Debt Restructuring Explained

Debt restructuring is a process that many corporations go through at some point. Here are the basics of debt restructuring and what it involves.

Debt Restructuring

Debt restructuring is a process that allows a company to renegotiate its debt positions with its creditors. This could involve restructuring the debt in a number of different ways. This is done as a cheaper alternative to bankruptcy in most cases. A corporate bankruptcy usually costs at least $50,000 to complete. Because of this high cost, a very small percentage of companies remain intact after bankruptcy. However, with debt restructuring the company has a good chance of staying afloat.

How It Works

With this process, the company evaluates all of its different debts. They contact each individual creditor and try to negotiate a resolution with them. This might involve a creditor agreeing to alternate payment arrangements or a longer credit term. It also might involve the company using a one-time cash payment to make a debt settlement agreement with them.

Another commonly used tool for this process is the debt-to-equity swap. In this situation, a company that is in debt will exchange some equity in the company in order to eliminate the debt that they owe. The creditor will then become a partial owner of the company.