Financial restructuring is defined as a process of reshuffling or reorganizing the financial structure of a company. It mainly deals with the equity and debt of a company. It acted as a last resort for the company when there is some hardship faced by the company.
Financial Restructuring- Reasons
1. Poor Financial Performance
2. External Competition
3. Loss of Market Share
4. Emerging Market Opportunities
Financial Restructuring- Categories
1. Debt Restructuring.
It is defined as the process of reorganizing the debt capital of a company by reshuffling the balance sheet items as it contains the debt obligations of the company. A company’s financial manager needs to always look at the options to minimize the cost of capital and improving the efficiency of the company as a whole which will in turn call for the continuous review of the debt part and recycling it to maximize efficiency.
2. Equity Restructuring.
It is the process of reorganizing the equity capital. It includes reshuffling of the shareholders capital and the reserves that are appearing in the balance sheet. Restructuring of equity and preference capital becomes a complex process involving a process of law and is a highly regulated area.
Financial Restructuring- Main Principles
1. Be Smart. Get experts to help.
Make sure to enlist help from experienced restructuring specialists. From the financial and legal advisors to the claims and noticing agent, these specialists should have experience in managing and dealing with the complexities of the corporate restructuring process.
2. Be Quick. Time is of the essence.
Recognized authorities in the restructuring industry can guide companies expeditiously in negotiating and consummating transactions. From pre-planning to emergence, companies can achieve their goals in a relatively quick period of time with strategic planning and agile execution.
3. Be Prepared. Organize information efficiently.
From the planning phase through execution, organization of company information is critical. All key information should be clearly accessible to help expedite the process and easily locate the required data. Data and other information needed during the process can include financial statements, vendor listings, employee/retiree listings, contracts, real estate deeds, etc.
4. Be Transparent. Disclosure is good.
Develop a strategic communications strategy to disclose forward progress to relevant constituencies during the restructuring process– from employees and vendors to financial institutions and the media. It is critical that you know what to say and how to say it, but it is also vital to recognize the strategic relevance of your communications.
5. Be Sensitive. Take stakeholders’ financial insecurities into consideration.
When dealing with financial matters of this scale, emotions run rampant. Be sensitive to the needs of stakeholders and provide reassurance that their matter is one of significance and is being addressed during the process.
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