Corporate debt restructuring is the reschedulement or reorganization of a company’s outstanding debt obligations to increase its ability to repay the obligations on time. Corporates raise money in different ways. But the most important of these are through equity and debt.
For equity portion, corporates approach stock markets, institutions or other entities like Private Equity for investment in the company in exchange for a share stake. There is no cost involved in this except for initial costs of raising the money. Corporates do not face any obligations to repay the money.
Companies also raise money through banks and financial institutions to meet their capital expenditure and working capital related expenses. In this case, companies need not give any shareholding but give other comforts like assets available with company and promoters. Companies have to pay timely interest as well as principal amount in due course and completely pay all the loan expenses to come out of obligations with banks.
Why Corporate Debt Restructuring
There are occasions when corporates find themselves in financial difficulties because of factors beyond their control like global economic slowdown, industry specific negative cycle and also due to certain internal reasons. As a result, companies wont be able to pay the interest and principal on time resulting in losses to banks over a period. For the revival of such corporates as well as for the safety of the money lent by the banks and financial institutions, timely support through restructuring of genuine cases is insisted on.