Restructuring

Within the context of a strategy and the state of the capital structure of the debtor, generally there are two phases of opportunity.

Pre-Petition Phase:

• Assessment of Financial Distress: The process begins with the bank assessing the client's financial distress. This involves a detailed analysis of the client's financial statements, cash flow projections, market conditions, and other relevant factors to understand the extent of the financial difficulties.

• Negotiations and Strategy Development: The bank initiates negotiations with the client to develop a restructuring strategy. This may involve discussions about modifying the terms of the debt, injecting new capital, selling assets, or pursuing other strategic initiatives to improve the client's financial position.

• Capital Structure Evaluation: During this phase, the bank evaluates the client's existing capital structure, including their debt levels, equity position, and any other financial obligations. This analysis helps identify areas where the capital structure can be optimized to enhance the client's ability to repay debts.

• Restructuring Proposal: Based on the negotiations and capital structure evaluation, the bank presents a restructuring proposal to the client. This proposal outlines the proposed changes to the terms of the debt, as well as any additional capital injections or strategic initiatives that may be required to stabilize the client's finances.

• Approval and Documentation: Once the restructuring proposal is agreed upon by both parties, it is documented in a formal agreement. This agreement may need to be approved by the bank's credit committee, regulatory authorities, and possibly other stakeholders, depending on the complexity of the restructuring.

Post-Petition Phase (If Applicable):

• Bankruptcy Filing: In some cases, particularly if negotiations with creditors are not successful, the client may file for bankruptcy protection. This initiates the post-petition phase of the restructuring process.

• Court-Supervised Process: If bankruptcy is filed, the restructuring process becomes court-supervised. The debtor submits a reorganization plan to the bankruptcy court, outlining how they propose to restructure their debts and emerge from bankruptcy.

• Capital Structure Adjustment: During the bankruptcy process, the debtor may seek approval from the court to modify their capital structure. This could involve restructuring existing debts, converting debt into equity, or obtaining new financing to support the reorganization efforts.

• Creditor Negotiations: Throughout the bankruptcy process, the debtor continues negotiations with creditors to reach agreements on the terms of the reorganization plan. This may involve concessions from both the debtor and the creditors to facilitate a successful restructuring.

• Approval and Implementation: Once a reorganization plan is approved by the bankruptcy court and accepted by the creditors, it is implemented. This may involve making payments to creditors according to the terms of the plan, transferring assets, or taking other actions outlined in the plan.

• Emergence from Bankruptcy: Upon successful completion of the restructuring process, the debtor emerges from bankruptcy with a revised capital structure and a viable financial outlook. They can then resume normal operations with a renewed focus on financial stability and growth.

Throughout both the pre-petition and post-petition phases, the bank plays a critical role in guiding the restructuring process, providing financial expertise, and working collaboratively with the debtor to achieve a successful result.

See Special Situations, Thirteen-week Cash Flow Model, and Investment Banking.

See also Commercial Finance.