Debt Restructuring

Debt restructuring is a process that involves reconfiguring current loans to reduce your interest rate, extend your repayment term or cut your loan balance. It can help make your debt situation more manageable through smaller monthly payments, lower interest rates or reducing how much you owe.

What Is Commercial Debt Restructuring?

Commercial debt restructuring is the reorganization of a troubled company’s outstanding debt to restore its cash flow and keep it in business. It is often achieved by way of negotiation between distressed companies and their debtors such as banks and other financial institutions, by reducing the total amount of debt the company has, and also by decreasing the interest rate it pays while increasing the period of time it has to pay the obligation back.

Key Points

  • Commercial debt restructuring refers to the reorganization of a distressed company’s financial obligations to its debtors.
  • The purpose of a commercial debt restructuring is to restore cash flow to a business so that it can avoid bankruptcy.
  • A commercial debt restructuring usually reduces the levels of debt, decreases the interest rate on the debt, and increases the term to pay the debt back.
  • If creditors are not willing to negotiate, Chapter 11 bankruptcy filings can force them to do so as determined by a court ruling.

 

Understanding Commercial Debt Restructuring

The requirement for a commercial debt restructuring often arises when a business is going through financial difficulty and is having trouble meeting its debt payments. Simply stated, a company owes more debt (and debt payments) than it can generate in income. If the troubles are enough to pose a high risk of the company going bankrupt, it can negotiate with its creditors to reduce these burdens and increase its chances of avoiding default.