Understanding debt restructuring challenges can assist with overall process management and expert assistance.
FREMONT, CA: A lack of adequate preparation or attention to detail can lead to debt restructuring delays or failures. If a debt restructuring is done poorly, it can result in significant value losses for stakeholders and take up a significant amount of senior management's time (which is better spent focusing on business issues).
The lender will also have an agenda: increasing security, re-pricing their risks, or even reducing debt exposure. When a debt restructuring process needs to be prepared and focused on the necessary details, it may result in unexpected problems, delays in securing a successful solution, or even an unsuccessful outcome.
The following covers areas of focus for borrowers to consider.
Cash flow servicing details: Cashflows will be lenders' focus so their debt can be serviced and repaid. Generally, companies are more willing to enter into debt restructuring negotiations if they provide clear and comprehensive information they need to secure their internal approvals – and they must prepare themselves for extensive scrutiny.
Underlying causes: During any debt restructuring process, it is important to understand the underlying causes of the company's performance decline and the need for restructuring. It should proactively recognize what went wrong and avoid communicating denial or unfairly blaming others (for example, creditors not providing support). For restructuring to be effective, it must be holistic and result in a sustained change in the company's direction. Plasters will not do when surgery is needed. Management must often plan and implement better strategic and operational changes to avoid a second round of debt restructuring easily.
Company: Any amendments or new funding requirements requested by a company that is part of a broader group must be directed to the relevant parts of the group accordingly. Any restructuring must consider any cross-default provisions, negative pledge provisions, or restrictions included in the group's various borrowings. In addition to helping, a debt capacity analysis by an entity can lead to difficult decisions about parts of the group's future. Also, lenders may need help agreeing to restructure any deal if there are any intercompany or related party receivables issues. These have proven to be a hurdle to lenders.
Lead effectively: Creditors need to know the management team can navigate the company through the debt restructuring process and implement the business changes necessary to deliver the new plan. As a source of comfort and accountability to creditors, the management team must display clear responsibility, efficiency, and governance behaviors while instilling and demonstrating these behaviors.
