debt restructuring

There are occasions when companies may consider it convenient to carry out a debt reorganization they have at a given time, and this can be done for various purposes. Therefore, in this article, we want to review everything related to the debt restructuring

What is Debt Restructuring?

debt restructuring is any process aimed at renegotiate payment terms and interest rates associated with a debt that has not yet been settled. Within this renegotiation between creditors and debtors, there is usually an intermediary between both participating parties.

Through these new agreements between the parties involved, the debtor may benefit, for example, with debt payment period extensions or with interest rate reductions. The terms that are susceptible to being subjected to debt restructuring are:

• The amount of the debt.
• The interest rate of the same.
• The amortization method.
• The frequency with which payments are made (frequency with which the debt is repaid).

It should be noted that debt restructuring operations are beneficial, not only for the borrowers, that is, for the debtor companies, but also for the financial entities. This is because it is better for banks to delay possible foreclosure processes. 

It must be emphasized that refinancing is not the same as restructuring Of the debt. Through refinance debts, the debtor company tries to get a new financing instrument signed, obviously with better conditions than the previous instrument signed. With the restructuring a new instrument is not signed, but the conditions of the existing one are modified. 

When can a Debt Restructuring be necessary?

Essentially, there are two fundamental reasons that lead companies to want to carry out a bank debt restructuring. These are:

• A NOF increase (Operating Funding Needs). The NOF of each company will determine its treasury needs, that is, the amount of liquidity they need to face the short term debts. Therefore, in situations where companies anticipate that they cannot meet said debts, a debt restructuring may be highly recommended.
• Risk of non-payment or non-payment of the debt: Both for the cases in which the payment default has not yet occurred, such as those in which the non-compliance if it has occurred, being able to obtain more favorable conditions to comply with payments can greatly favor organizations.
• Avoid pay interest for exceeding maturity Of the debt.

 

Debt Restructuring Methods

At Alter Finance, we offer you the following debt restructuring methods:

• Reestablish new financing mechanisms: Prior recognition of the situation that your company currently presents, we will prepare a report with information related to the new payment options. This report is built from the evaluation of the different alternative financing sources that could be used to meet the payment commitment. We help you have the resources necessary to pay your debts.
• Ensure the viability of your entity: We try to offer you the best options that prevent having to enter bankruptcy, trying to avoid situations in which your company is in an unfavorable position. In this way, we try maintain the viability of your business, thanks to dealing with short-term debts that threaten the activity of your companies.
• Defer the maturity of the debt: There are occasions in which companies do not have the necessary resources to pay the amounts corresponding to their short-term debts, obviously within the established maturities. At Alter Finance we offer you the debt deferral schedule management service. For the provision of this service, two aspects are taken into account:
  • Treasury projections of your companies in the short term.
  • Estimates of the net cash flows and income statements that your companies have the potential to generate in the coming years.

Conclusion

All those responsible for the financial departments of companies must ensure that it has sufficient liquidity and that it is solvent. To achieve this double objective, various actions can be carried out. That said, we consider the debt restructurings as very useful instruments to use in potentially dangerous situations for organizations.

At Alter Finance we offer you our study services and management of debt restructuring operations. Please contact us when you need them.