Debt Restructuring Loan Agreement

If you need advice on an existing credit facility, please contact us and we will do our best to help you. We have a lot of experience in credit restructuring and issues that arise and please call us or email us if you would like to discuss something that is covered in this note. Existing shareholders generally prefer the restructuring to take the form of a covenant/reset exchange or debt restructuring rather than, for example, in the form of an equity swap that can be diluted or completely cancelled. Equity stakeholders will retain their share in a smaller borrower, but the debt-to-equity ratio of that smaller borrower will have been shifted. Transfer to Newco A variation of some of the ideas mentioned above is that all debt and equity players approve a plan to transfer the borrower`s assets or activities to a newly created company (Newco). In return for the reduction or cancellation of their claims on the borrower, financial creditors may incur: (i) Newco`s debts, (ii) Newco`s equity, or (iii) both. Sometimes this type of structure is used in combination with a pre-pack (see below). Debt restructuring or renunciation of Covenant also has the advantage of not accelerating the debt or integrating it into other financing agreements of the borrower. Both can also be achieved in a relatively favorable and discreet way. Several stakeholders often commission their own valuations, which can inevitably lead to conflicting ideas about how best to restructure the borrower`s debt and business.

It is possible to save time and be more productive for all parties to agree from the outset on a common approach to evaluation if possible. For more serious situations, borrowers may turn to debt restructuring. At the most fundamental level, restructuring involves the modification of an existing contract (unlike refinancing which begins with a new contract). An example of a typical restructuring would be extending the maturity date for the repayment of a debt contract or changing the frequency of interest payments. Restructurings are most often carried out in special circumstances where borrowers are considered financially unstable and are unable to meet their obligations. A restructuring can also have a negative impact on your creditworthiness, which is why it is a last ditch strategy. The Scheme of Arrangement procedure allows for the implementation of a compromise without the support of all interested parties. Because of their flexibility, arrangement systems are often used in more complex restructurings, which include different levels of debt and equity that would otherwise struggle to reach an agreement.

. . .

Postado em Sem categoria