What Is Corporate Debt Restructuring? [Complete Guide]

Bonus Material: Implementing Risk-Based Compliance

Corporate Debt Restructuring: Introduction

From 2007-2009 during the Great Recession, the number of bankruptcies doubled. Considering today’s environment, this is an important peek into the future – how much help will businesses need in the years to come? Especially if they are left asking themselves, what is corporate debt restructuring?

Unemployment rates are higher than ever, which has a profound impact on business liquidity. When businesses are struggling, there is an increase in filings for bankruptcy. Given projections for the economy in the next few years, we can expect bankruptcies to double.

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One way to successfully emerge from bankruptcy is through debt restructuring and going through the debt restructuring process. There are also often instances where financial strain may not force bankruptcy. Whether you’re using corporate debt restructuring following bankruptcy or in place of it, the idea appeals to many because it is often a fast and cost-effective way to get back on your feet. Based on current economic patterns, we can expect an increased need for corporate debt restructuring in the coming years. This guide explains what exactly debt restructuring is, the involved process, and some recommended solutions to facilitate the process.

What is Corporate Debt Restructuring?

When answering the question ‘what is corporate debt restructuring?’ it is important to consider that debt restructuring can take on many forms. Sometimes it’s necessary to restructure credit card debt (oppose to consolidation), and other times it involves restructuring a bank loan. Overall, restructuring corporate debt gives a company or sovereign entity that is facing bankruptcy or cash flow problems to renegotiate the terms of its debts. The idea behind doing so is to restore liquidity and be able to continue operations.

This may involve delaying the repayment time, converting the debt into equity shares, or reducing interest rates.

Going through the debt restructuring process is usually less expensive than bankruptcy; a lot of the costs associated with filing for bankruptcy can be attributed to time and effort spent negotiating with creditors.

Debt Restructuring Process

Generally, the debt restructuring process begins by contacting the lender that you’re involved in a loan agreement with and explaining your financial difficulties. The next step is typically waiting for a response from the lender, and if they offer to help, weighing your options and negotiating to arrive at new terms.

Risk management plays a critical role in the debt restructuring process, especially if the goal is to emerge from bankruptcy; taking a risk-based approach helps solve for any issues that have manifested as a result of the bankruptcy.

Here is what the debt restructuring process looks like within a risk management framework:

Debt Restructuring Process Step 1: Stabilize

  • Evaluate existing business conditions
  • Identify risks/opportunities that could impact the stability of the business
  • Obtain cooperation of creditor

Debt Restructuring Process Step 2: Rehabilitate

  • Define short, medium, and long-term goals
  • Assess key risks
  • Identify mitigation strategies
  • Develop a consensus on action plans
  • Mobilize risk owners

Debt Restructuring Process Step 2: Restructure

  • Develop risk governance structure
  • Monitor risks and mitigation results
  • Take necessary corrective action
  • Clearly communicate outcomes and progress
  • Engage stakeholders

Debt Restructuring Solutions

As we cover in this webinar, ERM can help guide companies through a financial crisis. Enterprise Risk Management (ERM) software is a key differentiator when solving for the challenges brought on by financial hardship or bankruptcy. For example, companies with better risk management programs typically have better credit ratings. It makes risk-related impacts clear, helps you generate a plan of action, and provides a mechanism for communication and implementation. It also helps organizations to mitigate these risks. ERM software also engages everyone in your organization so you’re able to garner support for the changes that need to occur. Ultimately, it dramatically reduces the negative impact of financial hardship.

What Is Corporate Debt Restructuring: Conclusion

No matter the circumstances in life, change is inevitable. How you handle change determines whether or not it results in success or failure, and the only way to safeguard your business from failure during a restructure is by taking a risk-based approach.

Whether it’s developing your initial strategy, aligning priorities and initiatives or communicating honestly and effectively, LogicManager’s ERM software has the solution for you. We can take you from asking yourself ‘What is Corporate Debt Restructuring?’ to an actionable solution for your business.