Debt Restructuring

Knowledge Center

What is Debt Restructuring?

Debt Restructuring is the strategy and process of modifying existing debts into new, more favorable ones. Typically it takes the form of a court ordered or mutual agreement, and is used by organizations (facing Cash Flow problems or other financial trouble) to reduce the amount of debt obligations and/or renegotiate the terms of debt agreements in order to achieve certain advantages, which typically include improving or restoring Liquidity or to prevent foreclosure and liquidation, and to continue operations. It is a major part of Recapitalization.

Why Debt Restructuring? Reasons

Instead of forcing an organization into bankruptcy, lenders frequently agree to restructure the loan obligations of distressed debtors, allowing them to remain in business.

Lenders are generally willing to restructure a debtor's loan to help the organization resolve the present financial difficulties and stay in business, as they often receive more through a restructuring than through foreclosure or bankruptcy. The distress Liquidation Value of any firm is generally relatively low.

Corporate debt restructuring can be a way to move a relatively healthy company forward and help to remove some of its burden of the past. A corporate restructuring can give a company a new life and may provide it with the cash flow it needs for a meaningful business restructuring.

Restructured Loans

A restructured loan can differ from the original loan agreement in several ways, for example:

• Principle Forbearance: Principal payments may be reduced or eliminated (Debt Forgiveness).
• Interest Rate Reduction: Scheduled interest payments may be reduced or eliminated (Debt Forgiveness).
• The debtor and lender can settle the loan for cash, other assets, or equity interests (Debt Conversion).
• Extension of Maturity: The repayment schedule may be extended over a longer time period (Debt Rescheduling).

Debt Restructuring Categories

Examples of debts categories which can be restructured are:

• Machinery
• Equipment rentals/leases
• Business loans or mortgage on business property
• Capital payments due for improvements/construction
• Lawsuits and judgments
• Invoices and statements
• Disputed bills
• Problem debts

Forum Forum about Debt Restructuring. Preventive Composition (Protective Composition) Suppose your company is in a situation where its debts are constantly growing, the risks are increasing, and this is affecting its activities and financing possibilities, and there are great difficult... 4   Quotes on Restructuring Debt. Quotations Hi, do you know of a remarkable, humorous quote by a famous person or a proverb related to (debt) restructuring?Please enter a reaction to share it for other people to enjoy! "I think re-engineerin... 4   1 comments 🔥 Debt Restructuring in the Banking Industry Debt restructuring in the banking industry refers to the process where financial institutions and banks work with borrowers to modify the terms of existing debt agreements. This is typically done to a... 3   Start a new topic about Debt Restructuring Sign up for free

Courses about Debt Restructuring. Beginners Course Advanced Course Course for Experts

Expert Tips Advanced insights about Debt Restructuring. Here you will find professional advices by experts. Consultancy Tips Teaching Tips Practical Implementation Tips

Information Sources Various sources of information regarding Debt Restructuring. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

Tools Useful tools regarding Debt Restructuring. News Videos Presentations   Books Academic More

Compare with: Financial Covenants  |  Recapitalization  |  Off-Balance Sheet Financing  |  Contingent Liabilities  |  Z-Score  |  Liquidation Value

Return to Management Hub: Finance & Investing

More on Management  |  Return to Management Dictionary

This ends our Debt Restructuring summary and forum.