A method whereby companies with outstanding debt obligations alter the terms of the debt agreements in order to achieve some advantage Companies use debt restructuring in order to avoid default on the existing debt or to take advantage of an interest-rate decrease. A company restructures its debt by either exchanging existing debt with new debt or by altering the terms and provisions of the existing debt issue

 

The Objectives of Debt Restructuring

Debt restructuring is carried out to maximize the creditor’s chances of getting repayment subject to the debtor’s ability to repay the loan, or in some other way improve on the conditions set out in the original contract to both parties. In particular, debt restructuring should be carried out to help debtors who have difficulties in loan repayment due to the effects of an economic crisis but are expected to recover in future. Financial Institutions should ensure that restructuring is not carried out with the objective of postponing or avoiding debt classification or provisioning requirements, or the avoidance of stopping interest accruals

 

Types of Debt Restructuring

With reference to these guidelines, the term debt restructuring refer to general debt restructuring cases as well as troubled debt restructuring defined here as follows:

 

General debt restructuring refers to debt restructuring whereby the financial institutions has incurred no losses from restructuring of debt

 

Troubled debt restructuring refers to debt restructuring cases where financial institutions incur losses from the restructuring due to one or a combination of the following:

 

A reduction of the principal or accrued interest; or loss from restructuring through acceptance of a transfer of assets in debt repayment where fair value of assets is lower than credit written off; or

 

Concessions in the terms of loan repayment resulting in a fall in the present value of cash flows such that this value is lower than the sum of book value of the credits outstanding and the accrued interest there on; or

 

Loss from the debt restructuring calculations based on the market value of the debtor’s business, the fair value of the collateral asset, or loss from other techniques in debt restructuring such as from debt-to equity conversions.

 

In the present era of falling interest rate regime, the crisis of additional finances is the biggest hurdle facing the industry. Your Company might have raised funds or issued Debentures/Bonds at coupon rates which were competitive at the time of issuance but in the current low interest rate regime, the rates may appear to be quite high. We understand that your Company must be making all efforts to reduce the cost of these liabilities.

 

Debt Re-structuring have been the major forte of Camellia Corporate Solutions Pvt. Ltd. We provide effective solutions to restructure debt profiles through the latest financial tools prevalent in the market.