When a corporation can no longer meet its payment liabilities, it will either elect or be forced into a bankruptcy proceeding whereby a court will manage (through a trustee or administrator) the orderly repayment of the creditors. Most people are familiar with the liquidation form of bankruptcy (known as a "Chapter 7" in the United States), whereby the corporation is dissolved and the creditors form a line to receive their share of the proceeds. But where the corporation's business would still be viable but for the weight of its current liabilities, the corporation will instead be "restructured" so that it emerges out of bankruptcy (known as a "Chapter 11"). The court will consider a "restructuring plan" whereby employees and creditors will give up some or all of their rights so that the overall outcome will be as fair as possible.
The court has wide latitude during the restructuring. For starters, because the corporation's assets cannot meet its liabilities, the stockholders will almost certainly have their shares delisted (if publicly traded), canceled, and declared worthless.
Employees will also have their rights cancelled or diminished. Their pensions and union contracts may be restricted or nullified; unpaid wages will be settled at some diminished amount.
Restructuring typically favors debt and bond holders. "Typically" is used here because in some extraordinary circumstances, such as the auto bailouts of a few years ago, the government may intervene to support employee rights at the expense of bond holders. But, in the majority of cases, the bond holders will either have their debt settled at a reduced amount, restructured as to tenor or principal or interest rate, or subordinated to a new lender willing to infuse the corporation with fresh capital.
Restructuring bankers serve troubled businesses that are facing, coping with or recovering from bankruptcy. Corporate restructuring is when a company modifies its debt, structure or operations and is usually undertaken when the company is in real difficulty, such as Chapter 11 bankruptcy for example. It is hoped that as a result of restructuring, the underlying problems will be reduced through the services of financial advisors and legal counsel.
- A Debt Restructuring allows the company to change the payment terms or schedule to make them easier to meet.
- A Company Restructuring changes either the structure or operations and can cut costs or sell off assets in order to improve the operations of the company.
restructuring finance banking process
Restructuring bankers are expected to be well-versed with Bankruptcy Code Large firms such as investment banks and Big4 professional service firms often have a Restructuring department within Corporate Finance / Investment Banking. Debt restructuring may consist of a restructuring group negotiating with a financial firm's creditors to accomplish debt forgiveness or to avoid bankruptcy.
You can learn more about the restructuring process in the detailed video below.
- Capital Structure
- Financial Institutions Group (FIG)
- Investment Bank (IB)
- Investment Banking Division (IBD)