor is in financial turmoil, and it can work to the benefit of both borrower and lender.
Debt restructuring for companies
Businesses have a number of tools at their disposal for restructuring their debts. One is a debt-for-equity swap. This occurs when creditors agree to cancel a portion, or all, of a company's outstanding debts in exchange for equity (part ownership) in the business. The swap is usually a preferred option when both the outstanding debt and the company's assets are significant and forcing the business to cease operations would be counterproductive. The creditors would rather take control of the distressed company, if that's necessary, as an ongoing concern.
A company seeking to restructure its debt might also renegotiate with its bondholders to agree that a portion of the outstanding interest payments will be written off or a portion of the balance will not be repaid.
A company will often issue callable bonds to protect itself from a situation in which it can't make its interest payments. A bond with a callable feature can be redeemed early by the issuer in times of decreasing interest rates. This allows the issuer to restructure debt in the future because the existing debt can be replaced with new debt at a lower interest rate.
Our favorite is to recapitalize their balance sheet by lumping all of a companies paid off equipment and other assets into an asset backed secured loan or revolving line of credit and using that additional capital to negotiate deep discounts from creditors holding higher cost debt.
(the amount qualified for in most cases is a percentage of the auction value of assets that van be liquidated and are marketable)
