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A debt restructuring generally comes about
after a company has thoroughly examined and analysed its debt portfolio,
something that involves important decisions regarding taxes, legalities,
accounting and economics. As such, it is important that the debt restructuring
be conducted in a way that the financial future of the company does not suffer.
Therefore, the different stages of a debt
restructuring become very important. Here’s a look at the two stages that are
involved in a debt restructuring – planning and implementation.
Once the company advisors have been selected,
the process of restructuring the debt can begin.
The first part is known as stabilization.
During this stage, it is very important to identify what the key pressure
points in a company are and fix them. This is also the stage when the current
debt agreements and other vital contracts with creditors need to be reviewed. This
paves the way for the preparation stage.
The second part is the preparation stage.
Assessments of the business are carried out and if necessary, operational and
strategic changes are made to it. These changes are usually implemented by
industry experts and consultancy firms. The company advisers are responsible
for recognizing the motivations of the security holders. The results of the
assessments determine the restructuring plans that the company advisers will
formulate. The advisers then present their proposals which are subject to the
approval of the company. This brings us to the implementation stage of debt restructuring.
The first stage of implementation is known as
pre-offering. The transaction document is created before the restructuring
becomes news. The document is supposed to comply with all the market
restrictions and procedures while stating what the company is offering to the
market. Agreement upon this document brings us to the next stage.
The second stage is called commencement of the
offer. The distribution of the offer document to the various security holders
is coordinated at this point.
The third stage is the offer period. The agent
becomes the single information source with regards to participation and
entitlement procedures for the security holders. Instructions and documents
from the security holders are examined and checked for correctness and
validity. The ‘participating holders’ list is also compiled and reports are
sent regularly to the company and its advisers.
The fourth stage is the settlement/expiration
of the order. At this stage, the final reconciliation of the debt is performed
by the agent. Confirmation is given that bonds that were physically delivered
have been processed and all bonds are blocked. After the checks are done, the
company’s advisers are told what the final position is. Once the restructuring
amount has been agreed upon, the pricing information is looked at. Each
security holder’s individual consideration is determined and the clearing
systems are pre-advised of the pertinent cash positions.
C.H. Brown is the Founder of Restructuring Advisory Group and is an expert in all facets of chapter 11 reorganizations and the restructuring of real estate debt. Mr. Brown first began consulting to chapter 11 clients in 1990. He has written over 300 bankruptcy reorganization plans that provided both debt and equity financing for the real estate projects. In addition to consulting to property owners in chapter 11, Mr. Brown has, as a principal, restructured the debt on 2 of his own projects through chapter 11 and understands the process from the property owners’ perspective.