There are mainly two methods in Financial Restructuring.

  1. Debt restructuring
    • Reduction of interest rates
    • Extension of repayment period
    • Debt for equity swaps (old money)
      • Existing loans are swapped to equity stakes in the distressed company – lenders become shareholders.
      • When firms want to increase or decrease debt-equity ratio
      • No immediate liquidity effect – reduction of interest expenses. 
      • Results – increase of equity, reduction in long term debts. 
    • Haircut (old money)
      • Lenders partly waive their claims. 
      • Reduce principal or interest or combination of both. 
    • Issue of callable bonds
    • Shifting of debt 
      • Private to public or vice-versa
    • One time settlement – debt reduction
      • Earlier repayment of debt when there is excess cash flow. 
  2. Equity restructuring
    • Buy back of the share
      • Shareholders get an exit opportunity at a premium price, while the company gets an opportunity to reduce its equity and capital liability. 
    • Redemption of preference share
    • Fresh issue of share (fresh money)
      • For growth financing or debt repayment
    • Issue of bonus share
    • Sale of non operating assets
    • Increasing par value of share
    • Consolidation of shares – reducing the number of shares (increasing par value)


Leave a Reply

Your email address will not be published. Required fields are marked *