The process through which a company reorganizes its debt obligations by replacing or restructuring existing debts. Refinancing may also involve issuing equity to pay off a percentage of debt.
Debt is replaced or refunded by a company with money that is raised by issuing or creating other borrowing. In restructuring, a company works with its creditor to change the terms of a loan; these terms can include the reduction of interest rates, the improvement of covenants or the extension of the loan’s terms.
Corporate refinancing will often come about if a company is unable to meet its current obligations and needs to restructure the terms of its existing debt arrangement. This usually involves lowering the interest rate and extending the time to maturity.
Refinancing will also occur when interest rates have fallen in the market, as the lower current market rates allows a company to cut down on the overall costs of debt a company faces.
Corporate Debt Restructuring
Debt restructuring is a method used by companies with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage.
Corporate debt restructuring is the reorganization of a company’s outstanding obligations, often achieved by reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back. This allows a company to increase its ability to meet the obligations. Also, some of the debt may be forgiven by creditors in exchange for an equity position in the company.
The need for a corporate debt restructuring often arises when a company is going through financial hardship and is having difficulty in meeting its obligations. If the troubles are enough to pose a high risk of the company going bankrupt, it can negotiate with its creditors to reduce these burdens and increase its chances of avoiding bankruptcy.