What are the Methods and Techniques of Financial Restructuring?

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)