What is the restructuring of a company's debt?

The debt restructuring The restructuring of a company consists of obtaining new payment conditions through a renegotiation with creditors. Restructuring usually involves the negotiation of new maturities and interest and the intervention of a financial institution as an intermediary.

For a company, renegotiating its debt will be cheaper than declaring bankruptcy. For the creditor, it is a way of agreeing to a renegotiation to prevent the debtor from defaulting or going bankrupt.

There are many times when a company finds itself without liquidity to meet its commitments and must reorganize its debts. This consists of delaying payments in order to obtain new financing with the best possible conditions.

Benefits of debt restructuring

Generally for companies in these circumstances, the debt restructuring The benefits obtained through a debt restructuring are: the debt restructuring allows them to lengthen the payment period, through more comfortable conditions and reduced interest rates. The benefits obtained through a debt restructuring are:

? Anticipate due dates of documentary obligations.

? Avoid interest on late payments.

? To be able to redistribute the debt so that the company can meet its commitments according to its new payment capacity.

The renegotiation of company debt includes the modification of the maturity dates and terms of its obligations. This will prevent the accumulation of short-term debts, which will become consolidated debts in the long term.

On many occasions, the intervening bank grants new loans with more favorable terms that allow the company to pay off previous loans. In these cases, the bank may establish so-called grace periods to allow the company to recover from the critical situation in which it finds itself.

In these grace periods, it is generally established that the company will only pay the interest generated by the new loan, leaving the principal for later. Many companies hire financial advisors to renegotiate their debts.

The restructuring requires a document with the details of the operation.

The processes for restructuring are different and depend on the financial situation of the companies involved. But the first step in a renegotiation is to prepare a document to be submitted to the banks or financial institutions.

This document should include what type of measures have been implemented by the company up to that point. In addition, it should include a viable business plan and a proposal for the company's debt financing based on sales projections.

Generally, the document is presented at a meeting convened by the company in which representatives of banks, finance companies and creditors participate, and includes:

? Brief history of the company by way of presentation.

? Description of the company, where the market analysis, description of the products, commercialization points, suppliers and clients, among others, are exposed.

? Detailed analysis of the financial and economic situation of the company, where, among other considerations, the company's debt is detailed, with the financial entities that have them, interests, quotas and others and the financial projections for the future and how it will generate the cash flow to correct the course.

? Feasible plan with the measures that have been adopted for the present situation, a proposal for refinancing and the assets that the company has to guarantee the renegotiation.

Another document must include in detail the company's detailed debt, so that the banking entity has a clear picture of the company's situation, with a breakdown of the debt, interest, maturities and financial entities or suppliers to whom it is owed.

Usually several meetings are held to reach an agreement that is convenient for the company and its creditors. Upon reaching an agreement, a document is prepared in which the parties involved agree on a contract for the refinancing of the debt and its restructuring.

At the end of these meetings, the contract signed by all parties must include clauses such as:

? Refinancing terms and conditions

? Warranties

? Maturity schedules with payments and amortizations

? The causes of early maturities

? Adjustment ratios

? Information on commissions

? The obligations of the company

? Instrumental and supplementary agreements reached

The debt restructuring for a company means to be able to restart and regain the possibility of returning to make investments and grow with the right advice.