| Debt restructuring refers to the reallocation of | | | | 2) The decision of the financial institution regarding |
| resources or change in the terms of loan extension | | | | Debt Restructuring depends on whether the debtor |
| to enable the debtor to pay back the loan to his or | | | | has invested in the company, holds shares with the |
| her creditor. Debt restructuring is an adjustment | | | | company, or is a subsidiary of the company. |
| made by both the debtor and the creditor to smooth | | | | 3) If there is conflict within the company's board of |
| out temporary difficulties in the way of loan | | | | directors regarding the process, then it is advisable to |
| repayment. Debt restructuring is of two types, and | | | | ask for help from a third party. However, third party |
| there are many ways to carry out the restructuring | | | | mediation is not needed if the debtor is a subsidiary |
| process. | | | | of the company. |
| Debt Restructuring: Types | | | | 4) Making a cash flow projection is also important to |
| Debt restructuring is of two kinds, depending on the | | | | the Debt Restructuring process. It is advisable not to |
| terms and the cost to the debtor. | | | | include uncertain cash flow estimates in the plan. |
| 1) General Debt Restructuring | | | | 5) The debtor's financial situation should also be |
| Under the terms of general debt restructuring, the | | | | considered while making a Debt Restructuring plan. |
| creditor incurs no losses from the process. This | | | | The debtor's ability to repay the loan depends on his |
| happens when the creditor decides to extend the | | | | or her financial management, so the financial company |
| loan period, or lowers the interest rate, to enable the | | | | needs to look into the debtor's roadmap for repaying |
| debtor to tide over temporary financial difficulty and | | | | the loan. If the debtor is another company, then |
| pay the debt later. | | | | changing the key people associated with it, like the |
| 2) Troubled Debt Restructuring | | | | director, board of directors or chairperson might help. |
| Troubled debt restructuring refers to the process | | | | If you are planning to go for Debt Restructuring, as a |
| where the creditor incurs losses in the process. This | | | | creditor or borrower, you can approach a small |
| happens when the Debt Restructuring leads to | | | | business consultant for help. |
| reduction in the accrued interest, or due to the dip in | | | | Debt restructuring depends on many factors like the |
| the value of the collateral, or through conversions to | | | | debtor's financial management, the projected cash |
| equity. | | | | inflow, the relation between the debtor and the |
| How to Plan Debt Restructuring: | | | | creditor etc. Debt Restructuring is meant to help both |
| 1) The crediting company should prepare a roadmap | | | | the parties. It involves compromises made by the |
| for the debt restructuring process. The strategy | | | | creditor as well as the debtor to ensure that the loan |
| should include the expected time to be taken to | | | | is repaid in full to the creditor without too much of a |
| recover the debts, the terms of loan repayment, and | | | | financial loss to the debtor. |
| watching the financial performance of the debtor. | | | | |